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Lucrative future for unattended card payments?
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Lucrative future for unattended card payments? With the successful implementation of Chip and PIN across most of the UK retail industry complete this article considers the next payment infrastructure sector about to enter mainstream Chip and PIN acceptance. The introduction of Chip and PIN in the UK has been a major investment for retailers and card manufacturers alike and although it has markedly reduced card fraud, the initial cost outlay was significant. Consequently it is advantageous for the card industry to find additional benefits from the Chip and PIN technology. A clear area in which this technology can really come into its own is in the unattended payments sector. Prior to the migration to PIN verification, unattended payments, in which a cashier is not present, was not a secure or low cost option because there was no means of verifying a cardholder’s identity at unattended terminals and each transaction had to go online to obtain a secure authorisation. With every cardholder now required to verify all card-present transactions with their own personal PIN number, and chip cards allowing secure offline card authentication, UPTs can now offer a consistent user experience similar to paying by Chip and PIN cards at the retail check-out. The ability to provide secure unattended payments is just reaching maturity and this is reflected in the current size of the market. As yet there are very few PIN-verifying UPTs currently being used in the UK, although vending and automated ticket machine manufacturers, as well as forward-thinking retailers, are quickly recognising the promising nature of this market. Demand for this technology is clearly apparent. Not only are pilot operations currently underway across a wide variety of services and products, there is also significant consumer demand for the increased convenience that card payment provides at unattended sites. Consultants Edgar, Dunn & Co estimate that there are seven to nine million unattended points of sale or service worldwide. While the majority of these only accept cash payments, it does give a strong indication of consumer interest in self-service. In the UK alone there are an estimated 750,000 unattended points of sale
Card Technology Today November/December 2005
or service, many of which have the potential to be upgraded to accept Chip and PIN payments.
Consumer demand Without doubt there is a general rise in confidence amongst consumers in conducting self-service transactions. It is anecdotally believed within the payment industry that this confidence has been driven largely by the increased use and success of internet transactions. Just as the convenience of online banking and payments was a major driver in turning the internet into a mainstream transaction channel, so will convenience drive the deployment of unattended transactions. In today’s world of disparate working hours and busy private lives, consumers increasingly require products and services that are available 24/7. Companies that can combine convenience and ease of payment as part of a high quality purchase experience will clearly reap the benefits of this demand.
Potential growth markets Meeting customer needs is crucial to a business, as it not only affects its profit margins, but it will have an impact on how its entire brand is perceived by the public. However, service providers and retailers are motivated by the need for greater efficiency and are constantly under pressure to reduce costs. As such, unattended transaction technology can provide the perfect solution for a company aiming to satisfy customers while simultaneously optimising costs. Those companies already deploying vending or self-service systems should consider the significant cost implications of their current solution. The vending industry estimates that 6% of all cash payments from vending machines is unaccounted for. The value of this ‘lost’ revenue should be considered in the context of the additional cost of collecting, counting and sorting cash from vending machines. These costs could be offset against the additional cost of
adding Chip and PIN capability to the machines. Additionally, vending operators would not be limited to the current price ceilings imposed in some environments by coin values, such as the $1 barrier for soft drinks in the USA. However, the biggest growth markets for unattended terminals will be in two areas. The first is where there has been penetration by magnetic stripe credit and debit payments at UPTs in the past, but due to the cost of goods there is a keen desire to move to Chip and PIN in order to reduce the potential of fraudulent transactions. This area includes ticketing systems and both on-street and off-street car parking. The second growth market is for vending high value goods or services, which can be sold in an unattended environment if consumers are given sufficient payment options – for example retail stores and petrol forecourts.
Ticketing There is a growing need for the provision of unattended e-purse, debit and credit card payment terminals for ticketing machines. The UK can learn lessons from Europe, which has been quicker to adopt unattended payment terminals, especially in the transport sector. A clear example of where this opportunity has been grasped is Deutsche Bahn in Germany who has installed over 3,000 automated ticketing machines. The driver for these unattended card payment terminals has been to provide a secure payment method for the more expensive long distance train tickets, and by using an automated service it has enabled Deutsche Bahn to sell tickets at unmanned stations. Similar installations have been made on the local Berlin transport system where 1,000 UPTs allow daily, monthly and annual tickets at a maximum selling price of 700 euros to be bought for trains, buses and trams. Operators are upgrading their infrastructure with the latest Chip and PIN technology, to provide customers with the same payment experience at ticketing machines as they currently have paying by card at standard retail checkouts.
Car parking One of the most interesting, and far-advanced uses of self-service transactions is in the area of parking charges. As costs of parking continue to rise, especially throughout inner cities and at airports, it is becoming increasingly inconvenient for consumers to have sufficient change to pay for parking for longer periods of time. This problem has long been recognised by the parking industry and many machines allow for payment to be made by magnetic stripe credit and debit cards. With new regulations on the liability for fraudulent transactions having come into effect in Europe from January 2005, these machines need to be upgraded to accept payment with Chip and PIN cards.
9
feature Now that unattended payments can be carried out securely, and solutions are available, the challenge is for parking operators and transaction processors to deploy Chip and PIN card acceptance devices in a cost-effective way. Parking meter pilots that use Chip and PIN self-service technology are currently under way in the UK, and several London city councils are actively looking into deploying this technology in the near future.
Retail In retail, growth markets for UPTs will be concentrated in vending machines capable of selling higher priced goods, typically above the £5 price mark. In Japan, a country well known for its early adoption of new technology, it is common for vending machines to offer higher value items such as books and CDs. This early uptake in Japan is a strong indicator that, given the choice, consumers will buy goods from vending machines that offer products beyond the traditional domain of sweets and drinks. The challenge now is for retailers to identify which products are most suitable for vending and where the machines should be located in order to maximise usage. Answering this challenge depends on a number of factors, including value of the goods for sale and whether the purchase is impulse driven. For example, a CD or DVD vending machine located in a busy airport could be a lucrative proposition as its target audience has a limited amount of time, and the urge to buy is largely impulse driven. In this situation, it is unlikely that the consumer would have sufficient
money in coins to pay for the CD, especially in local currency, but they would clearly be able to pay by card.
Petrol pumps Finally, the UK is looking to follow in the footsteps of Europe and the US by extending usage of self-service card payment at petrol pumps on service station forecourts. Tesco currently offers pay-at-pump facilities at 270 out of 350 of its petrol stations. However, to date, none of these payment systems are compliant with Chip and PIN technology, so the risk of fraudulent transactions is high. This will change as fitting the petrol pump with a UPT allows customers to purchase fuel 24 hours a day, whilst limiting the risk and inconvenience to employees of manning the cash till through the night.
The technology challenges There is consumer demand for increased usage of card payment at unattended points of sale or service, and in many cases clear advantages for the machine operators to increasingly make this service available to their customers. An obvious question is: “Can the technology answer the demands that are being placed upon it?” Until recently, the widespread use of UPTs was not feasible because magnetic stripe cards offered limited security. Due to the availability of Chip and PIN cards, electronic payment at unattended sites can be provided with much greater security and viable operating costs. Currently a range of unattended card payment solutions are available on the market, providing
Micropayments – an opportunity to push US demand? Despite their prevalence in electronic transactions across the world, smart cards remain the redheaded stepchildren of the US card market. Forgetting for a moment about SIM cards, smart chips in consumer spending cards have been limited in their potential. By year-end, the loftiest estimates of the US contactless smart card market suggest that consumers will hold 8 million RFID enabled cards by 2005. This would represent a penetration rate of less than one percent in a market with over one billion issued credit and debit cards. However, we can find hope in the fact that this initial foray into contactless is only the start of something larger. The US market is beginning
10
operators with the technology to accept card payments with or without PIN. Favoured by many of the machine manufacturers, modular solutions allow the physical layout of the UPT to be varied according to the requirements of the usage scenario. By separating the card reader, control unit and keypad, modular solutions allow optimum ergonomics to be combined with ease of maintenance. Operators can benefit from the option of motorised or manual card readers, and large or compact PIN pads, whilst ensuring that if there is a failure only the affected component needs to be replaced. Another important requirement for UPTs is the ability to withstand harsh weather conditions as well as intentional misuse. As a result, devices must be vandal resistant, protect against spillages, be easy to clean and be able to handle high and low temperature ranges. For example, UPTs need to be able to operate in temperatures ranging from -20°C to +65°C. Chip and PIN technology is now enabling the widespread introduction of unattended card payments. As a result consumers can benefit from the increased convenience of paying by card at unattended machines or kiosks, without incurring the risk of fraud. The challenge now is for manufacturers and operators to work together to achieve the full potential of this emerging segment of the electronic transactions market. This article was provided by Paul Jackson, Head of Thales UK e-Transactions activities. For further information visit www.thales-e-transactions.com
to see value in all things small, such as micropayments, which will help drive market adoption of smart cards. Micropayments, electronic transactions less than US$5, is one of the fastest growing segments of transaction processing. Indeed, contactless smart cards may be the key to unlocking a new growth spurt of consumer spending and introducing a new wave of flexibility to electronic payments. The combined power of stored value, contactless and micropayments could be the catalyst that ignites demand for smart cards in the US. Micropayments as a transaction stream have captured the attention of the payments industry for good reason. Despite the small dollar value of the payments, the volume of transactions conducted is staggering. According to estimates by micropayments processor, Peppercoin, there are as many as 354 billion sub-five dollar cash transactions taking place in the United States on an annual basis. Vending machines, parking meters, slot
Card Technology Today November/December 2005
Lucrative future for unattended card payments? With the successful implementation of Chip and PIN across most of the UK retail industry complete this article considers the next payment infrastructure sector about to enter mainstream Chip and PIN acceptance. The introduction of Chip and PIN in the UK has been a major investment for retailers and card manufacturers alike and although it has markedly reduced card fraud, the initial cost outlay was significant. Consequently it is advantageous for the card industry to find additional benefits from the Chip and PIN technology. A clear area in which this technology can really come into its own is in the unattended payments sector. Prior to the migration to PIN verification, unattended payments, in which a cashier is not present, was not a secure or low cost option because there was no means of verifying a cardholder’s identity at unattended terminals and each transaction had to go online to obtain a secure authorisation. With every cardholder now required to verify all card-present transactions with their own personal PIN number, and chip cards allowing secure offline card authentication, UPTs can now offer a consistent user experience similar to paying by Chip and PIN cards at the retail check-out. The ability to provide secure unattended payments is just reaching maturity and this is reflected in the current size of the market. As yet there are very few PIN-verifying UPTs currently being used in the UK, although vending and automated ticket machine manufacturers, as well as forward-thinking retailers, are quickly recognising the promising nature of this market. Demand for this technology is clearly apparent. Not only are pilot operations currently underway across a wide variety of services and products, there is also significant consumer demand for the increased convenience that card payment provides at unattended sites. Consultants Edgar, Dunn & Co estimate that there are seven to nine million unattended points of sale or service worldwide. While the majority of these only accept cash payments, it does give a strong indication of consumer interest in self-service. In the UK alone there are an estimated 750,000 unattended points of sale
Card Technology Today November/December 2005
or service, many of which have the potential to be upgraded to accept Chip and PIN payments.
Consumer demand Without doubt there is a general rise in confidence amongst consumers in conducting self-service transactions. It is anecdotally believed within the payment industry that this confidence has been driven largely by the increased use and success of internet transactions. Just as the convenience of online banking and payments was a major driver in turning the internet into a mainstream transaction channel, so will convenience drive the deployment of unattended transactions. In today’s world of disparate working hours and busy private lives, consumers increasingly require products and services that are available 24/7. Companies that can combine convenience and ease of payment as part of a high quality purchase experience will clearly reap the benefits of this demand.
Potential growth markets Meeting customer needs is crucial to a business, as it not only affects its profit margins, but it will have an impact on how its entire brand is perceived by the public. However, service providers and retailers are motivated by the need for greater efficiency and are constantly under pressure to reduce costs. As such, unattended transaction technology can provide the perfect solution for a company aiming to satisfy customers while simultaneously optimising costs. Those companies already deploying vending or self-service systems should consider the significant cost implications of their current solution. The vending industry estimates that 6% of all cash payments from vending machines is unaccounted for. The value of this ‘lost’ revenue should be considered in the context of the additional cost of collecting, counting and sorting cash from vending machines. These costs could be offset against the additional cost of
adding Chip and PIN capability to the machines. Additionally, vending operators would not be limited to the current price ceilings imposed in some environments by coin values, such as the $1 barrier for soft drinks in the USA. However, the biggest growth markets for unattended terminals will be in two areas. The first is where there has been penetration by magnetic stripe credit and debit payments at UPTs in the past, but due to the cost of goods there is a keen desire to move to Chip and PIN in order to reduce the potential of fraudulent transactions. This area includes ticketing systems and both on-street and off-street car parking. The second growth market is for vending high value goods or services, which can be sold in an unattended environment if consumers are given sufficient payment options – for example retail stores and petrol forecourts.
Ticketing There is a growing need for the provision of unattended e-purse, debit and credit card payment terminals for ticketing machines. The UK can learn lessons from Europe, which has been quicker to adopt unattended payment terminals, especially in the transport sector. A clear example of where this opportunity has been grasped is Deutsche Bahn in Germany who has installed over 3,000 automated ticketing machines. The driver for these unattended card payment terminals has been to provide a secure payment method for the more expensive long distance train tickets, and by using an automated service it has enabled Deutsche Bahn to sell tickets at unmanned stations. Similar installations have been made on the local Berlin transport system where 1,000 UPTs allow daily, monthly and annual tickets at a maximum selling price of 700 euros to be bought for trains, buses and trams. Operators are upgrading their infrastructure with the latest Chip and PIN technology, to provide customers with the same payment experience at ticketing machines as they currently have paying by card at standard retail checkouts.
Car parking One of the most interesting, and far-advanced uses of self-service transactions is in the area of parking charges. As costs of parking continue to rise, especially throughout inner cities and at airports, it is becoming increasingly inconvenient for consumers to have sufficient change to pay for parking for longer periods of time. This problem has long been recognised by the parking industry and many machines allow for payment to be made by magnetic stripe credit and debit cards. With new regulations on the liability for fraudulent transactions having come into effect in Europe from January 2005, these machines need to be upgraded to accept payment with Chip and PIN cards.
9
feature Now that unattended payments can be carried out securely, and solutions are available, the challenge is for parking operators and transaction processors to deploy Chip and PIN card acceptance devices in a cost-effective way. Parking meter pilots that use Chip and PIN self-service technology are currently under way in the UK, and several London city councils are actively looking into deploying this technology in the near future.
Retail In retail, growth markets for UPTs will be concentrated in vending machines capable of selling higher priced goods, typically above the £5 price mark. In Japan, a country well known for its early adoption of new technology, it is common for vending machines to offer higher value items such as books and CDs. This early uptake in Japan is a strong indicator that, given the choice, consumers will buy goods from vending machines that offer products beyond the traditional domain of sweets and drinks. The challenge now is for retailers to identify which products are most suitable for vending and where the machines should be located in order to maximise usage. Answering this challenge depends on a number of factors, including value of the goods for sale and whether the purchase is impulse driven. For example, a CD or DVD vending machine located in a busy airport could be a lucrative proposition as its target audience has a limited amount of time, and the urge to buy is largely impulse driven. In this situation, it is unlikely that the consumer would have sufficient
money in coins to pay for the CD, especially in local currency, but they would clearly be able to pay by card.
Petrol pumps Finally, the UK is looking to follow in the footsteps of Europe and the US by extending usage of self-service card payment at petrol pumps on service station forecourts. Tesco currently offers pay-at-pump facilities at 270 out of 350 of its petrol stations. However, to date, none of these payment systems are compliant with Chip and PIN technology, so the risk of fraudulent transactions is high. This will change as fitting the petrol pump with a UPT allows customers to purchase fuel 24 hours a day, whilst limiting the risk and inconvenience to employees of manning the cash till through the night.
The technology challenges There is consumer demand for increased usage of card payment at unattended points of sale or service, and in many cases clear advantages for the machine operators to increasingly make this service available to their customers. An obvious question is: “Can the technology answer the demands that are being placed upon it?” Until recently, the widespread use of UPTs was not feasible because magnetic stripe cards offered limited security. Due to the availability of Chip and PIN cards, electronic payment at unattended sites can be provided with much greater security and viable operating costs. Currently a range of unattended card payment solutions are available on the market, providing
Micropayments – an opportunity to push US demand? Despite their prevalence in electronic transactions across the world, smart cards remain the redheaded stepchildren of the US card market. Forgetting for a moment about SIM cards, smart chips in consumer spending cards have been limited in their potential. By year-end, the loftiest estimates of the US contactless smart card market suggest that consumers will hold 8 million RFID enabled cards by 2005. This would represent a penetration rate of less than one percent in a market with over one billion issued credit and debit cards. However, we can find hope in the fact that this initial foray into contactless is only the start of something larger. The US market is beginning
10
operators with the technology to accept card payments with or without PIN. Favoured by many of the machine manufacturers, modular solutions allow the physical layout of the UPT to be varied according to the requirements of the usage scenario. By separating the card reader, control unit and keypad, modular solutions allow optimum ergonomics to be combined with ease of maintenance. Operators can benefit from the option of motorised or manual card readers, and large or compact PIN pads, whilst ensuring that if there is a failure only the affected component needs to be replaced. Another important requirement for UPTs is the ability to withstand harsh weather conditions as well as intentional misuse. As a result, devices must be vandal resistant, protect against spillages, be easy to clean and be able to handle high and low temperature ranges. For example, UPTs need to be able to operate in temperatures ranging from -20°C to +65°C. Chip and PIN technology is now enabling the widespread introduction of unattended card payments. As a result consumers can benefit from the increased convenience of paying by card at unattended machines or kiosks, without incurring the risk of fraud. The challenge now is for manufacturers and operators to work together to achieve the full potential of this emerging segment of the electronic transactions market. This article was provided by Paul Jackson, Head of Thales UK e-Transactions activities. For further information visit www.thales-e-transactions.com
to see value in all things small, such as micropayments, which will help drive market adoption of smart cards. Micropayments, electronic transactions less than US$5, is one of the fastest growing segments of transaction processing. Indeed, contactless smart cards may be the key to unlocking a new growth spurt of consumer spending and introducing a new wave of flexibility to electronic payments. The combined power of stored value, contactless and micropayments could be the catalyst that ignites demand for smart cards in the US. Micropayments as a transaction stream have captured the attention of the payments industry for good reason. Despite the small dollar value of the payments, the volume of transactions conducted is staggering. According to estimates by micropayments processor, Peppercoin, there are as many as 354 billion sub-five dollar cash transactions taking place in the United States on an annual basis. Vending machines, parking meters, slot
Card Technology Today November/December 2005