Retailers Fear Contactless Payment

The planned launch of contactless payment cards in Britain is meeting resistance from retailers who believe such transactions will increase their costs

by Glynn Davis

Retailers are increasingly worried that the forthcoming launch of contactless payment cards in the UK could leave them significantly out of pocket as the cost of accepting payments this way could be potentially much more expensive than cash.

Transport for London's pre-pay Oyster Card has certainly proven the model for contactless payments with the widespread take-up of the cards in the capital. And it is on the back of this success that card payment market leaders MasterCard and Visa are soon to launch similar propositions to encourage consumers to switch from using cash - for transactions of less than £10 - to contactless cards.

The idea is that newly issued debit and credit cards will be fitted with a second chip that will give the cards the ability to be read in retailers' stores using NFC (near field communications) technology. The readers will be configured to allow purchases under £10 to be PIN-free, thereby reducing average transaction times.

But there is some resistance from retailers who believe accepting transactions on the cards will increase their costs. MasterCard and Visa's contactless cards are set to launch in October - initially in the City of London and Canary Wharf.

For Nick Mourant, group treasurer at Tesco, the crux of the argument is whether the cost of accepting transactions via contactless cards will be the same as the cost of handling cash. And, at present, the negotiations with his acquiring bank suggest it will be much more expensive.

He told silicon.com: "In principle we think contactless is a great idea but only at the right price and the price at the moment is miles off the pace. What's not understood is that for major merchants the cost of handling cash is virtually free because the banks want our notes for their ATMs."

For Tesco the cost of accepting £100 worth of cash transactions works out at around 5p whereas it would be as much as 10 times this for contactless payments if the pricing structure were similar to that of a MasterCard or Visa debit card transaction.

Yet Guido Mangiagalli, head of new channels at Visa Europe, said he recognises that if contactless cards are to compete with cash then the transaction charges for large merchants have to be the same or lower than the cost of accepting cash.

And it can only be assumed transaction charges have yet to be fully determined and that negotiations are ongoing between the various banks and individual retailers. Part of this process will involve using incentives to entice large merchants to accept contactless cards, according to Mangiagalli.

Scott Thomson, director of QPQ, a payments advisor to retailers, said there have been subsidies offered to various retailers to tempt them into accepting contactless payments ahead of the forthcoming launch but added there has been some reluctance to accept them. However, he said: "It will be a classic case of them picking off the weakest retailers and getting them onboard first. If the money were right then some big retailers could be tempted."

Neil Garner, managing director of tech consulting company Glue4 Technologies, who was involved with MasterCard's contactless card in the US, said although incentives were proffered to retailers across the pond they soon found they enjoyed a return on their investment as a result of reduced stock shrinkage and faster transactions in-store.

Garner's view is that retailers should take such benefits into account when weighing up contactless because without them it is hard to get the business case to stack up. "WHSmith and Boots have looked at it from the cost perspective and it has not stacked up," he said.

Since even these prime candidates for contactless cards - with their high volume, low value transactions - are sceptical QPQ's Thomson predicts the intended launch date will inevitably slip back. "