News & Views - Savantor

Contactless options

Monday, 16 April 2007

Ok so come September in London you can either 'wave and pay' or 'tap and go' but is it the final nail in the coffin of cash?  Probably not.  Cash transactions have been declining for the last 20 years and cards are taking over as the prime payment vehicle – particularly debit – but cash remains the most popular way of making small payments, with 96 per cent of all spending under £5 done with notes and coins.  Cash accounts for nearly two-thirds (63 per cent) of all day-to-day payments, with the £20 note being the most popular denomination of them all – accounting for 66 per cent of all notes dispensed by UK cash machines in the last quarter of 2006.  The key to attacking this cash mountain and to success of the launch of contactless will be the same as it was when chip and pin launched – retailer take up.  Transaction costs are still to be agreed for contactless payments and there is some resistance from retailers who believe accepting transactions on cards will increase their costs.

For the larger retailers like the supermarkets the key is whether the cost of accepting transactions via contactless cards will be the same as the cost of handling cash.  For these organisations the cost of accepting £100 worth of cash transactions works out at around 5p whereas it could be significantly more for contactless payments if the pricing structure were similar to that of a MasterCard or Visa debit card transaction.  The card schemes recognise that if contactless cards are to compete with cash then the transaction charges for large merchants have to be the same or lower than the cost of accepting cash.

Visa EU has a target of 200,000 Visa contactless cards in use and between 2,000 and 2,500 acceptance devices in the retail marketplace by the time of the launch in September.  If it is to hit this target then it must convince the retailers that the business case stacks up.  This must include items other than transaction costs such as reduced cash float in tills and increased speed of transactions.

Unlike chip and PIN, there may well be a better business case for smaller retailers like newsagents and coffee shops to install contactless technology because they do not benefit from the same deals on cash handling that the big retailers enjoy. But until the major supermarkets accept contactless payments the UK attack on cash payments will be a bit of a blunt instrument.  So cash will be around for a good few years yet if indeed it ever goes away.  The real thrust on reducing cash is more likely to come when contactless goes mobile with NFC and that may be sooner rather than later. 

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