Contactless Payment

Contactless payment occurs, for all intents and purposes, in two forms: the smartcard and the smartphone.

Contactless payment systems are credit cards and debit cards, key fobs, smartcards or other devices which use RFID for making secure payments. The embedded chip and antenna enable consumers to wave their card or fob over a reader at the point of sale. Some suppliers claim that transactions can be almost twice as fast as a conventional cash, credit, or debit card purchase.

Mobile payment, also referred to as mobile money, mobile banking, mobile money transfer, and mobile wallet generally refer to payment services operated under financial regulation and performed from or via a mobile device.

Both of these formats tend to use NFC, or near field communication, to do their thing.

Near field communication (NFC) is a set of standards for smartphones and similar devices to establish radio communication with each other by touching them together or bringing them into close proximity, usually no more than a few centimetres. NFC devices can be used in contactless payment systems, similar to those currently used in credit cards and electronic ticket smartcards, and allow mobile payment to replace or supplement these systems. For example, Google Wallet allows consumers to store credit card and store loyalty card information in a virtual wallet and then use an NFC-enabled device at terminals that also accept MasterCard PayPass transaction

They’re not yet ubiquitous, but their producers hope that they’re soon to take off: they’re “forecast to grow 56% a year from 2011, reaching $1 trillion globally by 2015, according to research firm Yankee Group. Visa Europe thinks half of its transactions will be carried out on a mobile device by 2020.”

The London 2012 Olympics sales venues will be outfitted with “wave and pay” stations, where customers do not have to key a pin for purchases below £20. A similar system is being introduced (slowly) into the London public transportation systems.

The biggest obstacles for contactless payment right now are mistrust on the behalf of both banks and consumers. But as mobile security platforms and smart cards are improved and developed, this seems like it won’t be the case for long.

Retailers like contactless because it shortens queues at busy times and lowers cash
handling costs. One of the problems has been a lack of interest from certain banks.
While Barclays/Barclaycard has been the undisputed leader – almost all its credit and
debit cards are now contactless – others have been less keen.

In May, MasterCard released the results of a study that was meant to be a “quantitative analysis of the changes in U.S. account transaction behavior after adopting a contactless payments solution.” The results were staggering – “within the first 12 months of their first contactless transaction, PayPass-enabled accounts spent almost 30% more on average, using their PayPass-enabled card.”

Mark Barnett, Group Executive, Consulting Services for MasterCard Advisors: “The research shows that even after cardholders use contactless only once, there is a clear halo effect. Contactless should be considered by any issuer seeking to capture share today while establishing a platform for the future migration to mobile commerce.”

For a great example of the way these things are being marketed, see Google Wallet


Bowins, Andrew. “New MasterCard advisors study on contactless payments shows almost 30% lift in total spend within the first year of adoption.MasterCard Worldwide. 3 May 2012.

Brignall, Miles. “This year the contactless ‘wave and pay’ revolution finally begins.” The Guardian. 19 January 2012.

Heun, David. “Study Finds PayPass Cardholders Spend More.” PaymentsSource. 26 April 2012.

Phillips, Abigail. “Contactless payments: don’t believe the hype!” Business Review Europe. 11 June 2012.

Plumridge, Hester. “Tapping into Money in the Mobile Wallet.” Wall Street Journal (Online). 06 April 2012.

Wikipedia, “Contactless Payment“, “Near field communication“, “Mobile payment

4 Responses to “Contactless Payment”
  1. fredfenway says:

    Many more NFC based services are being released these days. The NFC is becoming more and more present. The strategy to get it working is based on loyalty and benefits. Advantages linked to using NFC are tantalizing for Smartphone users.

  2. dem says:

    So is it basically the mistrust issue that is preventing the widespread adoption of smartcards (chips instead of magnetic strips) in the U.S.? It’s interesting because it is starting to become a problem for Americans traveling abroad — some shops don’t have magnetic card readers, or (as I encountered recently in Brussels) are really grumpy about having to use it, and not at all interested in, say, swiping the card backwards and really fast if your magnetic strip is a little worn…

    I personally am loving the fact that I can buy my coffee from Starbucks using only my iPhone, and Jared was telling us that the same is true of bing things from the Apple Store now — you go into a brick and mortar store, take something off the shelf, scan it using the Apple Store app on your iDevice, it charges the credit card you have on file with iTunes, emails you a receipt, and displays a proof of purchase on your iPhone screen that you show to the guards at the door so they know you bought the things you’re walking out with.

    Both of these examples rely on dedicated apps on your iPhone, but Apple seems to be trying to correct for this with the new Wallet app in iOS 6, which is seems will be consolidating a lot of these things into one place?

    • dem says:

      Also, was it clear whether the 30% increase is card usage that the MC study showed was balanced by a 30% reduction in the use of cash, checks, debit cards or dumb credit cards? Or did people start spending more in total?

      • catemccrea says:

        People actually spent 30% more money in total (I don’t think the study tracked how much they spent in what format).

        “The spending increases for all card types varied by segment but generally were between 11.8% and 28.5% for recurring payments, 8.8% to 33% for e-commerce transactions, and 53% to 79% in cross-border spending, the report notes. The study did not specify spending increases with PayPass only, though it cited cross-border spending as a key asset for possessing contactless technology.”

        And the magnetic stripe situation, I think it has far less to do with mistrust and everything to do with the US banking system being entrenched in this old clunky technology simply because it has very little incentive to update. In Europe, the chip-and-pin system was a necessary solution to security issues, international payment safety, etc. The US had no need to invest in such expensive tech, so it didn’t. I saw an article about US co-ops being the cutting edge for smart card technology, I’ll look up some more info on the strip vs chip transition.

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