News & Views - Savantor

Contactless WILL help

Friday, 01 June 2007

In the UK we know contactless is coming soon to a store near you - as long as you're in certain parts of London – but there will be a few obstacles to overcome before it gains a real foothold in the UK market.  A cost analysis of 32 British Retail Consortium retailers has shown that contactless is 8 – 10 times more expensive than cash.  National retail chain Boots calculates the cost of processing a contactless payment of up to £10 is 4p plus the acquirer fee compared with 0.5p for processing a cash payment under £10.  Boots say 79% of customers pay cash for their purchases which average £6.  Processing costs apart there are other problems to overcome in the battle to get rid of cash:

  • retailers like Boots use a separate loyalty card which doesn't fit well with the contactless model based on speed of throughput.
  • there is £3.5bn in cash stashed away in homes in the UK.  A poll for Virgin Money found that 1 in 6 of us keeps cash at home rather than invest it somewhere.  6% say they are doing this to hide money from partners, 4% because they don't trust banks and 1% to avoid tax.
  • over the last ten years the total number of cash machine withdrawals has grown from 1.6 billion in 1996 to 2.8 billion last year, with the amount of cash dispensed more than doubling from £80 billion to £180 billion
  • other card-based cash withdrawals (such as through debit card cashback and counter transactions) have also grown over the decade, meeting 12 per cent of personal cash needs in 2006 (compared to just 8 per cent in 1996
  • research by Money Expert shows that average annual percentage rates on credit card cash withdrawals has risen from 21.27% to 23.48% since November 2006.  If a cardholder takes out £100 and does not repay for a year they can be charges anything from £8.10 by Co-op to £48.69 by Vanquis  Chip and PIN introduction has increased the amounts being withdrawn by credit cards as prior to this many cardholders did not know their Credit Card PIN.  Now around £750m is withdrawn from ATMs each month using credit cards.

So to reduce the amount of cash in circulation we need to convince cardholders that contactless is the way to pay to reduce the cash withdrawals, sort out the cost of contactless processing to attract more retailers, and find a way of tempting cardholders away from storing cash in a biscuit tin.  Prepaid contactless looks like a good bet.

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