By Lu Zurawski, Head of Consumer Payments EMEA, ACI Worldwide
The speed of adoption for new payment methods is usually measured in years and decades, in the past it has often taken a generation for new payment methods to be accepted and to reach sustainable growth.
However, over the course of just a few years, something remarkable has happened. UK consumers and especially Londoners have taken to contactless payments in breath-taking speed. Consumers do not appear to have been scared off by the new technique nor by the new terminology but instead have readily accepted a new ‘payment ceremony’ – waving their hand near a card reader.
There are now around 58 million contactless cards in the UK and the range of places where contactless payments are accepted includes supermarkets and charity shops, coffee and fast food chains, the M6 Toll, London Transport and the Post Office. A recent YouGov survey conducted on behalf of ACI Worldwide has revealed that contactless payments are now popular with the majority of Londoners and more than a third of consumers in the rest of the country.
The rise in the contactless payment limit from £20 to £30 in September this year shows that British consumers have embraced and reached a level of comfort with this technology. The ‘tap-and-go’ mentality now pervades everyday life, highlighting the fact that ease and speed are both top, if not the number one priority for consumers when it comes to making payments.
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Last week the publishers Collins declared ‘contactless’ as one of the 10 words of the year 2015 (along with ‘binge watch’ and ‘dad bod’ in case you are interested). Contactless payments cards are apparently quite cool; I noticed my 13 year old daughter was quite insistent on getting a VISA contactless card recently (and I had to go for a video conference interview at Nationwide to get her signed up.) Although my daughter is far more sensible than her elder brother, I am naturally a bit concerned about the card being misplaced and misused; a few unrecognised £29 offline transactions before a PIN is requested could make quite a dent in her pocket money.
So this raises the issue of possible risks and downsides of contactless. I can understand why some people have fears about the security of the contactless payment method and would like the ability to temporarily disable or vary the upper limit. There have been no reported cyber-pickpocketing stories since the limit rise to £30 in September, so general acceptance is obviously still high. But would it become a problem next time the limit is raised – say to £50?
In some parts of the world where contactless is even further advanced like Australia (where up to $100 spend per transaction is permitted with tap and go cards) police forces are calling on banks to create an ‘opt-in’ function for contactless cards. The argument is that consumers should have the option of disabling contactless payment features. Although some self-service options could be implemented, current card technology and form factor provides a barrier to some of the innovations that consumers (and some law enforcement agencies) want today.
But mobile versions of contactless (and mobile payments in general) are opening up new capabilities that increase convenience, and safety for consumers. The payments industry needs to prepare the ground for products that have built-in capability to support these ultra-personalised features.
So what are the implications for retailers and banks?
Despite the apparent success of contactless in the UK so far, the percentage of contactless transactions out of all spend is still small. In 2014, there were 319 million contactless transactions out of a total 13 billion for all cards. There are now nearly 300,000 contactless PoS devices across the UK. But that still leaves more than a million yet to be converted. So there is definitely room for growth.
The next logical step in the ‘contactless revolution’ would be to allow consumers to set their own payments limits, and give them the ability to turn it on and off as and when they want. But this kind of service will require banks to invest in web-based and mobile/app based services that interact safely with core card payments systems. Realistically these services are more likely to happen in parallel with initiatives to issue mobile versions of contactless cards in the form of ’tokenised’ cards and mobile wallets. Apple Pay has opened up this ‘virtual card’ avenue for the payments industry so it is already important for banks to establish their mobile payment offerings. It is possible that a keen focus on ultra-personalised mobile banking will help to establish differentiated and winning position.
More merchants will need to upgrade to contactless terminals. More significantly, more merchants will need to implement the sophisticated aspects of contactless which allows high value transactions to be accepted (on condition that the transaction has been validated by a cardholder’s device – like a thumb print on the phone).
This mobile-card market evolution is plausible in coming years, particularly if the actions required for contactless mobile payments are a natural extension of what has now become familiar for consumers and retailers with contactless cards.
But changing customer behaviour cannot be taken for granted, and banks need to be prepared to ‘nudge’, train and incentivise.
It would be a shame if the consumers, merchants and innovative new mobile app developers buy into these new mobile services, only to find core banking providers still lagging behind. For example, a bank could find customers calling when spending limits are not working, so front end staff will need to be well qualified to handle increasingly complex and technical requests.,
Despite contactless seemingly set to play to a role in the rise of mobile payments and app-based self-service, it seems inevitable that banks will invest more in digital training for bank service teams. The winners will be the banks best able to make the mobile transition and to bring customers along with simple, intuitive propositions.