London Gears Up for Major Contactless Rollout

  London is going contactless in 2008. At least 500,000 cardholders and perhaps 1,000 merchants will be involved in the rollout.
  The details emerged from a vendor forum held in late November by APACS, the United Kingdom's major payments association. "It was to let people know what is happening and show that contactless is real (in the UK)," says Paul Rodford, head of card payments at APACS.
  Royal Bank of Scotland and Barclaycard's parent, Barclays, also will be involved in the project. Several major issuers and all major acquirers are lined up for the London launch, according to MasterCard Worldwide.
  The players stressed the London project is not a trial. It will be launched in the third quarter and likely lead to a national rollout, they say. But the card organizations and banks are still trying to sign up merchants, and the "expected" 1,000 merchants and more than 4,000 terminals accepting contactless payment in London mentioned during the forum are really just hoped-for amounts.
  Adding to the contactless momentum, Barclaycard says it would issue a Visa-branded credit card with the Oyster card application that lets 6 million commuters ride trains and buses in London. The card will have two contactless applications-the Oyster prepaid purse, which cardholders will have to reload as they do now, and the Visa contactless feature tied to the credit card account.
  Transport for London, which last year abandoned an effort to make the Oyster card the kind of small-value payment card that Octopus card has become in Hong Kong, says Barclaycard will have the exclusive right to offer the Oyster feature on its cards for three years.
  Other banks want to test the waters before making rollout decisions. A representative from RBS said at the vendor forum the bank will review the London project after three months to assess how well the technology works and how consumers take to contactless.
  If acceptable, the bank says its plans call for equipping every debit card it renews with contactless functionality within three years. Within two years, it would equip most of its terminals to accept contactless payments and issue contactless credit cards to certain customer segments.
  Visa, MasterCard and American Express will participate in the London launch, which will be conducted mainly in central London, according to MasterCard. The organizers chose London for the launch mainly because about 25% of all UK payment transactions take place there, and the Oyster contactless transit card has caught on.
  Visa, seen as trying to get out in the lead with contactless payment in the UK after falling behind MasterCard in the United States, is pushing hard for the UK rollout without the need for consumer trials. That raises the question of how Visa and its member banks can be so confident about the prospects for contactless.
  "The answer is the research we've done, really comprehensive research, and that tells us consumers love the idea of contactless payment," says Sandra Alzetta, vice president for consumer market development. "We've been doing internal trials. In addition, we're also looking at what's happening in other markets."
  Those other markets are mainly in the U.S., where about 6 million contactless cards carry the Visa brand. As in the U.S., UK banks are targeting low-value payment with contactless-under £10 (US$19.54). More than 75% of cash payments in the UK are under £10 at such outlets as fast-food restaurants, coffee shops and newspaper kiosks, notes Visa.
  But, unlike the Visa-branded contactless cards or tokens in the U.S., along with the approximately 10 million MasterCard PayPass cards issued there and roughly 3 million AmEx ExpressPay cards, the UK contactless cards will comply with the international EMV standard. UK banks and merchants largely have completed their rollouts of contact EMV cards and terminals and so will need the contactless transactions to follow this standard as well.
  DYNAMIC SECURITY
  Cards likely will carry dual-interface chips. For transactions under £10, consumers will tap to make purchases without entering a PIN or signing a receipt. Purchases more than that amount will require cardholders to insert the card into terminals and enter their PINs. For extra security, many banks likely will require cardholders to conduct a contact EMV transaction occasionally for low-value purchases, say after a certain spending limit is reached.
  The transactions are expected to comply with a more-secure option within the EMV standard, dynamic data authentication, which will enable banks to authorize the purchases in offline mode with greater confidence.
  Visa's Alzetta says a typical contactless dynamic data transaction takes about a half-second. That would be faster than U.S. contactless transactions, all of which go online for approval, and transmit essentially the same data as in a magnetic stripe transaction.
  Contactless backers say adding contactless functionality to contact EMV point-of-sale terminals will only add "incremental" costs.
  "The merchants have just finished recently upgrading their terminal base; most of the terminals are more modern terminals, so they have serial ports on the side," says Dave Birch a director of UK-based consulting firm Consult Hyperion. "Adding a contactless reader to one of those contactless terminals would not be as expensive as ripping the terminal out and putting in a new one."
  A major challenge will be convincing merchants to accept contactless payment. Major retail chains own their own POS terminals, so banks cannot drive the contactless rollout themselves. But some merchants, such as supermarket giant Tesco, have expressed interest in contactless.
  NFC TEST, TOO?
  A trial of contactless payment using mobile phones that comply with Near Field Communication technology could be part of the UK project, say observers. "I would expect to see some NFC trial in the UK because of the interest in contactless and because, in the UK, you've got (mobile) operators who are strong," says Didier Sérodon, chief marketing officer at France-based POS terminal vendor Ingenico. "Operators want to bring some differentiation for customers." He adds that issues between operators and banks still need to be sorted out before any NFC payment rollout.
  RBS is the only bank that has publicly announced a contactless payment trial in the United Kingdom. It launched the pilot last summer at its Edinburgh headquarters, issuing 1,200 MasterCard PayPass debit cards to employees and other volunteers, later expanding it to London.
  In a statement, MasterCard noted this fact, along with involvement of the card organization in the first trial of contactless credit in Europe, a PayPass project launched by Garanti Bank of Turkey in July. MasterCard also stated it is "driving the planning" of the proposed launch of PayPass for MasterCard- and Maestro-branded credit and debit cards in London. The statement does not mention Visa by name, except to say MasterCard has licensed the underlying communication protocol for standardized contactless payment to both Visa and Japan's JCB.
  But unlike in the U.S., Visa has gotten the jump on MasterCard in publicizing the coming of contactless payment in the United Kingdom. In a Nov. 22 announcement, Visa said it was "introducing" contactless payment to the country.
  "This is a Visa project," says Visa's Alzetta. "We're working with MasterCard for interoperability."
  For the consumer, having many places to pay with a tap will be the key. The broad support from card organizations and banks appears to bode well for wide acceptance among London's retailers.
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