Raiffeisen Bank in Vienna is aggressively moving into contactless payments though an initiative it plans to roll out in April called CardMobile. As part of the initiative, the bank is courting local merchants with a new processing technique that's designed to lower costs for low-value purchases while making these transactions simpler to manage for consumers.

"Merchants such as bakeries or markets, where you get lunch and other small items, are still reluctant to accept cards for low-value purchases," says Gerald Kubu, head of card service for Raiffeisen Bank.

Raiffeisen Bank has teamed with digital payment and point of sale tech firm SIX Card Solutions to process contactless smartphone payments for this program. It's also working with Visa Europe's V Pay Chip and PIN-based mobile contactless payment solution, which is widely available at payment terminals throughout Europe. But for those cash-happy and card-averse small merchants, the bank is also including a low-value payment software plug-in from Cardis that uses an alternative processing method.

Kubu says about 65 percent of small value payments at local merchants are still made with cash, because of lingering concerns about processing costs on behalf of the merchants. "If you're in a bakery and get breakfast for 75 cents, and the merchant has to pay a 12 to 13 cent merchant fee, they won't be as likely to accept cards for these low value payments. This was one reason why we want a low value payments solution to increase acceptance of a solution that's both cost effective for the merchant and convenient for the customers."

The Cardis low-value payment solution aggregates cash in the form of auditable digital stored value units on a card or mobile phone via a debit/credit card load transaction. The aggregate load value is then amortized over a group of low-value transactions. As such, a transaction carries only a portion of the processing cost of the original load transaction. Each purchase doesn't have to be electronically processed individually, lowering costs for issuers and fees for merchants. Added savings come from avoiding the per-transaction reconciliation, since the stored value is represented by digital stored value units. That also simplifies stored value fraud audits since the actual number of auditable transactions is lower.

The consumer device — either a contactless/contact card or a mobile phone — includes debit/credit card app software and the Cardis LVP (low value payment) app software. Card customers will be offered a downloadable smartphone app and a microSD card including a secure element to execute contactless payments, as well an antenna for communication with payment terminals. This secure element will store the users' payment credentials.

The merchant point of sale terminal includes the debit payment/app software and the Cardis LVP point of sale plug in, which is designed to process transactions above the low-value threshold (about $35 in U.S. dollars) as debit/credit card transactions, with low value purchases automatically processed using the LVP plug-in. Load transactions are processed through the existing payment infrastructure as debit/credit card transactions.

"The low-value payments are not processed though the payment network, but through this mechanism," says Nebo Djurdjevic, CEO of Cardis.

In the case of NFC-enabled phones, the load can be completed over the mobile network, which can be triggered independently of the point of sale.

The stored value gets lower with each low-value purchase by transferring the stored value units to the point-of-sale terminal together with a cryptographically signed transaction certificate that includes the transaction amount and the issuer/acquirer identifier. If the stored value balance isn't enough to cover a payment, a new load transaction is automatically initiated at the point of sale to complete the purchase and reload the consumer card/device at the same time. Issuers can configure loads as pre-paid or post-paid depending on risk profile.

"People don't have to care about the balance when they make small purchases. There's convenience on both sides," Kubu says.

A single file detailing individual transactions across the terminal network is sent to the issuer, which allows for online reporting of low value transaction history as a value added serve for consumers to track individual low value purchases.