High Speed Contactless Payment

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Deva Mitra investigates high-speed, hands-off payment solutions

In the past couple of years a cashless payment revolution has been quietly gaining momentum in projects across the world. Projects handling payment for low value items (up to $25 in the US and £10 in the UK) using a card or token have been deployed in retail stores, quick service restaurants and petrol stations. Customers pay by waving or tapping their card or token at a payment device beside the till, at a ticket barrier or at a sensor embedded into a self-service device such as a petrol pump. No swipe, no signature and no Chip-and-PIN mean that the transaction can be conducted in less than half a second, significantly faster than cash or conventional cards.

In fact, ‘contactless’ payment has been around for some years now, mainly in mass transit schemes around the world – people in Hong Kong, for example, have been using their Octopus cards since 1999, and Londoners have had the Oyster card since 2005.

The initial launch in the UK of contactless payment by VISA and MasterCard, supported by Barclays and RBS, is planned for Sept 2007 – starting in London with an estimated 500,000 cards, and growing to 5 million in the UK by March 2008. Other countries will no doubt be watching the UK take-up with great interest. Companies like Thales e-Transactions, CreditCall, Giesecke & Devrient, Ingenico and 3C, to name but a few, are already involved in a number of projects that will enable them to take advantage of this technology.
 
"Most schemes have been based around proprietary technology, but the exciting point about the London launch is that this will be a ‘standard’ scheme introduced by VISA payWave and MasterCard payPass." comments Jürgen Göbel, Global Product Manager of Thales e-Transactions. "We think that this technology is perfect for the unattended self-service industry, because it handles low value transactions so easily."

VISA estimates that consumers in the UK make more than 27 billion cash transactions a year, worth a total of £250 billion, of which 80% are for less than £10. Nick McGarvey, Chairman of CreditCall: "From our experience we have found that the average transaction value at an unattended device is around the £6.80 mark."

The ‘ripple’ logo is being used to denote contactless payments, and you can soon expect to see it cropping up all around the world on devices where you can pay using your contactless card.

Although the contactless payment solution is already well on its way to mass adoption, the mobile phone is not far behind. "Mobiles or PDAs using the ‘near field communication’ standard will enable contactless payment, but these phones will also be able to exchange tokens or cash with each other, and, should the battery be empty, the contactless interface would still work because NFC must be operable via electromagnetic induction," comments Dr Heinz Bonnenberg, Business Development Manager, Giesecke & Devrient. "We believe that contactless payments using mobiles will be mainstream in a couple of years … the projections are that in five years time 20% of all new phones sold will have NFC."
 
How It Works

Contactless chip cards use an RFID transmitter to communicate securely with an EMV acceptance terminal connected to a contactless reader at the point of sale. The cardholder simply ‘waves’ their contactless card in front of the reader in order to make a payment. For kiosks, this would mean that no card readers or pin pads are needed – with the contactless reader safely behind the kiosk enclosure, there will be far fewer maintenance issues caused by misuse or the odd piece of chewing gum inserted into the reader slot.
 
These cards are loaded to a maximum of £50, and each transaction value is deducted from the amount left on the card. Each transaction must be less than £10, and for security purposes a Chip and PIN validation is needed after 10 transactions, or if the transaction is above the limit – a method of preventing the use of any stolen cards. The card can be recharged up to its limit through any normal Chip and PIN transaction. If the rules for a contactless transaction are not satisfied, the application will then request a Chip and PIN transaction.

How It Affects Kiosks

The main areas the contactless payment technology will benefit are reducing costs and the need for certification.

The high cost of EMV certification has been a major barrier to companies wanting to deploy transaction-based kiosks, and has certainly stopped many speculative trials from going ahead. To overcome the cost of certification, some companies have developed their application to integrate with certified applications provided by payment processors like CreditCall. "With a pure contactless device, certification is still required, but in a less onerous form. Once certification of thereader and payment application has been gained, that combination can be ported to other terminal types without the need for full re-certification," says CreditCall’s Nick McGarvey. "The application on the kiosk will still need to communicate with the contactless reader and send the payment through a payment processor via a broadband or GPRS communication link, but because the amount on the transaction is already pre-approved, no ‘pre-authorisation’ or validation on the card is needed, and cardholder’s data need not be stored on the kiosk during verification." In addition, the risk of ‘chargeback’ to the retailer is reduced.

With a contactless reader replacing the card reader and the pin pad, the overall construction cost is reduced, and being protected within the kiosk enclosure, the operation of these devices is no longer as affected by the environment, dirt, humidity or misuse, reducing the cost of maintenance and service callouts.
 
So, as the use of contactless payment becomes more widespread in Europe, does it mean that if you set up a payment process and standardise on one payment processor you can roll out your self service project across Europe? Sadly the answer is a big NO. "With differing financial regulations and banking rules that exist in the different European countries, you will need to set up payment processors which cover the differing countries/regions, as you would do with normal Chip and PIN transactions. There is still hope, though,– the Single European Payments Area SEPA), which aims to homogenise the payment structures and costs of cross-border payments across the European Union, should be in force by 2010.

Mobile phones are also being prepared to handle contactless payments, but they use a different technology called ‘near field communications’. NFC is a wireless technology that will be used for very close range, (about 10cm or nearer) ‘peer-to-peer’ communication between devices, and is also aimed at products other than mobile phones. Mobiles equipped with NFC will be able to interact with each other, or other NFC equipped devices, and exchange data, which with the appropriate application leads to contactless payments. A number of trials are already underway in several countries around the world.