Visit the Moorgate branch of

sandwich chain Eat in the City of

London and you will be confronted

with contactless card readers at each of its

tills. Indeed, this is one of the first high-

profile merchants to implement the new

payments technology. The early success of

the devices at this outlet has led the

company to push ahead with rolling out the

technology to each of its other units,

initially in the City but then around the rest

of the capital and beyond the M25.

Rene Batsford, head of IT at Eat, which

operates 87 outlets, says: “At Eat we are

early adopters. We started on it last

October and have now forged ahead, with

the key drivers being the customer

experience, as well as the increased

throughput of people.”

It is this convenience factor – helping to

reduce queues – which is the key to

contactless as it enables customers to pay

for sub-£10 transactions by simply tapping

their card on a reader. But despite the

obvious benefits to both consumers and

retailers, the banks and payment schemes

MasterCard and Visa have issued cards and

installed readers at a far from rapid rate.

By the end of the year, James

MacDonald, head of contactless payments

at Barclaycard Business, says there will be

one million contactless cards in issue in the

UK and 20,000 retailers with readers

installed. Although this sounds a decent

sized number, it highlights the slow

progress made when you consider that the

Justifying the hypeThe first public launch of contactless payments in the UK proved to be one

of the major retail technology focuses for last year. But what followed was

something of a damp squib. Will 2008 be the year that contactless takes off?

Glynn Davis reports

50 June - July 2008

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June - July 2008 51

official launch of contactless dates back to

September 2007 – and this followed

lengthy trials in-house at both Barclays and

Royal Bank of Scotland.

McDonald disagrees and suggests all is on

track: “Transaction volumes are not high

but we’re OK with that. We’ve concluded

that we’re happy with it so far and expect

the volumes to come through in the second

half of the year.” Indicative of how low

expectations seem to have been placed on

the technology is that Barclaycard is

understood to have set the success criteria

with retailers at an incredibly low one

transaction per reader per day.

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Scott Thomson, director of QPQ – advisors

on payments to the retail sector – says the

reason for such low transactions and slow

adoption rates of contactless is down to

the lack of clarity on pricing. “It’s difficult to

pinpoint absolutely what the costs are (to

retailers and consumers). Nobody has

come off the fence to say what the deal is

– with the banks continuing to duck and

weave, retailers are very much in the dark,”

he suggests.

Although the actual costs involved are

unknown, what is certain is that consumers

will have to pay a fee each time they top-

up with cash pre-paid versions of

contactless cards. And while there are no

costs to the consumer of using credit and

debit cards with contactless capabilities,

there are costs borne by the retailer

for accepting payments

from such cards.

Thomson believes this cost to

retailers is where the real problem lies. As

contactless transactions will be effectively

replacing cash purchases, the business case

for accepting contactless cards by retailers

is based on the cost to them of processing

card transactions versus the cost they

currently pay for accepting the equivalent

purchases in cash. And according to the

British Retail Consortium, the cost of card

transactions is much more expensive

with an average across the sector of 7.88p

for a debit card and 35p for a credit

card. In contrast, it amounts to only 2p for

a cash transaction.

Although McDonald accepts that the

cost to a retailer of processing a

contactless transaction will be similar to

that of a debit card (i.e. much more costly

than cash), he says the business case for

some retailers will still stack-up. This

involves those merchants predominantly

processing low value, high volume

transactions, which is why Barclaycard and

the other banks and card schemes have

been initially targeting the likes of fast food

chains, coffee bars, snack sellers,

newsagents, delis and dry cleaners. Those

signed up so far include Thresher, Krispy

Kreme, Coffee Republic and Yo! Sushi.

Eat also falls firmly in this camp as

Batsford says: “The business case stacks-up

for us – operationally and on a customer

experience basis. And we don’t need to

have extra security in place nor the back-

office procedures for handling large

amounts of cash.”

Where Eat also benefited was from the

fact it had not previously rolled out chip

and PIN, so unlike many retailers it had not

already spent a large amount of capital on

updating its EPoS for accepting chip cards.

This made it much easier for it to commit

the necessary budget to installing

contactless readers. It now uses a chip and

PIN device from Commidea and a

contactless reader from Verifone.

What has also deterred many retailers is

the lack of an integrated solution

incorporating chip and PIN and a

contactless reader. Retailers have to date

needed to ‘hook up’ a contactless device

onto their till system. Greg Rankin,

marketing manager for Northern Europe at

payment solutions provider Ingenico, says:

“What retailers want is counter space so

this (current arrangement) has not been

ideal for many large retailers. Every major

retailer wants a single integrated device.”

Rankin says Ingenico is just about to

begin the roll-out of its first integrated

device, the I3070, which he believes will

“accelerate the take-up of contactless

devices with very rapid deployment”

when combined with a “ramping up”

of the issuance of contactless cards

to consumers.

Another benefit of these readers is that

they will require only a software upgrade,

which can be performed remotely, to make

them compatible with other devices that

use NFC (Near Field Communications)

technology such as mobile phones. So when

the next generation of phones are

embedded with NFC capability it will be

possible to use them as contactless

payment devices with the I3070.

As is always the case with technology

providers, they are looking at the next step.

But for now the most sensible strategy

would be to simply concentrate on reaching

critical mass with the existing contactless

cards and readers before looking around

the next corner.

“It’s difficult to pinpoint

absolutely what the

costs are (to retailers

and consumers).

Nobody has come off

the fence to say what

the deal is – with the

banks continuing to

duck and weave, retailers

are very much in the

dark”

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