Mastercard is gearing up to launch the first “contactless” payment system in London later this year (marketingweek.co.uk last week) but the concept is already coming under fire from critics who claim it will lead to increased levels of debt.
The financial services giant is launching credit and debit cards with Royal Bank of Scotland, Natwest, Mint and Ulster Bank in the autumn that allow customers to pay for goods costing less than £10 without the need to swipe a card or sign a receipt. Transport for London has already signed a deal with Barclaycard and Visa to launch a range of Oyster-branded credit and debit cards, which are also expected in the autumn.
Supporters say the scheme will provide customers with a quick and easy alternative to cash. More than 20 billion payments of under £10 are made each year in the UK, according to UK payments association Apacs, and some experts suggest that as many as 5 million contactless cards will be issued in this country by the end of 2008.
But not everyone in the industry is convinced the new cards will be good news for consumers. Nicola Reeves, a consultant at The Value Engineers, believes they will make it easier for criminals to access cardholders’ details using radio-card readers. She says the scheme is moving away from the heightened security brought in by the chip and pin initiative and adds: “Banks will have to make a concerted effort to reassure customers about the risks, and point out that if they are victims of fraud then they will be fully supported.” A spokeswoman for the National Consumer Council agrees that anti-fraud measures must be robust if “wave and pay” cards are to catch on. The organisation is in talks with the industry to ensure consumers are not exposed to unnecessary fraud risks.
Nothing like hard cash
There is also concern about the issue of escalating consumer debt. Research by Visa earlier this year showed that consumers in Taiwan were able to pay for products seven times faster than conventional payment methods but, more significantly, that they also spent twice as much. The NCC is warning consumers to keep track of what they are spending, especially people living on a tight budget. The spokeswoman adds: “It is important that wave and pay customers are able to check their account balance free of charge so they do not end up spending more than they intend.”
David McCann, planning director at integrated financial services specialist Teamspirit, thinks the cards will make it easier to incur debt. “When you consider the UK’s current level of consumer spending, this aspect needs to be carefully considered,” he says. McCann also claims the cards could lead to “anti-branding”. He points out that because they will be less exposed, brands like Visa and Mastercard will need to spend more on communicating with customers to reassure them of the value of carrying a particular card.
There is also a question mark over who will pay for the installation of the in-store technology needed to scan the cards. A British Retail Consortium spokesman says retailers will only pay a small percentage of the price but warns there could be problems if the £10 cap on the transactional cost goes up. “In that case we would certainly want the return of the flat fee,” he adds. Experts believe the retailer could, in theory, pass the fee on to the consumer.
The consumer catch
Innovation in the financial services sector generally takes time to catch on and the success of the cards could depend on how the scheme is communicated to consumers.
If contactless cards do catch on, some experts believe they could pave the way for other objects, such as watches and key fobs, to be used to pay for goods. Glue4 Technologies managing director Neil Garner adds: “This is one of the first bank-driven technologies in the consumer market, and there is the potential for much more.”