Does Contactless technology signal the end for cash?

The development of ‘cashless’ initiatives across Britain has led to predictions by industry experts that by as soon as 2015 contact less technology could usurp cash transactions and banish coins from our wallets (and under our sofas) for good. Currently, 85% of transactions in the UK are conducted via credit or debit card, and the decashification process is set to rise even further. Prime Minister Gordon Brown said contact less technology would ‘dramatically improve payment in the retail sector’ creating a market worth £30bn when national roll-out eventually occurs.

But the key to the system’s success is the attitude of retailers, who have so far proved a barrier to card payments under £10, a low-value transaction which isn’t deemed worth the processing costs by merchants. The pricing for card transactions tend to include a fixed charge (irrespective of the amount) as well as a variable charge (a percentage of the amount) – this in particular penalises low-value payments. An average ‘interchange’ fee charged to retailers amounts to 4p per transaction, a figure which many say is too high.

It’s a catch-22 situation, with customers unable to use contact less until merchants invest in the technology. But retailers only have to look at Transport for London as a shining example of how the Oyster contact less application has revolutionised use of public transport in the capital, a case study that would surely compel enthusiasm towards initial adoption.

Alex Mifsud, CEO of Entropay, says the logic driving society towards the replacement of cash with electronic money is based on convenience and security. “Cash is inconvenient to carry and can more easily be stolen than electronic money. Traditional payment methods include cash and cheques. Cash is inconvenient and, in large amounts, insecure to carry, and is not always available at the point of need, whereas the electronic equivalents such as bankcards offer convenience, security and ubiquity. As more payments take place without the payer being in the same place as the payee; electronic money is a more convenient, fast and secure way of making such payments than cheques sent through the post, and particularly for cross border payments, more cost effective too.”

The ‘cashless’ society also has very positive implications for the pre-paid industry, with the shift away from cash providing robust opportunities for pre-payment companies. Mifsud claims pre-paid cards add further benefits to the proposition of electric finances. “Prepaid cards can be made available to almost anyone, including various segments of society that had been hitherto confined to cash. In addition, within relatively modest limits, prepaid cards can be anonymous and can therefore offer some of the privacy benefits of cash, prepaid cards are making it possible for whole segments of society to enjoy the benefits of cards As prepaid enters the mainstream, retailers will realise that a larger portion of their customers will want to pay by card. However, to realise the potential of cashless, the card industry still has to revise its pricing for low value transactions.”

However, cash-handling is also not without cost for large retailers, a labour-intensive infrastructure is in place to collect and account for cash from tills and to deliver the money to a safe deposit. According to Michelle Whiteman, Corporate Communications officer at APACs, the number of non-cash payments will exceed cash payments for the first time in two to three years.

“Just look at spending in 2008, despite the credit crunch total debit and credit card spending was up in 2008 in terms of both value and volume, increasing 6.8% and 7.4% respectively. We are seeing an increase in use of debit cards because spending rose from £224bn in 2007 to £245bn, whilst spending on credit cards rose only slightly from £123bn to £126bn.”

Whiteman also emphasized the schemes available to encourage retailers to accept the technology. ”The acquiring banks involved in these early stages of rollout are working with retailers on an individual basis to encourage take-up, and a variety of incentive schemes & awareness campaigns are underway. MasterCard and Visa are supporting the banks in this work. In the future, growing numbers of consumers will see contactless technology functionality added to their cards, and as more retailers adopt the technology cardholders will be able to take advantage of this new payment option.”

So what sort of timescale can we expect before we experience an entirely cashless society? Well, Alex Mifsud doesn’t think it’s the end of cash just yet. “I think cash will survive as long as banks will dispense it and retailers will accept it. This will continue to happen so long as there remain segments of society such as the un-banked, and the underage which do not have ready access to electronic money.”

(Smartcard News Ltd, 2009)