September 2017 marked the tenth anniversary since the introduction of contactless payments to the British market. At first, such payments were slow to takeoff, as the public was sceptical about the perceived benefits of the technology. But today, the UK Cards Association (now part of UK Finance) estimates that more than 100 million contactless cards have been issued and Visa research suggests that more than 42% of the British population now use such cards. So, how did we get here? And where are contactless payments going over the next 10 years or so?
Recent contactless statistics suggest that around £4 billion per month is currently spent using contactless cards, representing around a third of all plastic card transactions. More than half of all transactions with a value of £30 or less are now made using contactless technologies, suggesting that consumers increasingly find them to bea convenient and easy-to-use form of payment. And with retailers increasingly eager to deploy contactless terminals, which will further drive uptake, many see contactless as the key next step in the development of the payments infrastructure.
Contactless transactions appeal because consumers want to use payment mechanisms which are fast and easy, reduce the need to source and carry cash and, increasingly,allow the rapid updating of online account information. At the same time, merchants – central to the contactless story, as they are needed to provide the payment terminals in their stores which are necessary to take payments – want payment mechanisms that are quick to use, cheap to implement and offer the potential to improve customer and transaction insight.
The success of contactless transactions has, thus far, been largely driven by three key developments. Firstly, updating the plastic cards of existing bank customers, to make them ‘contactless capable’ was a smart way to quickly build a user base of millions; secondly, by initially limiting contactless payments to £20 or less (now £30), users could gain confidence in the system without fear of significant financial loss; and, thirdly, by encouraging retailers to deploy terminals rapidly (around half a million terminals have now been rolled out), users were assured of easy access to a wide-range of outlets where contactless payments could be made.
Of course, contactless transactions do not appeal to everyone. According to Which?, the technology allows thieves to steal money too easily, while the head of the City of London Police has recently said that the transaction limit of £30 should be retained to limit fraud.
In contrast, the payments industry argues otherwise. It believes that the technology is more secure than carrying cash; that each individual payment is protected by unique cryptograms; and that transactions are limited, both by value and by the number that can be made before the user is asked to verify their identity by inserting a PIN into a payment terminal.
A further security feature of contactless cards is that transaction data is ‘pushed’, rather than ‘pulled’. ‘Pull’ payments, the system which most plastic card transactions use, permit the merchant to access the payee’s card details so that a payment can be debited from his account and credited to the merchant’s. This means that payees are trusting the merchant – and other parties in the payment cycle – not to abuse their account details. In contrast, ‘push’ payments, as used by the contactless industry, mean that the payee uses tokens to send the correct amount of money to the merchant’s account, thereby making the transaction less susceptible to fraud.
So, where is the contactless industry going from here?
Firstly, the growth in contactless transactions will continue. Two key drivers will ensure this –consumers will use this payment option more frequently (Barclaycard expects contactless transactions to grow by more than 300% over the next four years) and more retailers start to accept contactless payments (around half of all retailers have yet to adopt the technology, including some of the largest and best known such as John Lewis).
Secondly, contactless payments will be move beyond plastic cards. Already, such payments can be made using mobile ‘phones, and further options are on their way. Fitbit, the exercise tracker, has launched Fitbit Pay, with a payment chip being embedded in an exercise band. Garmin has announced a partnership with Visa, which will allow wearers of its smartwatch to make payments. And DS Automobiles, part of the Peugeot-Citroen group, is working with Barclaycard to embed a payment chip in car keys.
Thirdly, fears about security will continue, although perhaps no more than affect other parts of the financial services industry. One area of concern surrounds the payment terminals used. Industry standards currently specify a maximum magnetic-field strength for card readers of 5 cm, yet the media has reported that some have been found capable of reading cards at three or four times this distance. We fully expect the industry to continue its programme of improving and strengthening the underlying technology so as to address any areas of perceived weakness.
As bank customers – both personal and business – further recognise, and value, the ease and convenience of contactless payments, the proliferation in transaction volumes will continue. Thus, contactless payments will be an increasingly important feature in the British payments landscape. As a result, such payments are set to be increasingly entwined within our daily lives.
Anthony Duffy is Director of Retail Banking, Fujitsu UK and Ireland