Huge advancements are being made in contactless payment methods in Asia-Pacific and Europe, with a variety of technologies on trial. But some stumbling blocks remain, reports Wendy Atkins.

At this year’s trade shows, there is an upbeat feeling in the air: contactless technology has well and truly arrived. With a winning business proposition for every stakeholder, it is only a matter of time before people start talking about which contactless card they use rather than when contactless technology will be in the mass market. Or is it?

The business case for contactless payments is powerful: ‘faster throughput’, ‘an opportunity to market yourself on innovation’, ‘a win-win situation’ are all phrases used with remarkable regularity, and not just by the banks and technology companies.

Speaking at the Contactless Intelligence Spring Conference in London at the beginning of April, Billy Waters, IT manager of the Yo! Sushi restaurant chain, which has implemented contactless payments in some of its London stores, said: “Contactless is fast and can help us reduce congestion and speed up payment at the till point. As a brand, we like to be seen to be innovative with technology. So when contactless came out, it seemed right to take it on board. And people like it; they think it’s a funky way to pay – particularly with a mobile phone.”

Contactless technology successes are being notched up globally. Sometimes, they are being rolled out on the back of other schemes, such as contactless transport ticketing, which dates back to the 1990s. Cards were initially launched in places such as Hong Kong as a simple way to pay fares on public transport before developing into a payment scheme. In other locations, they mark a new way to pay.

Asia-Pacific leads way

Unsurprisingly, Asia-Pacific is still regarded as blazing the contactless technology trail. Last year, Union Bank of Taiwan became the first in the world to issue contactless cards under the J/Speedy programme developed by JCB. In November, Hong Kong’s Hang Seng Bank, Jardine Mathieson and Visa launched the Hang Seng enJoy Card, a co-branded credit card and the first in Hong Kong to use Visa’s PayWave technology. And in the first quarter of this year, East Japan Railway Company announced that the number of subscribers to the Mobile Suica service, which allows users to pay rail fares and shop in selected stores via their mobile phones, had exceeded the one million mark.

China, meanwhile, has hosted more near field communication (NFC) payments pilots, with Nokia and China Unionpay earlier this year starting a trial allowing users in Shanghai to download a loyalty application to their phones over the air.

Europe forges ahead

Not to be outdone, the Europe, Middle East and Africa region is pushing ahead with schemes in many major cities. In France, the city of Strasbourg began a year-long pilot using MasterCard PayPass technology in November 2006. The initial phase involved 375 users and 80 merchants accepting payments. The pilot has now moved to a larger trial involving all the telecoms operators and major banking groups in France.

“Here we’ve had to define a complete interoperable solution with multiple banking applications in the same handsets and SIM cards provided by the operator,” says Patrice Hertzog, payment systems manager at Crédit Mutuel, one of the key players in the project. “With the help of organisations such as Visa, MasterCard, the main handset manufacturers, point-of-sale (PoS) vendors, application and SIM manufacturers, we launched the Payez Mobile pilot in November 2007 in Caen and Strasbourg. Users of the previous pilot were seamlessly migrated to the new one.” This latest trial involves 250 merchants and about 1000 users in the two cities.

Progress in the UK

In April, Barclaycard announced plans to issue more than one million contactless payment cards across the UK this year. The announcement follows its launch in London last year of the three-in-one OnePulse card, which includes a standard EMV payment system, Oyster travel card functionality and Visa’s payWave contactless technology.

The UK capital has also been host to a contactless trial between Transport for London (TfL), Nokia, O2, Barclaycard, Visa Europe, AEG and Transys. “We’ve had 500 trialists and the drop out has been very insignificant,” says Claire Maslen, NFC business development manager at Telefónica O2. “We’re now moving away from the wow factor to a true lifestyle product.”

Further north in the UK, MasterCard is teaming up with MBNA and Manchester City Football Club to conduct a trial in which about 3500 season ticket holders will be issued with pre-paid PayPass technology.

Other recent European announcements have come from locations such as Poland, where Bank Zachodni WBK is issuing a Maestro PayPass pre-paid card that will be followed by a Visa payWave card. And in Gran Canaria, MasterCard Worldwide unveiled its first European roll-out of a MasterCard PayPass card with the Mini Card – a card format that can be carried on a keychain – in partnership with Spanish institutions La Caja Insular de Ahorros de Canarias and EURO 6000.

In Romania, ING plans to launch a MasterCard-based debit pilot in the final quarter of 2008 involving about 250 customers and between three and five merchants. Speaking at the WIMA Conference in April, Mark Buitenhek, general manager, retail payments Europe, at ING, said that the bank had selected Romania because “we looked at where mobile PoS payments are interesting – and eastern parts of Europe scored highly”.

Turkey, an innovator in the cards business, has also been the scene of some interesting developments. Mobile pro­vider Turkcell and Garanti Bank are holding an NFC trial using the MasterCard PayPass application stored on the SIM card of a mobile phone.

Meanwhile, Akbank and Somobile were finalists in the recent ‘NFC Forum: Touching the Future’ competition with their Campaign Access Point (CAP) concept, which is designed to capture the customer before they make their transaction to try to change their behaviour and shopping habits. Sarper Silaoglu, managing partner of Somobile, tells The Banker: “Akbank was already thinking about mobile payments based on NFC. We thought there must be some complementary value-added service to help drive the customer to migrate to mobile payments. We’ve combined the two as CAP, which can be implemented on a product level and on posters.”

Technology benefits

Akbank says the technology has a number of advantages. “It can be used to increase how much customers buy, acquire new customers, activate inactive customers and conduct product-based campaigns,” says Begüm Taflal, merchant relations vice-president, merchants division, at Akbank. “The technology allows individuals to apply for a credit card, which can be issued over the air.

“This obviously raises the question of how to identify customers. If they are already a customer of the bank but not a card holder, it is easy to issue a card. If they are neither a customer nor a card holder, they need to supply their social security number before a loan application is completed. And if they wish to purchase a high-value item such as a computer, they can apply for a customer loan over the air. This time, a mobile coupon is issued over the air for them to spend with the retailer.”

Mr Silaoglu reports that Akbank is considering running a mobile NFC pilot at the end of 2008. “Depending on the technical issues involved, we’re considering developing CAP and running the programme at the same time as the NFC payment programme,” he says.

Is that game, set and match for contactless? Although tremendous progress is being made in terms of pilots, form factors, and schemes involving multiple partners, a few stumbling blocks remain. Liisa Kanniainen, executive director of the Mobey Forum, an industry organisation whose aim is to drive mobile financial services, says: “Business models are still not finalised, so who pays what to whom and what are the roles and responsibilities and liabilities? What is the long-term business sustainability? Who’s taking care of customer care? What are the security processes? Can the consumer change operator or banking service at any time?”

Not enough handsets

The lack of NFC-enabled handsets has also been identified as a problem. “With NFC phones, the telcos have nearly all the power and they have often failed to seek a mutuality of benefit with others in the value chain,” says Peter Harrop, chairman of research firm IDTechEx.

“That has meant that very few NFC-enabled phones have been made available, banks are cautious about letting their cards be mimicked by the phones, and transport operators are cautious about the ticketing option being loaded. As in retail RFID [radio frequency identification], they can cite technical problems for delay because telcos prefer NFC to be loaded on the SIM and that standard is not quite ready,” he says.

Progress is being made in this area. “Availability is extremely limited, but most of the tier-one vendors are looking into NFC,” says Ms Maslen.

In April 2008, Nokia launched its 6212 classic mobile phone featuring NFC technology. It is expected to start shipping in the third quarter of 2008 in select markets in Europe and Asia with an estimated retail price of €200 before taxes and subsidies.

IDTechEx forecasts that, while the number of mobile phones sold annually will rise from one billion to two billion in the next few years, the market for RFID-enabled phones will rise from 134 million units in 2008 to 860 million in 2018, mainly in east Asia.

Top of the form

How ready the market is for new form factors is also open to debate. Although much has been made of the ability to develop an innovative brand using some of the more exciting designs, American Express, which began issuing contactless payments key fobs in 2002, is now pulling the plug on them, saying that customers prefer traditional cards.

However, Cathleen Conforti, group head, global PayPass product manager at MasterCard Worldwide, argues that consumer choice is important. “We’ve done work with watches, key fobs, phones and wristbands, and have studied consumer reaction to the various form factors. One of the messages that has come through is that these alternative approaches add convenience.

“Furthermore, people like the fact that nobody knows their payment mechanism is being carried in their watch, key fob or other contactless device,” she says.

Consumer questions about the technology still need to be resolved. “What do customers know about NFC? What does it provide?” Mr Silaoglu asks. “We are looking at a couple of years before gaining any traction.”

Ms Kanniainen adds: “Customer ­education is also required. Although NFC is friendly, once the application is there, getting the credential there and making it happen in the first place is the challenge.”

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