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Getting the most out of EMV with contactless cards
feature
Getting the most out of EMV with contactless cards Contactless card technology in the UK is in its early phases of development, but recently it has gained widespread media attention and will become increasingly important for banks and retailers alike. Contactless cards are a new generation of payment cards whereby customers can make small purchases without cash by tapping or waving their card over a scanner. In July 2006 the launch of PayPass by MasterCard, partnering with the Royal Bank of Scotland (RBS), was the first trial of contactless credit card payment in the UK. The pilot scheme tested the new initiative on 1,000 of RBS’ staff at the Edinburgh campus headquarters, aiming to promote contactless payments for transactions up to £10. The PayPass technology was added to existing MasterCard EMV credit cards or issued as a stand-alone card and covered six outlets including a coffee shop, a restaurant, a delicatessen, a chemist and a social club. More recently, in December 2006, Visa Europe, Barclaycard and Transport for London announced a new contactless credit card combined with a London Oyster Card. The Oyster card is a form of contactless electronic prepaid ticketing used on bus, rail and underground transport services within the Greater London area. The card will become the capital’s first integrated contactless travel and payment card. The new touch-and-go payment card, which will allow Londoners to pay for their travel journey, newspaper and coffee, is expected to be available by the summer of 2007, following a live trial earlier in the year. The function of the payment cards has three separate uses: travel card functionality for use on the transport network, standard chip and PIN credit card facility, and new Visa ‘wave and pay’ technology for contactless payments up to the value of £10 which is EMV based. Over the past three years the UK has migrated from credit and debit cards based on magnetic strip technology to Chip & PIN. From February 14, 2006, the responsibility for fraudulent transactions passed from banks to retailers, as customers had to authenticate 10
their identity with a PIN number. Stores across the UK upgraded their systems to cater for chip & PIN cards. More than 99.9 per cent of all chip and PIN card transactions are now PIN-verified - confirming that very few card accepting businesses have not upgraded to chip and PIN. EMV (Europay, MasterCard, Visa) – the global standard infrastructure behind Chip and PIN - technology has made it possible for organisations in the UK to consider additional applications including contactless cards. The contactless trials show the potential of extending the EMV technology to run new applications. Many merchants in the UK have deployed a software infrastructure for chip and PIN which has advantages over the hardware system being considered in some markets as it is easier to add new features to the technology. For retailers and banks in particular that have already installed EMV infrastructure, the introduction of contactless cards is a compelling alternative to processing cash payment for all stakeholders.
The attraction of contactless cards As well as allowing banks and retailers to further capitalise on their EMV investment contactless technology gives card manufacturers access to a previously untouched market for card payments. Financial institutions initiating contactless schemes such as MasterCard’s PayPass and Visa’s Wave and Pay are at the forefront of showing how contactless cards can be used to deal with small payments in the UK. With the additional convenience and functionality contactless cards give to the consumers these banks have the opportunity
to differentiate their cards from their competitors. The major benefit for the retail sector is that they can enhance their business performance and customer satisfaction. Contactless payments reduce cash handling and operating costs and increases transaction speed to serve the customers. The technology allows the cardholder to tap their card at the point of sale, eliminating the need for PINs or online authorisation. Aside from the practical benefits, recent trials have shown that contactless payments can lead to an increase in expenditure in-store. Aside from the practical benefits, trials by MasterCard have shown that contactless payments can lead to an increase in expenditure in-store. Providing the right EMV framework is in place, retailers have a relatively seamless path in preparing for the acceptance of contactless cards. Therefore the cost to accommodate the upgraded payment processes should be relatively low. This offers a compelling business driver for contactless payments, since retailers can capitalise on their EMV investment and achieve significant increases in revenue with a additional modest investment. Contactless payment is particularly attractive to retail segments where speed and convenience of payment are essential, for example fast food outlets and kiosks. By moving customers more quickly through the payment process it is an opportunity for merchants to increase differentiation and customer satisfaction in highly competitive retail markets. An additional benefit is eliminating cash shrinkage, reducing error when manually processing cash and the risk of theft. Contactless technology is already being used in many parts of the USA and the Far East, where it is enormously popular. A study by retail analysts Datamonitor suggests that ‘tap and go’ cards could replace the use of cash in purchases totalling £32billion a year globally within five to ten years. Today’s busy consumers can enjoy a better shopping experience, benefiting from far speedier service. Not having to carry cash, which attracts the attention of thieves, is also a safer option. Consumers also benefit from the convenience of carrying one card for all payment needs, as the contactless component can sit on top of the debit/credit card. The public evidently support the idea of contactless payments, since they are 80 percent are more likely to use it over cash, according to a Visa Study.
Card Technology Today • April 2007
feature
The significance of the Oyster/Barclaycard scheme The launch of the Oyster credit card by Barclaycard is an opportunity for consumers in the UK to get used to using one card with three separate but related features – credit card, small payments and travel card. When buying things like newspapers or sandwiches during a lunch hour, contactless cards offer consumers a great deal of convenience for these low value but high volume transactions. It is crucial to understand that this proposal is not trying to rival the existing card market, rather aiming to transfer small cash payments to contactless cards. In fact with over 75% of all cash payments being less than £10, the introduction of contactless payments will play a major role in further encouraging the use of cards over cash. The Oyster/Barclaycard venture is a forerunner of how contactless cards will soon be launched in the UK, following the current practice in the US and Asia-Pacific. Due to the hybrid nature of the cards: containing both contact and contactless capabilities, this will act as a complement to Chip & PIN. The technology for the proposed contactless card is similar to the successful Octopus Card in Hong Kong. The Octopus Card, a contactless stored value smart card used to transfer electronic payments was launched in 1997. It is the widelyused payment system for public transport as well as retailers who accept Octopus for payment, such as convenience stores or restaurants. The deal that Barclaycard agreed with TranSys, the company that runs the Oyster card system with Transport for London, gives the exclusive right, for three years, to put Oyster cards on Barclaycard credit and Connect debit cards. Barclaycard is intending a summer pilot in London, before determining whether to roll out the service commercially on a national basis. The target merchants to pilot the contactless payments are fast food outlets such as McDonald’s, coffee shops, corner stores, kiosks/vending machines and pubs. Commuters in London have already become accustomed to the contactless functionality of the Oyster card which makes it a good place to introduce contactless card technology for cash payments. Since 25% all UK transactions take place in London and it has a high population density it is a good base for the Oyster/ Barclaycard pilot study to take place.
Challenges for the multifunctional Oyster card To be a success, Barclaycard and TFL will both have to build consumer confidence and merchant acceptance. Clearly there will be few
Card Technology Today • April 2007
practical issues to overcome. For instance the contactless payment solution will be slower than an Oyster card (0.6 seconds as opposed to 0.2 seconds for Oyster), but that shouldn’t be a major hurdle. The principal challenge will be obvious confusion for the consumer. At the moment an Oyster card user generally has two separate applications on their card: travel card and the Oyster card pre-pay purse. The addition of Chip & PIN card plus a separate contactless payment application to an existing Oyster card effectively means the average cardholder now has four applications to consider. When the Oyster pad is tapped at a tube station, to buy a ticket, money will be deducted from the Oyster account, but when paying for goods it will come from the credit or debit account. This will mean a significant education process for the consumer to allow them to understand that they will not be able to pay for goods using the Oyster pre-pay section of their card. Another of the challenges will be coordinating the setting up of an adequate contactless infrastructure. While TranSys appears to have indicated that it has the ability to accept contactless EMV payments at its existing merchants for Oyster cards, this is still only a small subset of merchants in the UK. The majority of merchants, ie fast food shops, coffee shops and lunchtime peak traders will still need to have new equipment installed to accept these transactions. This will lead to confusion if TranSys is not forthcoming, as it has been in the past, in sharing its Oyster card specifications. This means that an average consumer will be only able to use certain functionality at different merchants, they may not be able to top up their Oyster card at Boots or pay for their McHappy meal using their standard contact card at McDonalds. Both the Visa Wave and Pay and MasterCard Paypass initiatives share the same goal: to enable consumers to buy goods and services. The biggest issue with the Oyster/Barclaycard scheme is that it is a closed loop solution run by the TranSys consortium and its prime objective is to be a transport system, not a payments system. There is currently no business case for using Oyster for payments; however there is a need for contactless payments. Therefore, irrespective of the current Visa attempts, contactless payments will succeed without the need for integrating it (in the short-term) with Oyster. Interestingly in the US, in New York, there is a move in the opposite direction in that pure payment cards are being used as the ticketing application for the Subway. Barclaycard are faced with an interesting marketing opportunity to target existing Oyster card users, however it remains to be seen whether
consumers will want to combine their existing cards into one.
Extending the benefits of the EMV investment The launch of contactless cards in the UK has given banks and retailers, for the first time, the opportunity to capitalise on their EMV investment. By exploring the potential of the EMV framework through extending the technology to run new applications, such as loyalty schemes, card consolidation, two-factor authentication, post-card issuance management and e-gift cards, the card industry will maximise its EMV offerings and increase revenue in the long-term. One area of contactless payments that has not been addressed so far is payment with mobile phones. A survey from Orange revealed that 31% Britons would like to use their mobile phone as a credit card to buy things. This is already a reality in Japan where Sony launched the smart card technology FeliCa, a contactless chip primarily used as a payment system. The FeliCa chip is based on near field communication (NFC) – a type of short range wireless technology that can be used to make contactless payments via a mobile handset. The chip stores the data and performs the necessary processing and communications functions. The user can wave a phone set over a scanning device at a checkout or use a phone as a virtual train ticket, and the payments are confirmed with the sound of a bell. In February 2007 in South Korea, Visa and SK Telecom, announced the launch of a phone-payments system aimed initially at 30,000 subscribers. However, outside of Japan and South Korea few places have mobile handsets equipped with the technology to allow payments. It will be a few years away until mobile payment technology is widespread in the UK. However, it is yet another example of an additional function that banks and retailers will be able to deploy simply by using their existing EMV infrastructure. To enable mobile payments technology only an extra layer of software functionality needs to be added to the existing EMV framework which can be done at a minimal cost. There are definite signs that contactless is arriving in the UK. Contactless cards present an excellent opportunity, and retailers and banks can now finally take advantage of their EMV investment. This feature was provided by Cameron Olsen, VP Business Development, Smart Technology Solutions Limited. He can be contacted at: Tel: +44 20 8680 0252, email: [email protected], Web: www.stslimited.com
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Getting the most out of EMV with contactless cards Contactless card technology in the UK is in its early phases of development, but recently it has gained widespread media attention and will become increasingly important for banks and retailers alike. Contactless cards are a new generation of payment cards whereby customers can make small purchases without cash by tapping or waving their card over a scanner. In July 2006 the launch of PayPass by MasterCard, partnering with the Royal Bank of Scotland (RBS), was the first trial of contactless credit card payment in the UK. The pilot scheme tested the new initiative on 1,000 of RBS’ staff at the Edinburgh campus headquarters, aiming to promote contactless payments for transactions up to £10. The PayPass technology was added to existing MasterCard EMV credit cards or issued as a stand-alone card and covered six outlets including a coffee shop, a restaurant, a delicatessen, a chemist and a social club. More recently, in December 2006, Visa Europe, Barclaycard and Transport for London announced a new contactless credit card combined with a London Oyster Card. The Oyster card is a form of contactless electronic prepaid ticketing used on bus, rail and underground transport services within the Greater London area. The card will become the capital’s first integrated contactless travel and payment card. The new touch-and-go payment card, which will allow Londoners to pay for their travel journey, newspaper and coffee, is expected to be available by the summer of 2007, following a live trial earlier in the year. The function of the payment cards has three separate uses: travel card functionality for use on the transport network, standard chip and PIN credit card facility, and new Visa ‘wave and pay’ technology for contactless payments up to the value of £10 which is EMV based. Over the past three years the UK has migrated from credit and debit cards based on magnetic strip technology to Chip & PIN. From February 14, 2006, the responsibility for fraudulent transactions passed from banks to retailers, as customers had to authenticate 10
their identity with a PIN number. Stores across the UK upgraded their systems to cater for chip & PIN cards. More than 99.9 per cent of all chip and PIN card transactions are now PIN-verified - confirming that very few card accepting businesses have not upgraded to chip and PIN. EMV (Europay, MasterCard, Visa) – the global standard infrastructure behind Chip and PIN - technology has made it possible for organisations in the UK to consider additional applications including contactless cards. The contactless trials show the potential of extending the EMV technology to run new applications. Many merchants in the UK have deployed a software infrastructure for chip and PIN which has advantages over the hardware system being considered in some markets as it is easier to add new features to the technology. For retailers and banks in particular that have already installed EMV infrastructure, the introduction of contactless cards is a compelling alternative to processing cash payment for all stakeholders.
The attraction of contactless cards As well as allowing banks and retailers to further capitalise on their EMV investment contactless technology gives card manufacturers access to a previously untouched market for card payments. Financial institutions initiating contactless schemes such as MasterCard’s PayPass and Visa’s Wave and Pay are at the forefront of showing how contactless cards can be used to deal with small payments in the UK. With the additional convenience and functionality contactless cards give to the consumers these banks have the opportunity
to differentiate their cards from their competitors. The major benefit for the retail sector is that they can enhance their business performance and customer satisfaction. Contactless payments reduce cash handling and operating costs and increases transaction speed to serve the customers. The technology allows the cardholder to tap their card at the point of sale, eliminating the need for PINs or online authorisation. Aside from the practical benefits, recent trials have shown that contactless payments can lead to an increase in expenditure in-store. Aside from the practical benefits, trials by MasterCard have shown that contactless payments can lead to an increase in expenditure in-store. Providing the right EMV framework is in place, retailers have a relatively seamless path in preparing for the acceptance of contactless cards. Therefore the cost to accommodate the upgraded payment processes should be relatively low. This offers a compelling business driver for contactless payments, since retailers can capitalise on their EMV investment and achieve significant increases in revenue with a additional modest investment. Contactless payment is particularly attractive to retail segments where speed and convenience of payment are essential, for example fast food outlets and kiosks. By moving customers more quickly through the payment process it is an opportunity for merchants to increase differentiation and customer satisfaction in highly competitive retail markets. An additional benefit is eliminating cash shrinkage, reducing error when manually processing cash and the risk of theft. Contactless technology is already being used in many parts of the USA and the Far East, where it is enormously popular. A study by retail analysts Datamonitor suggests that ‘tap and go’ cards could replace the use of cash in purchases totalling £32billion a year globally within five to ten years. Today’s busy consumers can enjoy a better shopping experience, benefiting from far speedier service. Not having to carry cash, which attracts the attention of thieves, is also a safer option. Consumers also benefit from the convenience of carrying one card for all payment needs, as the contactless component can sit on top of the debit/credit card. The public evidently support the idea of contactless payments, since they are 80 percent are more likely to use it over cash, according to a Visa Study.
Card Technology Today • April 2007
feature
The significance of the Oyster/Barclaycard scheme The launch of the Oyster credit card by Barclaycard is an opportunity for consumers in the UK to get used to using one card with three separate but related features – credit card, small payments and travel card. When buying things like newspapers or sandwiches during a lunch hour, contactless cards offer consumers a great deal of convenience for these low value but high volume transactions. It is crucial to understand that this proposal is not trying to rival the existing card market, rather aiming to transfer small cash payments to contactless cards. In fact with over 75% of all cash payments being less than £10, the introduction of contactless payments will play a major role in further encouraging the use of cards over cash. The Oyster/Barclaycard venture is a forerunner of how contactless cards will soon be launched in the UK, following the current practice in the US and Asia-Pacific. Due to the hybrid nature of the cards: containing both contact and contactless capabilities, this will act as a complement to Chip & PIN. The technology for the proposed contactless card is similar to the successful Octopus Card in Hong Kong. The Octopus Card, a contactless stored value smart card used to transfer electronic payments was launched in 1997. It is the widelyused payment system for public transport as well as retailers who accept Octopus for payment, such as convenience stores or restaurants. The deal that Barclaycard agreed with TranSys, the company that runs the Oyster card system with Transport for London, gives the exclusive right, for three years, to put Oyster cards on Barclaycard credit and Connect debit cards. Barclaycard is intending a summer pilot in London, before determining whether to roll out the service commercially on a national basis. The target merchants to pilot the contactless payments are fast food outlets such as McDonald’s, coffee shops, corner stores, kiosks/vending machines and pubs. Commuters in London have already become accustomed to the contactless functionality of the Oyster card which makes it a good place to introduce contactless card technology for cash payments. Since 25% all UK transactions take place in London and it has a high population density it is a good base for the Oyster/ Barclaycard pilot study to take place.
Challenges for the multifunctional Oyster card To be a success, Barclaycard and TFL will both have to build consumer confidence and merchant acceptance. Clearly there will be few
Card Technology Today • April 2007
practical issues to overcome. For instance the contactless payment solution will be slower than an Oyster card (0.6 seconds as opposed to 0.2 seconds for Oyster), but that shouldn’t be a major hurdle. The principal challenge will be obvious confusion for the consumer. At the moment an Oyster card user generally has two separate applications on their card: travel card and the Oyster card pre-pay purse. The addition of Chip & PIN card plus a separate contactless payment application to an existing Oyster card effectively means the average cardholder now has four applications to consider. When the Oyster pad is tapped at a tube station, to buy a ticket, money will be deducted from the Oyster account, but when paying for goods it will come from the credit or debit account. This will mean a significant education process for the consumer to allow them to understand that they will not be able to pay for goods using the Oyster pre-pay section of their card. Another of the challenges will be coordinating the setting up of an adequate contactless infrastructure. While TranSys appears to have indicated that it has the ability to accept contactless EMV payments at its existing merchants for Oyster cards, this is still only a small subset of merchants in the UK. The majority of merchants, ie fast food shops, coffee shops and lunchtime peak traders will still need to have new equipment installed to accept these transactions. This will lead to confusion if TranSys is not forthcoming, as it has been in the past, in sharing its Oyster card specifications. This means that an average consumer will be only able to use certain functionality at different merchants, they may not be able to top up their Oyster card at Boots or pay for their McHappy meal using their standard contact card at McDonalds. Both the Visa Wave and Pay and MasterCard Paypass initiatives share the same goal: to enable consumers to buy goods and services. The biggest issue with the Oyster/Barclaycard scheme is that it is a closed loop solution run by the TranSys consortium and its prime objective is to be a transport system, not a payments system. There is currently no business case for using Oyster for payments; however there is a need for contactless payments. Therefore, irrespective of the current Visa attempts, contactless payments will succeed without the need for integrating it (in the short-term) with Oyster. Interestingly in the US, in New York, there is a move in the opposite direction in that pure payment cards are being used as the ticketing application for the Subway. Barclaycard are faced with an interesting marketing opportunity to target existing Oyster card users, however it remains to be seen whether
consumers will want to combine their existing cards into one.
Extending the benefits of the EMV investment The launch of contactless cards in the UK has given banks and retailers, for the first time, the opportunity to capitalise on their EMV investment. By exploring the potential of the EMV framework through extending the technology to run new applications, such as loyalty schemes, card consolidation, two-factor authentication, post-card issuance management and e-gift cards, the card industry will maximise its EMV offerings and increase revenue in the long-term. One area of contactless payments that has not been addressed so far is payment with mobile phones. A survey from Orange revealed that 31% Britons would like to use their mobile phone as a credit card to buy things. This is already a reality in Japan where Sony launched the smart card technology FeliCa, a contactless chip primarily used as a payment system. The FeliCa chip is based on near field communication (NFC) – a type of short range wireless technology that can be used to make contactless payments via a mobile handset. The chip stores the data and performs the necessary processing and communications functions. The user can wave a phone set over a scanning device at a checkout or use a phone as a virtual train ticket, and the payments are confirmed with the sound of a bell. In February 2007 in South Korea, Visa and SK Telecom, announced the launch of a phone-payments system aimed initially at 30,000 subscribers. However, outside of Japan and South Korea few places have mobile handsets equipped with the technology to allow payments. It will be a few years away until mobile payment technology is widespread in the UK. However, it is yet another example of an additional function that banks and retailers will be able to deploy simply by using their existing EMV infrastructure. To enable mobile payments technology only an extra layer of software functionality needs to be added to the existing EMV framework which can be done at a minimal cost. There are definite signs that contactless is arriving in the UK. Contactless cards present an excellent opportunity, and retailers and banks can now finally take advantage of their EMV investment. This feature was provided by Cameron Olsen, VP Business Development, Smart Technology Solutions Limited. He can be contacted at: Tel: +44 20 8680 0252, email: [email protected], Web: www.stslimited.com
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