The next generation of payment systems

The revolution in payment systems heralded by the 2006 introduction of chip-and-PIN shows no sign of slowing, with contactless card and mobile device systems developing fast. But biometric-based systems remain a long way off.

• Contactless cards

In September 2007 London-based retailers began trialling contactless payment services based on a system from Barclaycard.

Barclaycard plans to issue a total of 1.3 million OnePulse cards, which feature Oyster travelcards, credit and contactless payment functions, to UK consumers and 1,000 in-store readers.

“For retailers, benefits range from speed of transaction and lower cost of ownership to possible long-term gains such as cash replacement,” said James McDonald, head of contactless payments at Barclaycard.

Lloyds TSB delivered its system in January 2008 and will issue cards this summer. London retailers such as car parks, fast food outlets, newsagents and gyms will be targeted to carry the card readers.

Cost of ownership is one of the main issues faced by the contactless industry. Trade body British Retail Consortium (BRC) said the new system is a ploy from banks to boost revenue.

“We are accusing card companies of pushing cashless payment methods as a way of boosting their revenue,” said BRC’s director general Stephen Robertson. “As banks move to replace cash, they must acknowledge the very low costs they incur.”

Barclaycard’s McDonald said the rollout of contactless cannot be compared with the spending involved in mandatory schemes such as chip-and-PIN, but banks need to be upfront about the direct costs of the new cards.

“It takes a very close and detailed discussion with retailers to understand their business, gauge whether contactless is right for them and if they see a benefit in increasing sales and extra speed, while analysing costs for cards and cash
transactions,” said McDonald.

Kevin Coles, Lloyds TSB Cardnet’s head of business enterprise, said: “Businesses clearly recognise that the longer it takes to transact, the harder it is to sell something, and there is a significant cost associated with that.”

London’s Olympic Games are the reference point for card issuers to get systems ready, with organisers aiming to make the event a cash-free environment.

“We are still in the early stages of assessing the opportunities for contactless in retail. Volumes are still low,” said McDonald.

• Mobile payments

Mobile payments operate under the near-field communications (NFC) standard, which uses handsets as contactless cards.

Though mobiles supporting the system are not yet commercially available, Barclaycard is testing the system in partnership with Transport for London and its Oyster travelcard, using 500 Nokia NFC-enabled handsets.

“It works technically, it is incredibly popular and the range of opportunities to release NFC-enabled credit and debit cards is immense,” said McDonald.

“But we need the ‘railroad’ of point-of-sale acceptance to enable mobile operators and manufacturers to introduce the technology, so a large-scale operational and commercial model for mobile payments in the UK could take a year or two,” he said.

Problems linked to mobile payments include security management, as phones do not have the PIN element incorporated.

“As mobiles are poised to become another point of sale, standards will need to be introduced to cater for that new payment channel,” said PCI DSS specialist consultant at Security Risk Management Paul Brennecker.

“The PCI Security Standards Council is looking at bringing in new rules focused on that area to ensure payments are secured.”

• Biometrics

A large-scale move to add biometrics to verification methods remains a remote prospect.

“Although the industry is constantly looking to improve security standards, systems have to be cost-efficient and robust enough for the rough and tumble of everyday shopping transactions,” said Mark Bowerman, communications manager at payments association Apacs.

“False acceptance and reject rates have to be low enough for the industry to roll out such technology, and with biometrics we are not near to the levels that we need,” he said.

Barclaycard’s McDonald said: “I do not foresee a condition which would allow the move to biometrics in the next five to seven years. But we need to follow advances in that area, take part in understanding it and test the demand of businesses and customers for biometrics,” he said.