Contactless payments technology
Catching the new wave
Despite all the technological developments and new payment methods introduced over the last 30 years, cash is still the preferred payment instrument for everyday, low-value purchases. However, from society’s point of view, it is also amongst the most expensive payment instruments to operate. A 2003 study authorised by the European Payments Council estimated the total cost of cash handling to society at €50bn per annum for the EU. This is equivalent to approximately 0.5% of aggregate EU GDP, or €108 per annum for every citizen.
Various stakeholders including central and commercial banks, retailers and consumers have to bear this cost. The European Payments Council also estimated that almost 20% of this cost sticks with the commercial banking sector as banks are unable to pass on their full costs of cash handling to their cash using customers. Instead, the usage of cash is cross-subsidised by other payments instruments and bank services, distorting almost everyone’s view of the true cost of this instrument. Indeed, it is, like so many other payment instruments, believed to be free.
In reality, a number of non-cash payment instruments are more economical for society than cash. And one of the strategic goals of the European Payments Council now is to reduce the usage of cash across Europe.
The payments industry has responded to the challenge of finding a suitable replacement for cash by developing a technology that has the potential to help: contactless payments. Contactless technology can be embedded into existing payment instruments (such as traditional debit and credit cards), or be used to assist in the development of new payment devices (such as key fobs or mobile phones). It promises significant benefits to both consumers and merchants by allowing low-value payments (currently £10 and under, in the UK) to be made more quickly and easily than with cash. Users simply wave a contactless-enabled payment device over a secure reader; there is no need to enter a PIN, or sign a receipt.
Contactless payment cards and readers were launched by a number of banks in London in September 2007, with a view to then rolling them out nationwide as quickly as possible. To assist in understanding the overall market opportunity for this technology, and to raise awareness amongst all stakeholders, Visa commissioned Deloitte to undertake a study of the UK’s low-value payments market.
Download the full report “ Contactless payments technology” to find out the results of our research. (PDF, 412KB)