Thales Blog

The Chicken And Egg Of Contactless Payments

November 23, 2009

When Alexander Graham Bell patented the telephone in 1876, I wonder whether he realised the impact this new technology would come to have on people’s lives. Use of this new device wasn’t instantaneous though; after all, if you didn’t know someone else who had a telephone, what was the point in owning one?

This chicken and egg scenario is mirrored today with contactless payments. If the terminals aren’t there for customers to use, there is little incentive for card issuers to invest in supplying contactless cards to customers. Conversely of course, merchants aren’t going to spend money on new terminals if only a tiny percentage of their customer base can use them. In other words, one without the other just won’t work.

It is encouraging therefore to see the recent figures released by IMS Research. Their statistics show that the number of locations accepting contactless payments is set to increase by over 12.5 million by the end of 2013 and the number of contactless-enabled POS terminals will increase six times faster than the overall EFT-POS market. Upgrading to accept contactless payments means a change in payment terminal, or in some cases existing terminals can have a contactless pad added to them. Some retailers have already taken the big jump, like Prêt A Manger, who have rolled out the new technology in 171 UK stores.

The predictions on POS terminal uptake are encouraging and thanks to bold initiatives from card companies and large retail groups, the view from the other side is equally rosy, if not more so. MasterCard says more than 55 million of its contactless PayPass cards or devices have been issued worldwide. Barclays has also been an early adopter; all their UK customers will have contactless cards by 2011.

As talked about in previous posts, there are two main issues still to be addressed with contactless payments: consumer concerns over security and the question over whether card or mobile will be the most appropriate vehicle to drive the technology. Mobile contactless payments are still being trialled, so initial uptake will be from contactless payment cards. As for consumer concerns, these can be addressed by communicating with customers. So as long as both sides – issuers and acquirers – continue to invest as they have planned, 2010 should see strong progress, especially in metropolitan areas, where frequent low value transactions are a daily part of consumers’ daily lives and the value proposition for using contactless cards is strongest.