I, along with many other consumers, am finding that there is no longer a need to carry cash. The convenience of contactless, the technology that enables payment without entering a PIN, is quickly rendering cash redundant. I can travel on nearly all forms of central London transport, buy my morning coffee and pay for lunch and groceries without entering a PIN. I am definitely a contactless champion (so much so, I try and avoid coffee shops that don't take contactless and I get annoyed at having to physically buy a ticket for the River Bus).
I am not alone. According to the UK Card Association, in September 2014 £253million was spent in the UK using a contactless card. This is an increase of 21.6 percent on the previous month and 283.7 percent over the previous year. The Centre of Economics and Business Research (CEBR) estimates that non-card, non-cash payments make up 9.3 percent of all transactions today. This is expected to more than double to 19.6 percent by 2019.
Currently contactless payments are subject to a £20 transaction limit. This limit is agreed by banks and card schemes across the UK and is imposed to prevent fraudulent use of significant value. Most banks guarantee to protect against fraudulent activity on accounts and are, not surprisingly, concerned with ensuring the card user is, in fact, the cardholder. Consequently, developments in contactless payment technology are likely to evolve around security.
Going forward we are likely to see much greater use of biometrics to replace PINs. In early 2015, MasterCard is set to launch its payment card featuring an integrated fingerprint sensor. MasterCard partnered with Zwipe to develop the card which uses an integrated biometric sensor to detect whether the user's fingerprints matches the fingerprint data stored on the card. Ajay Bhalla, President of Enterprise Security Solutions at MasterCard commented: “Our belief is that we should be able to identify ourselves without having to use passwords or PIN numbers. Biometric authentication can help us achieve this. However, our challenge is to ensure the technology offers robust security, simplicity of use and convenience for the customer.”
Apple also introduced a fingerprint sensor on iPhone 5 which is now a verification and authentication method for Apple Pay payments, a new feature on iPhone 6. Mobile payments made by contactless are, in many ways, more secure than payments made by the traditional processing of card details. This is because card numbers are not stored or processed in the transaction in the same way. Instead the card details are encrypted and stored in the Secure Element on the device (usually a separate smart card chip in the SIM). This means the card details are not available and therefore cannot be stolen for use in fraudulent transactions. Apple Pay introduces a further security element by implementing one-use tokens. The identifier used to make the transaction can only be used once. Further securing against theft of data relating to the payment.
Second to security, which is cited by 50 percent of consumers as a deciding factor in determining how to pay, is convenience and speed. According to statistics published by CEBR, the maximum queuing/payment time a consumer is willing to wait for in-store purchases is 5.7 minutes. Fourteen percent of consumers stated that the ability to purchase something in-store without queuing was what they would most like in a new payment method. CEBR estimates the in-store retail sector as a whole could make potential gains of £2.5 billion from implementing better payment systems.
Even faster alternatives
I am certainly looking forward to contactless, queue-free payment and, thankfully, the solutions are not as far off as you first may think. Most of us are now familiar with NFC technology used in contactless cards and some mobile devices. However, this requires a tap against a reader. Meanwhile, Bluetooth Low Energy (BLE) and beacon technology, recently adopted into payment solutions by PayPal and Apple, may provide a grab-n-go solution negating the need for a physical payment location.
BLE can also identify to retailers the exact location of a smartphone (within a few inches). This allows retailers a unique opportunity to communicate with consumers based on their location (for example, they can push information to your phone as you walk past a store or browse a particular product). However, an application could be configured to continuously monitor the location of a consumer as they move between beacons (regardless of who has deployed those beacons). Security is also an issue, as the very nature of BLE's larger footprint means it is more vulnerable.
Nevertheless, BLE has the backing and investment of heavyweights such as Apple and PayPal. It also has great potential to enhance pre-purchase, in-store and post-purchase consumer experiences and therefore increase sales and profits for retailers. Consequently, I predict that, as well as biometrics, we will be seeing more BLE payment solutions in 2015.
Jenny Hotchin, solicitor, Ashfords LLP