Proximity Payments, an executive brief just published by Datamonitor says that successful implementation of contactless payment technologies in the transport sector where proximity payments are being trialed and in some countries already deployed, will spur uptake and demand for this technology to be used in everyday consumer payment transactions.
According to Datamonitor, this will drive new developments towards making multi-functional proximity payment devices. This however will be subject to technology vendors working to establish interoperable technology standards, extendable technology to develop multi-application cards and card issuers coming up with ‘killer applications’ if adoption is to reach critical mass.
Paying without touching – the key applications
Contactless payment technologies are making proximity payment systems – the ability to pay for multiple goods or services without the need to make physical contact with the vendor – a reality in general payment applications.
There are already numerous examples of public transport and toll systems using both contactless smart cards and other contactless devices. Public transport systems in Seoul, Hong Kong, Singapore and many Chinese cities already have systems based on contactless cards. Many of these are multi-application cards, incorporating either in e-purse or credit/debit card payment applications.
Both the Paris Metro and London Transport are implementing contactless card payment systems. In the UK, the London transport project called PRESTIGE will come online next year and will enable travellers to use both buses and tubes without having to insert their card into a card reader. Instead it need only be passed close to a card-reading device, which activates the microchip, by radio signal. Used like a Travelcard, Bus Pass or Concessionary Permit, the smartcard can be checked in a fraction of a second. The smartcard can alternatively be used as a stored value ticket (SVT), which can be recharged when its value has been used up.
Road toll applications have been installed for some time in countries across the world. These range from Italy’s Telepass, which is a contactless car fitted box, and the Malaysian Electronic Toll Collection (ETC) scheme, a newer installation where the in car box is a smart card reader that communicates with the toll collection system using infrared.
Potential for successful transport payment applications to spread into more general payments
What makes contactless technology of interest outside of transport authorities is the potential for a successful transport payment application to spread into more general payments. Already there are examples in South East Asia of e-purses – that is pre-pay electronic payment systems where the user transfers money on to the card before spending it – being combined with transport or other contactless cards.
An interesting example of this is the Singaporean Government’s access cards, provided by Gemplus. These contactless cards, which allow access to government buildings for authorized personnel, also contain an e-purse application that can be used to pay for goods in retailers across the country. Like many such applications this utilizes both contact and contactless technologies in the same cards but on different chips.
In order to gain the maximum synergies from multi-application contactless cards it is vital that instead having two chips, one contact and one contactless, they have a single combination chip. This enables the card to be used both in traditional readers and where the merchant has decided to upgrade their infrastructure to enable proximity payments.
An example of this is the Digital Pusan Card, issued by Pusan bank and using Philips’ MIFARE chip. It has been in use since the beginning of 2001 and can be used for a range of banking applications including e-purse and credit card payment. It also functions as a transit card for Pusan’s – situated in southern Korea – buses, taxis and metro. Using a single chip enables the same stored units to be used to pay for goods and services both contact and contactless methods.
Card issuers will need ‘killer applications’ if adoption is to reach critical mass
To make any contactless card scheme a success requires a critical mass of users and transactions. The same obviously applies to any mobile payments-based alternative for proximity payments. Achieving this will require a killer application in which the advantages for merchants are balanced by a clear benefit to consumers.
A travel card for a transport system is an excellent example of a situation that has all of these properties. There are already examples of multi application cards that gain users through being used for the city transport system, but can also be used for making other payments.
The most effective killer application is one that consumers can’t avoid using, i.e. one where the merchant is in a position to enforce the payment method. This is the case in public transport and road toll applications, where the transport authorities can dictate the payment options in the absence of real competition.
Technology vendors involved in contactless smart cards must work to establish standards to ensure the creation of a substantial market
If a significant market for multi function cards is to develop then technologies will have to be interoperable. To this end technology vendors should work to establish open standards to ensure that the market can develop fully. In most, if not all, applications there exists an alternative technology or traditional payment system and the ability of contactless smart cards to compete with these technologies will be partially determined by the ease with which they can be adopted and integrated.
In particular, mobile devices, incorporating smart cards, can substitute for contactless cards in most possible applications. The relative success of both technologies will depend on finding a killer application and then being able to expand easily into other areas.
There is always a temptation for vendors to attempt to control a technology market by establishing a dominant proprietary standard. However, there is no necessity to the growth of the contactless smart card market and vendors must remember that complete control of a tiny market has little value.
James Adams, technology analyst at Datamonitor comments:
As competing proximity payment technologies jostle for supremacy, card issuers and technology vendors will need to focus on ‘killer applications’ that will ensure their schemes attain the critical mass needed to be successful.