After an initial slow start, contactless payment technology is now dramatically increasing in uptake across the UK market. Retailers and small businesses, take note if you want to stay relevant in today’s rapidly evolving business environment!
The year when contactless payment volume exploded in the UK
2014 was a big year for contactless transactions in the UK. Total contactless spending exploded in 2014, setting a new record of £2.32 billion which represented a 255% increase from the previous year’s figure. As of December 2014, there were 58 million contactless cards in circulation in the UK.1
All the signs point to 2015 being an even bigger year for contactless, with this game-changing technology set to make a real breakthrough. World Pay reported a 50% increase in contactless transactions from November 2014 to May 2015.
Contactless payment taking London by storm
Perhaps unsurprisingly, London has been at the centre of contactless payment’s unstoppable march into the UK market. According to Barclaycard data, 30% of card payments in London in 2014 were contactless, showing that the technology has already gained massive traction among consumers and merchants alike. Transport for London (TfL) recorded more than 60 million contactless journeys in the 6 months following its introduction of contactless payment in 2014.2
The TfL contactless system works just like an Oyster card but without the need for topping up. As Londoners become more accustomed to making contactless transactions, there are plenty of opportunities for enterprising businesses to exploit. Rather than being a “nice to have”, we can reasonably predict that contactless technology will become a core business staple for most retailers in the near future.
Increased retail uptake driven by tangible benefits to both consumer and retailer
Whether its Costa, Ikea, Greggs or McDonalds, major high street chains have been quick to recognise the value of contactless technology, moving rapidly to introduce new payment terminals. Many small businesses are also switching over in overwhelming numbers.
What are the factors driving this rapid growth in uptake? Importantly, payment with a contactless card is quicker, easier and more convenient than traditional payment methods, meaning that most end users prefer it. Contactless payments do not require a PIN code (aside from the occasional security check for larger amounts), making the transaction much smoother when compared to a standard debit or credit card. The reduced hassle and shorter waiting times benefit consumer and retailer alike, making this a win-win technology for all.
The main card processing providers in the UK, WorldPay and Sage Pay, have been distributing contactless payment terminals for some time. Mobile contactless terminals have also been available, though until now the pay as you go mPOS providers have not been able to offer contactless card readers. This just changed when Swedish startup iZettle launched a iZettle contactless mPOS (mobile Point of Sale) reader for the UK market 1 June 2015.
iZettle is the first of the mPOS players in the UK to offer a unified package to retailers that includes contactless with one simplified contract, no monthly rent or fees, one rate for all cards and no hidden fees.
It’s not just cards! A myriad of payment possibilities on the contactless scene
While card is currently the most common form of contactless payment, mobile wallets and other forms of mobile NFC capabilities have entered the UK, though up to now payments from mobile phones have had limited penetration.
With Apple Pay coming to the UK this year this will likely change, and will further increase the demand for contactless terminals. What’s more, watches, stickers and even gloves are all being introduced by various merchants in the hope that they will catch the imagination of consumers. The 2015 Download Festival will be the first contactless event in UK history, with contactless wrist bands are being introduced to save on queue time. Interesting times indeed!
Research: Consumers spend 30% more on contactless payment
It has long been observed that people spend more on card transactions than they would if making a cash payment. The reasons behind this are thought to be grounded in human psychology. It is believed that using a card does not activate the same pain centres in the brain as cash, therefore making humans more likely to spend more with their debit or credit card.3
Contactless payment appears to demonstrate this spending effect to an even greater degree. The fact that no PIN code is required makes a contactless transaction feel much easier, meaning that consumers are more willing to part with their money. Small businesses should perhaps take note of recent data from Mastercard which showed a 30% increase in total spend 12 months after contactless payment was adopted.4
Effective communication of technology’s benefits key to winning over wary consumers
In a parallel to the dawn of early e-commerce transactions in the 1990s, some older consumers have security concerns when switching over to contactless payment technologies from their existing cards. This problem is especially relevant after the recent and much publicised exposure of a security hole in the Visa contactless system by Newcastle University researchers.5
In order to continue the increase in general uptake, both the financial and retail industries need to do more work to reassure sceptics that the technology is safe. Highlighting the contactless payment limit of 20 GBP (30 GBP from September 2015) and the fraud protection schemes in place will be key to winning over worried consumers.
Biometric payment to arrive in the near future
The security concerns noted above may be assuaged by the development of biometric verification for contactless payment. Norwegian startup Zwipe has partnered with Mastercard to develop a fingerprint sensor, located on the card itself, which authenticates contactless payments.6
The exact launch date has yet to be announced, but it is expected that Zwipe will come to the UK in the near future. Apple Pay also makes use of biometric authentication via its recent iPhone and iPad models. Being both more convenient and secure than a PIN code, it seems that biometric payment could represent the future for contactless transactions.
1. The UK Card Association, What is Contactless?
2. Mayor of London, TfL named the fastest growing contactless merchant in Europe, Press release 17 March 2015
3. Carnegie Mellon University, Researching the Pain of Paying
4. Mastercard, New Mastercard Advisors Study on Contactless Payments Shows Almost 30% Lift in Total Spend Within First Year of Adoption, Press Release
5. Newcastle University Press Office, Contactless cards fail to recognise foreign currency
6. Mastercard, Mastercard and Zwipe Announce the Launch of the World’s First Biometric Contactless Payment Card With Integrated Fingerprint Sensor