Industry predicts ‘contactless payment’ surge in 2009

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So-called ‘contactless payments’ made via mobile phones or swipe cards could boom across Europe over the next two years thanks to new EU rules and a series of bold initiatives from card companies, mobile phone operators and big retail groups.

The two payment card operators in Europe, Visa and MasterCard, are making significant investment to create the infrastructure for contactless transactions. Visa estimates that the number of its cards equipped with contactless devices, the so-called ‘Visa payWave’, will grow from the current 0.5 million to seven million by the end of the year in Europe.

“2009 will be the year of contactless payments,” said Peter Ayliffe, CEO of Visa Europe, who outlined the company’s strategy to the Brussels press on Tuesday (20 January). Visa Europe spent around €10 million on helping retailers to adopt the new technology, he said. This is because contactless cards cannot function if the merchant is not equipped with the appropriate reading machines.

The vast majority of the new Visa-sponsored devices will be distributed across the UK. Italy and Turkey are the other two front-runners, while pilot projects have been launched in France, Germany, Poland, Spain and Switzerland.

Retailers and mobile phone companies keen to get involved

Visa’s main competitor, MasterCard, is committing a similar amount of resources across Europe to furthering the new trend. On 20 January, the US company announced a deal with Carrefour, the French global retailer, which will accept a new card in its stores (Pass MasterCard Card), equipped with many functions, including contactless payments.

Mastercard said it had already included the new technology in almost 45 million cards distributed across the world. In Europe, the countries concerned are the UK, Spain, Poland, Slovakia, Turkey and Switzerland. France will follow in February, when the new agreement with Carrefour comes into force.

The spread of contactless cards is considered a driver for payments made via mobile phone handsets. GSMA, the association grouping the main mobile phone companies in the world, struck a deal last July with the European Payment Council, representing the EU banking sector, to deploy the new technology in the EU (EURACTIV 02/07/08). GSMA’s main concern is now the definition of a common standard to allow SIM cards to be equipped with devices allowing contactless payments.

EU legislative framework

Legislative support is provided by the recently-adopted Payment Services Directive, which is aimed at facilitating electronic payments. The deadline for its application at national level is November 2009. 

A further helping hand will come from the revision of the e-Money Directive, which is currently being debated in the European Parliament. The directive will allow e-money institutions to offer a wide range of payment services, something which is not possible at the moment, explains the UK Conservative MEP John Purvis in his report on the directive to be voted upon next March in Parliament.

The end of cash?

All this is supposed to increase the use of electronic payments to replace cash, which is still used for three quarters of all transactions in the EU. Many in the European institutions consider cash to be an inefficient means of payment, but not everybody shares this idea. Some studies issued by national banks show indeed that the cost of electronic money could exceed that of cash, owing mainly to risk of frauds. 

“Cash is much less costly than it is often said and the cost of payment by cash is often lower than most electronic payments,” argues Francis Ravez, secretary general of ESTA, the European association of security transport companies.

Contactless payments are already available in a number of countries around the world, with Japan and South Korea leading the way by some distance. In Eastern Asia, mobile payments are becoming increasingly common too.

In Europe, contactless cards have already been issued, and some shops are equipped with terminals to read them. Currently, they are mainly used in transport systems to speed up ticketing, such as the Oyster card in the London Underground.

The EU legal framework for the mass deployment of the new technology is the Payment Services Directive (PSD), which was officially adopted by the EU in November 2007 and should be transposed into national law by November 2009 (see our Links Dossier).

  • 11 Feb. 2009: European Parliament's economic affairs committee votes on the revision of the e-Money Directive.
  • 9-12 March 2009: Parliament plenary vote on the revision of the e-Money Directive.
  • Nov. 2009: Deadline for transposition of the Payment Services Directive.

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