On Sunday I popped into my local butcher (they haven’t all been put out of business by hypermarkets) and tried paying using my contactless debit card. At first, the guy behind the till didn’t want me to use contactless because he didn’t think his till could handle it, but I tried and he was amazed how fast the transaction was finished.
We work very closely with one of the big European payments companies, and had been discussing contactless with them last week, and so I told the sales assistant in the butcher that his transaction fees cost less using contactless than chip and PIN. He said that he’d tell his boss.
The timing was interesting because this morning I went to a presentation at Intellect, “Contactless payments: A retailer's perspective” by Julian Niblett from Boots.
Here are some of the key points from the presentation, together with his view of the future, and I’ve added some of my comments as well.
- Boots are the second biggest retailer in the UK with 2,600 stores
- At the moment a third of transactions use a card
- Only 30 stores have contactless - a joint investment with MasterCard
- Less than 2% of card transactions are contactless
In terms of the value proposition for the retailer, given a choice between rolling out more self-checkouts and contactless, the former will always win because contactless has far less value to the consumer.
That said, their analysis is that first time customers who try using contactless it will continue to reuse it.
Julian asked how many people in the room have used a contactless card. Around a third put up their hands, which is well above the national average. Julian pointed out that watching consumers use a self-checkout, many people still aren't sure how to insert their card into a card reader properly let alone ‘educate’ them to use another physical method of payment.
One of the issues in Boots’ case is that there’s no business case to offer contactless. Cash is still the cheapest cost at 0.5p per transaction (many of the costs of cash are both subsidised by the banks, and many of the ‘costs of cash’ are fixed).
Also, contactless transactions cost less for a retailer, but the retailers are wary of the payment companies who have usually increased costs once a new technology rollout hits tipping point. This happened with chip and PIN, and retailers expect the same to happen from contactless.
The near term future
· Tfl will use contactless cards as an alternative to Oyster this year. This will help the wider public use contactless more often, and consumers are expected to start using them more often in retailers.
· Visa are going to be helping Boots with a wider rollout across London due to the Olympics.
The longer term
One of the key issues at the moment is that there is no customer demand for contactless. However, retailers can see that there is a demand for using a mobile phone for payments.
We all have more and more cards in our wallets for payment and loyalty schemes. Both of these will move into a smartphone apps, with numerous retailers already leading the way, and PayPal and Google Checkout leading the way with their payment apps.
Julian discussed a great consumer experience all based on a mobile, with coupons, a store loyalty card, payment and electronic receipts, and probably no need for a till at the end of the shopping trip. However there are very few customers who want to shop this way at the moment.
It was a really interesting presentation, and if you’re in the banking or retailer value chain, you should probably get in contact with Julian as he was very open with his analysis and data points (some of which I can’t publish here).
My take on contactless payments is that it will move to mobile, but it will become more complicated for consumers. My debit and credit cards have never run out of battery before – what happens when you want to buy something but have no battery in your phone. In fact, my cards are designed to be much more rugged than my phone – not only do they not require any power at all, they’re also waterproof and shock proof. And therefore they will stick around for a long time.
