The use of contactless payment in UK retail has grabbed the headlines in recent days with The Co-operative Group set to become the first major grocery retailer to use the technology on a major scale.
Customers with the contactless enabled cards, issued by Barclaycard and Visa, will be able to pay for goods in Co-op stores simply by touching their card on a reader, similar to the the Oyster cards used by commuters on the London Underground. They will not need to sign or enter a PIN security code. Barclaycard has been offering the service in Eat and Pret a Manger outlets since 2008.
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The roll-out will begin with a pilot in 100 Co-op stores next year and, if the trial is successful, the retailer plans to have the system in all stores ahead of the 2012 Olympics.
The Co-op is the only food retailer to so far embrace the system. Tesco is dabbling in the technology and has begun testing the technology in its Dean Street, London outlet. It is currently seeing how customers respond and will then consider rolling it out further. Company spokesperson James Wiggam says: “The initial response has been good and we will continue to monitor it.”
However, Marks and Spencer, Waitrose, Morrisons and Sainsbury’s all say they have no immediate plans to roll out the technology. M&S, Waitrose and Sainsbury’s insist they have recently invested in improving speed at their tills, eliminating the need for contactless terminals.
The lack of firm commitment elsewhere has led some industry watchers to remain sceptical about the prospects for contactless technology in the UK.
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By GlobalDataDatamonitor analyst Gilles Ubaghs says the “much-hyped contactless payments may be a long way off from becoming the norm in the UK”.
Ubaghs acknowledges that there are promising long-term signs that the technology could take off but insists it “won’t be as soon as many analysts predict”.
“Investment by other issuers is needed, not only in the technology itself but in educating consumers as well. Consumers will need to be convinced that it is worth their while to use the new technology,” Ubaghs tells just-food. He cites Datamonitor’s last Financial Services Insight Survey which found that 33% of those surveyed in the UK had no idea of what a contactless card is.
Stuart Neal, head of UK payment acceptance for Barclaycard, says the company is working to develop understanding and awareness of its service. “We’ve done a lot of advertising – we’ve done the rollercoaster ad that everyone recognises – and we are just slowly, slowly building awareness in the country, issuing cards and letting people know that they have this capability,” Neal says, although he adds: “But there’s no substitute for being able to use them.”
With retailers offering contactless payment being largely based in London, Neal highlights the importance of the Co-op’s venture. “With the likes of The Co-op coming on board is that they have national coverage and that there will then be more widespread usage and availability.”
Ubaghs acknowledges that, once customer uptake grows, there could be a huge opportunity for the technology, which, he says, could be a huge boon for retailers, particularly in the convenience sector, areas where “speed is of the essence”. He says it will “really come into its own” for customers like office workers at lunch time.
Another contactless payment provider, Mastercard, has seen many upsides for retailers using its systems in Europe. It says MasterCard merchants have seen a 28-42% increase in spend by people using their PayPass enabled cards. Additionally, MasterCard has found contactless payments can speed up store transactions by up to 20%.
Neal says Barclaycard is focusing on enabling people who may not make a purchase in places like sandwich bars or news agencies because they are not carrying cash to do so using its payment services.
Visa, Barclaycard’s partner, also claims contactless payments mean there are less potential for till errors or fraud, as well as reducing retailers’ dependence on cash and costs associated with its transportation and banking.
There have been concerns over the fraudulent use of the cards as the machines do not require the customer to enter any information. However, with a GBP15 (US$23.12) transaction limit and checks put in place that means after every GBP40 spent the customer has to enter their pin, Barclays feels that the system is secure, and also has the same consumer and retailer protection as its traditional chip and pin products. Neal adds that it is no more dangerous than walking round with cash that is easily stolen.
It seems as though contactless payment technology using chip and pin cards may only be the first stage in yet another leap towards a cashless society.
Despite contactless payment technology being very much in its infancy in the UK, Wincor Nixdorf, an IT “solutions provider”, believes the system will become increasingly prevalent and, furthermore, that there will be a slow evolution towards biometric systems.
“Today there is a huge opportunity to do more with contactless payments, for example the chips used for contactless payments will to be deployed in mobile phones and other devices,” says Wincor Nixdorf banking director John Ennis.
Neal argues the payments industry is not “not just about cards any more” and that contactless technology is key to this trend. In the coming years, it will be about devices and it is aiming for broad adoption of mobile phone-based near field communication technology by 2012, which it is currently trialling in partnership with Orange.
Neal adds Barclays is seeing just north of 110,000 transactions per month. “And clearly that is going to grow exponentially with the Co-op coming on board, as it grew exponentially when Pret a Manger and Eat came on board,” he says.
Neal is now forecasting a rapid uptake of contactless technology, believing that the Co-op signing will lead to a domino effect with more rapid uptake and use.
“It’s an exciting time for us… It’s a bit like chicken and egg, you need both for it to work.”
