Projections for a prepaid-card economy see 360 million cards issued in Europe by 2010. But this lucrative business still carries risks.

The payments revolution is hotting up and cash may become a thing of the past if projections for contactless and prepaid cards prove successful. Just as mobile phone payments are taking off around the globe and systems such as PayPass and PayPal are becoming more familiar, consumers are being offered a range of “wave-and-pay” contactless and prepaid cash alternatives.

New payment era

In the US, contactless payments are projected to capture 15% of the market by 2011, according to research consultancy Celent, creating the dawn of a new payment era. Other research suggests that the potential for contactless payments in the US is $226bn a year, half accounted for by petrol retailing.

In Europe, the prepaid card alternative is just getting off the ground and MasterCard Europe believes that by 2010 there will be 360 million prepaid cards in the pockets of Europeans at any one time, providing a total of 2.3 billion prepaid card transactions a year. This represents 5% of total card transaction volumes and 3% of total card spending.

With two-thirds of all personal payments still being made in cash in the UK, for example, the opportunity to provide a broader range of payment mechanisms is huge. But as radio frequency identification (RFID) and near field communications (NFC) technologies enable more mechanisms to emerge, much concern still revolves around institutional support, security considerations and customer acceptance.

Previous attempts to produce new payment mechanisms in recent years, such as Mondex and Simpay, have proved disastrous. No new payment system is guaranteed success and the institutions backing these projects need to make them work profitably.

High hopes

In September this year, Visa, BarclayCard, Amex and MasterCard will go live with contactless payments in the UK, and MasterCard expects to have issued 500,000 contactless cards by next March.

But while the opportunities to provide new cash alternatives are huge, there are also considerable risks. Providing new mechanisms is not just a technology issue, the key is whether the market will accept them. Contactless and prepaid cards should provide a huge transaction boost for consumers but they need to be delivered effectively for all concerned.


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