security > e-book

Contactless Payments

This e-book introduces the concept of contactless payments;

provides an explanation of how contactless payments work
from the perspectives of the consumer, merchant and payment
providers; and provides insight and opinion on how this market
will develop going forward.

www.pira-international.com
Contactless Payments
Sarah Richardson-Clarke Pira Business Intelligence
The worldwide authority on the packaging, paper and print industry
About viewing this ebook supply chains
Published by This document will attempt to open in
full page viewing mode by default for a Established in 1930, Pira provides strategic and technical consulting, testing, intelligence
Pira International Ltd and events to help clients gain market insights, identify opportunities, evaluate product
Cleeve Road, more immersive reading experience and to
maximize screen space. Press the “esc” key performance and manage compliance. We offer a wealth of experience, helping your
Leatherhead business plan its strategy with confidence and crystallise business decisions.
at any time to return to normal viewing
Surrey KT22 7RU
mode and access the document viewing Services
UK and navigation tools in your pdf reader. Pira Business Intelligence provides high quality publications and bespoke consulting for
clients across the major supply chains. With access to unique, proprietary databases on
T +44 (0) 1372 802080
packaging, printing, paper and security technology markets we can deliver the hard-to-find
F +44 (0) 1372 802079
information you need.
E publications@pira-international.com
W www.pira-international.com Research
Our ongoing research programmes with an established and extensive network of
Pira International Ltd acknowledges product, service and company names referred to in this worldwide experts, consultants and researchers in over 50 countries give us a headstart
report, many of which are trade names, service marks, trademarks or registered trademarks. when sourcing technical and market intelligence. Pira Business Intelligence sets the
The facts set out in this publication are obtained from sources which we believe to be reliable. However, we
industry standard for establishing market sizes and forecasting future developments.
accept no legal liability of any kind for the publication contents, nor any information contained therein nor
conclusions drawn by any party from it. No part of this publication may be reproduced, stored in a retrieval
Business Support
system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or
otherwise without the prior permission of the Copyright owner. You get high quality business support which is cost effective and when you need it, with
an exceptional client retention record as a testament to our dedicated and thorough
© Copyright Pira International Ltd 2011 processes. Pira has a track-record of meeting and exceeding client expectations.

Publisher Pira Membership for Security

Rav Lally Membership includes 3 conference places at each of our Security events as well as
rav.lally@pira-international.com extensive access to our wide range of ebooks, journals, webinars and training modules.
Contact Stephen Frier at 44 1372 80 2006 or stephen.frier@pira-international.com for
Head of editorial
more information.
Adam Page
adam.page@pira-international.com Find out more
www.pira-international.com
Head of market research
Nick Waite
Contact: Pira International Sales
nick.waite@pira-international.com
Stephen Hill
+44 (0)1372 802025
Head of US publishing
stephen.hill@pira-international.com
Charles E. Spear, Jr.
chuck.spear@pira-international.com

Customer services manager

Denise Davidson
publications@pira-international.com
T +44 (0)1372 802080

www.pira-international.com
 table of contents

3 4
Executive Summary Contactless Technology End-use Applications
Introduction Introduction
Plastic Payment Cards Contactless Plastic Cards

1
Introduction and Methodology 4ISO 7816 4Closed-loop Contactless Cards
Introduction 4ISO/IEC 14443 4Open-loop Contactless Cards
4Definition of Contactless Payments 4EMV standard Government Applications
Objective Contactless Payments Fuel Retailing
Scope Security of Contactless Payments Car Parks
Methodology Communication Standards Payment Stickers
Definitions and Acronyms Contactless Readers Contactless Mobile Phone Payments
Transaction Values 4Retailers Considering NFC
Processing Contactless Transactions 4NFC: Benefit to the Retailer?

2
The Contactless Payments Market 4Recognition of Contactless Cards 4Mobile Commerce Strategy
Introduction 4Receipts 4Mobile Commerce and Shopping Behaviour
The Move Toward Cashless 4Gratuities 4Consumer Concerns
Electronic Payments vs. Cash RFID and Contactless Payments 4Japanese Users
Chip and PIN vs. the Magnetic Stripe 4How RFID Works 4NFC-enabled Handsets
Consumer Demand or Provider Push? 4Problems Associated with RFID 4Visa and ANZ Trials
Challenges to be Addressed 4RFID Standards Incentives to Increase Demand
4Increase Consumer Education 4System Disruption RFID and NFC in Health Care
4Upgrade POS Equipment 4Reader Collision 4Barriers to Adopting RFID in Health Care
4Get Major Retailers Onboard 4ag Collision 4NFC in Health Care
4Migrate to EMV Set-up and Transaction Costs Summary
4The Global Financial Crisis NFC and Mobile Payment Technology
4Commercial Model Unclear Summary

5
4Low-key Trials Outlook for Contactless Technology
Mobile Payment Growth in Developing Regions Awareness and Acceptance of Contactless Cards
Summary Transit Systems
Mobile Payment Outlook
Partnerships
NFC: Beyond Payments
New NFC Form Factors
Biometric Payment Trials
4Existing Applications of Biometric Systems
4Potential Applications of Biometrics
Summary

List of Tables and Figures

www.pira-international.com
 security > e-book > contactless payments

Executive Summary

Contactless technology has a broad range of applications, and it McDonalds, the Co-operative and Spar convenience stores, and
has been used to improve efficiency and reduce processing times in Starbucks have started to accept contactless payments, but large Contactless
industries including health care, transit, and payments. It operates retailers like Tesco do not appear to be in any rush to do so. In payments are
using radio frequency to transmit data between devices such as the US, instead of contactless payments, retail giant Wal-Mart
plastic cards and point-of-sale (POS) terminals, often at a short
currently attracting
is calling for the introduction of chip and PIN payments, as the
range, known as radio frequency identification (RFID). Near-field former has reduced card fraud in the markets in which it has been a lot of media
communication is based on RFID but it also has the additional implemented. attention due to
benefit of computing power. RFID and NFC have a number of the number of pilot
applications, including the following: Many contactless payment schemes have developed from public studies and trials
• Animal tagging to enable them to be identified using a transport payment schemes, an example of which is the Octopus that are taking place
scanner card in Hong Kong. Octopus is a closed-loop payment scheme that around the world.
• Tracking shipping containers is operated by the various public transport companies operating
• Identifying ownership of valuable items, such as in Hong Kong. It was introduced toward the end of the twentieth
musical instruments century to increase the efficiency of the public transport system;
• In anti-theft devices fitted to high-value supermarket it has since been extended to include a number of retail chains
items throughout the territory. The scheme has been extremely successful
• Secure entry systems within buildings, such as offices or with about 23 million cards issued in a population of 7 million in
apartment blocks Hong Kong. Eleven million transactions are processed every day,
• Contactless payments and the card is accepted at 9,000 merchant outlets.

Contactless payments are currently attracting a lot of media Contactless payments have the advantage of being faster than
attention due to the number of pilot studies and trials that are traditional payment methods such as magnetic stripe cards that
taking place around the world. Asia is the most developed market require a signature to authorise payments, or cash, which is
in terms of this payment technology and, in particular, in the use expensive to handle and keep secure.
of a mobile phone as a payment device. In the US, contactless
payments have been in the market for a number of years, but as
yet, are still only accepted by about 2% of merchants. In the UK,
card issuers have begun to issue contactless cards, with about
12 million issued to date. A number of national chains such as

CHAPTER ES 1 2 3 4 5 TOC www.pira-international.com

 security > e-book > contactless payments

Executive Summary

FIGURE 0.1 Transaction times of different payment methods (seconds) There are a number of consumer concerns regarding the use of
contactless technology as a payment vehicle, not the least of which
is security.

FIGURE 0.3 M
 ain reasons that consumers would not use their mobile
phones to pay for items (%)

Although there are a limited number of NFC-enabled handsets

available in the market at present, contactless mobile payments are CLICK TO VIEW

growing and they are likely to be present in markets in the West

in the next two years. In the meantime, ‘bridge’ technologies such
Source: technovelgy.com
as NFC-enabled stickers and flexible antennae are being issued
by some banks to enable consumers to use their mobile handsets
Contactless mobile payments are the next step forward from cards to make payments without having to purchase an NFC-enabled
and other devices, such as key fobs and tags. However, the appetite phone. It is likely that such bridging products will provide an
for contactless mobile payments varies by region, with consumers in interim solution to the lack of availability of NFC-enabled hardware.
the East keener on using the technology than consumers in the West.
In health care, contactless technology has been used for a number
FIGURE 0.2 Use of contactless mobile payments by country, 2011 (%)
of purposes including the tracking and identification of medical
equipment, and in wristbands worn by newborn babies to reduce
the incidence of mistaken identity. It has also been used to manage
medical conditions such as diabetes through the introduction
of devices that can take blood sugar readings periodically and
recommend the appropriate dose of insulin to the patient; the
contactless communication occurs between two devices designed
to be worn under clothing. Contactless technology has also been
used to enhance the lives of visually impaired people: a chip
with building floor plans can be installed in the sight-challenged
person’s white cane, which then communicates with contactless
Source: Accenture
readers installed at particular points within the building to indicate
the person’s location therein.
5

CHAPTER ES 1 2 3 4 5 TOC www.pira-international.com

 security > e-book > contactless payments

Executive Summary

Technology companies have also developed devices to increase the is used to track hazardous waste, such as nuclear waste or toxic
convenience and speed with which motorists pay for fuel purchases chemicals, to ensure its safe storage or disposal.
and parking fees. Israel-based On Target Innovations (OTI), for
example, has developed a system called EasyFuel Plus that enables The benefits of using RFID in government include an increase in
motorists to pay for fuel without entering a kiosk. The technology, visibility and accountability, and efficiency gains that—in theory—
installed within the fuel retailing kiosk, is programmed to recognise lead to lower costs for consumers and increased safety and security.
vehicles, link them to a payment account, and automatically However, the issues associated with privacy when storing and
dispense the amount of fuel paid for. using personal information have led to a number of laws being
introduced to ensure that data is not misused.
A number of contactless solutions have been developed to replace
cash when paying for car parking. In addition to its contactless petrol Contactless technology has a broad range of applications. This
payment solution, OTI has also developed a solution for contactless report examines the way in which some of these uses are being
car park payments named EasyPark. EasyPark, which has 600,000 applied in many industries, and it provides an overview of how
users in Israel, charges motorists for the exact period of time certain markets are likely to develop.
parked through the installation of an in-vehicle device designed to
behave like an electronic parking meter. The system operates using
proprietary software, and it can either be used as a stand-alone
single vehicle solution or on top of an existing parking system.

RFID is also used in to store and transmit the personal data held
by government departments as well as that contained in official
documents such as national ID cards, driving licences, passports
and welfare systems.

In the US, for example, Homeland Security uses the RFID system
to track and identify assets, baggage on flights, and dangerous
weapons. The Department of State now issues electronic
passports to citizens to enhance border security and to prevent
the unauthorised entry into or exit from the US. In addition, RFID

CHAPTER ES 1 2 3 4 5 TOC www.pira-international.com

 security > e-book > contactless payments

Introduction and Methodology

1
Introduction €20 in Europe, and $20-$25 in the US. The card or mobile
Contactless payments have been the subject of media attention for handset is embedded with a smart chip or other technology that Contactless
a number of years, having been proclaimed as the next big thing communicates with the card reader using low-frequency radio payments are
in the payments industry; and although this is likely to be the case, waves that register the payment in a matter of seconds. Provided
the rhetoric and the reality are two different things.
designed to replace
that the value of the payment is within the contactless transaction
value limit, the consumer does not need to authenticate the cash in society,
The technology to facilitate contactless payments has been in payment by signing a receipt or entering a 4-digit Personal where it is typically
existence since the latter part of the last century, but the extent Identification Number (PIN). Payments for transactions that are used for the low-
to which it has been deployed is extremely disparate, to say the above the limit for contactless payments still require either a value, high-volume
least. In markets like the US, which has bypassed chip and PIN in signature or PIN in order to be authenticated. The majority of transactions...
favour of contactless cards, just 2% of retailers accept this form schemes in operation also limit the number of PIN-less transactions
of payment, and in other regions around the world, there are a that can be made on a card as an additional security measure for
number of closed-loop contactless payment systems that have the consumer. So, for example, if a consumer has used his or her
grown from public transport networks, particularly in countries like contactless card nine times for contactless low-value purchases, on
Hong Kong and Singapore. the tenth use he or she will be asked to enter a PIN to ensure that
the card is still in the possession of the person whose name it is in.
Definition of Contactless Payments Contactless payments are Contactless mobile payments operate in a similar way, although
designed to replace cash in society, where it is typically used for the the commercial model that connects the mobile operator, handset
low-value, high-volume transactions that take place in convenience manufacturer, card issuer and acquiring bank is more complex
stores, transport networks, newsagents, coffee houses and fast than for cards, as discussed in a later chapter of this report. The
food outlets, amongst other retailers. This form of payment is more specific technologies being employed by card issuers, handset
established in regions like Eastern Asia and the US, although manufacturers and payment technology companies are also
payments giants such as MasterCard and Visa are now trialling and discussed later in the report.
rolling out the technology in Europe, with the UK having seen the
most activity in this geographic region. Objective
The objectives of this e-book are as follows:
Contactless payments involve the consumer waving a payment • To introduce the concept of contactless payments to the
device, such as a card or a mobile phone, over a card reader reader
for low-value payments—typically £15 or less in the UK, €15- • To provide an explanation of how contactless payments

CHAPTER ES 1 2 3 4 5 TOC www.pira-international.com

 security > e-book > contactless payments

Introduction and Methodology

work from the perspectives of the consumer, merchant Definitions and Acronyms
and payment providers
• To introduce the reader to some of the main TABLE 1.1 Technical definitions and acronyms
technological developments in this market ATM Automatic Telling Machine
CAGR Compound annual growth rate
• To provide insight and opinion on how this market will Chip and The method of verifying smartcard payments whereby the cardholder
develop going forward PIN enters a 4-digit PIN in order to authenticate identity
Closed-loop Contactless payment schemes that are specific to a particular operator
By the end of the e-book, the reader will have a working knowledge schemes and retailers that have opted into the scheme
EAST European ATM Security Team
of contactless payments, how they work, and how the market EFT Electronic Funds Transfer
is progressing. Where available, forecasts for the uptake of new EFTPOS Electronic Funds Transfer Point of Sale
technology associated with contactless payments will be provided. EMV Europay, MasterCard, Visa—a cooperation between the three companies
to define the global standards for smartcard payments
EPOS Electronic Point of Sale
Scope GSM Global System for Mobile Communications
This report outlines the key technological developments in the IEC International Electro-technical Commission
INSPASS INS Passenger Accelerated Service System
contactless payments market. It also provides an overview of key IOM Institute of Medicine
schemes from a global perspective in developments in contactless IP Internet Protocol
cards and in mobile payments, including person-to-person payments ISO International Organisation for Standardisation
JIS Japanese Industrial Standards
made by mobile phone. It explains the technology behind such MNO Mobile Network Operator
payment innovations and provides an outlook as to how the market M-payments Payments made using a mobile phone, either in merchant outlets, or
might develop going forward. person-to-person
NFC Near Field Communications
Open-loop Contactless payment schemes that are interoperable, i.e., will work
Methodology schemes across a number of card readers via an agreed technological framework
This report has been compiled through a number of months of desk P2P Person-to-person payments
Payexpress American Express’s contactless payments scheme
research conducted by the author, alongside her working knowledge PayPass MasterCard’s contactless payments scheme
of the payments industry, during which time she has consulted Paywave Visa’s contactless payments scheme
with her network of experienced contacts in this specific payments PIN Personal Identification Number
POS Point of Sale
arena. Credible sources based on robust sample sizes for published RFID Radio Frequency Identification
research, where applicable, have been used in the tables and figures ROI Return on investment
included in the report and they are highlighted throughout. SIM Subscriber Identity Module
TCP Transmission Control Protocol
Source: Pira International Ltd.
8

CHAPTER ES 1 2 3 4 5 TOC www.pira-international.com

 security > e-book > contactless payments

The Contactless Payments Market

2
Introduction chip and PIN payment to be processed is negligible
In many large conurbations around the world, consumers are used • The longer the time taken to process consumers Cash is a dirty
to ‘tap and go’ technology that enables them to make low-value, through the checkout, the greater the risk of ‘queue word in the
cashless transactions. Plastic cards are the most prevalent form of abandonment’, whereby the consumer loses patience
contactless payments, although mobile phones are expected to be
payments industry
with waiting for their goods to be processed through
the wallet of the future. There are a number of card-based schemes the checkout and leaves the store without purchasing at present.
in operation around the world, including the following:
• MasterCard PayPass There is a ‘war on cash’ within society in general, particularly since
• Visa Paywave the beginning of the recent global economic downturn. The black
• American Express ExpressPay economies in countries that have been hit particularly hard by
• Oyster (operated by Transport for London) the recession have grown in recent years, and many governments,
• Octopus (jointly owned by transport operators in such as those of Italy and Greece, are keen to reduce the volume
Hong Kong) of cash payments that are made outside of the official economy. In
addition to the ‘war on cash,’ cheques are becoming less popular
The Move Toward Cashless in most countries, although they continue to be important in
Cash is a dirty word in the payments industry at present. There are countries, including France and some of the small Mediterranean
a number of reasons that financial and payments companies, not to islands like Cyprus.
mention some merchants, want to get rid of it:
• It is expensive to manufacture—coins in particular Electronic Payments vs. Cash
are becoming more costly to manufacture given the Low-value purchases, traditionally made using cash, are increasingly
increasing cost of the metal that goes into this process being made using a debit card. In the US, for example, data
• It is expensive to keep secure—both on and off retail published by the Federal Reserve in 2010 highlighted that 35% of
premises total non-cash payments were made using a debit card, and that
• It is expensive to administer in terms of the people debit cards are being used for low-value purchases. Its research
hours spent on reconciling the cash register at the end found that 64% of all signature debit card transactions were for
of a trading period values of $25 or less, with almost 50% for less than $15.
• It takes longer to process cash-paying customers
through the checkout compared to those using In Europe, Visa is focusing its efforts on the development of Visa
contactless payments; the difference in time taken for a Debit in recognition of the popularity of this payment method. In

CHAPTER ES 1 2 3 4 5 TOC www.pira-international.com

 security > e-book > contactless payments

The Contactless Payments Market

the UK, the value of debit card transactions has recently exceeded However, even with the magnetic stripe remaining on EMV-
the value of cash transactions. compliant cards, the reduction in fraud witnessed in Europe since
migration has been significant, as outlined in Figure 2.1.
Chip and PIN vs. the Magnetic Stripe
Chip and PIN payments are commonplace in the UK, with over FIGURE 2.1 T otal reported losses from ATM-related fraud attacks in
Europe, 2007-2010 (€m)
90% of retailers that accept cards having migrated over to the
new, more secure system since the mid-2000s. The rest of Europe
is in the process of doing the same, but interestingly, the US
has bypassed chip and PIN in favour of contactless payments
and retention of the magnetic stripe that has been present on
plastic cards for around fifty years. This is despite a call from
major retailers like Wal-Mart to introduce Europay, MasterCard,
and Visa (EMV, or chip and PIN). Chip and PIN payments, like
contactless cards, involve the use of a ‘smartcard’ into which a chip
is embedded. When making a payment, customers need to enter a
four-digit PIN number in order for the transaction to be authorised.
Source: The European ATM Security Team (EAST)
Chip and PIN payments are infinitely more difficult to infiltrate and
replicate than the previous magnetic stripe version of plastic cards,
and therefore, more secure. However, retailers and card providers in This reduction in ATM fraud losses is driven by a reduction in losses
the US have been deterred from implementing the system due to due to card-skimming attacks, following significant investment by
the costs associated with replacing cards, card readers and because the card industry into EMV compliance, and into anti-skimming
of a lack of clarity around who foots the bill for doing so. devices at ATMs.

European banks are keen to eliminate the magnetic stripe from Consumer Demand or Provider Push?
the cards that they issue, for both manufacturing cost reasons and As with most payment innovations, provider push is driving the
due to card security issues, but until the US migrates to chip and market forward. In the UK, for example, credit card provider
PIN (if it ever does), they are not in a position to do so. Cardholders Barclaycard has been issuing cards with a contactless functionality
travel, and the inability to use plastic cards because of removal of since 2010, regardless of consumer demand for them; this has not
the magnetic stripe would not be popular amongst US consumers. been well received by some consumers, who have tried to replace

10

CHAPTER ES 1 2 3 4 5 TOC www.pira-international.com

 security > e-book > contactless payments

The Contactless Payments Market

them with cards without the functionality. education campaign aimed at reassuring them that they will not
inadvertently pay for other people’s transactions when using the
Consumers are concerned about security in terms of contactless payment technology. At present, for example, Barclaycard in the UK
cards. There is a perception that cards can be read if stored in a has been the main provider to implement a high-profile marketing
consumer’s wallet, purse or handbag, to pay for other people’s campaign, but this is focused on convenience rather than security.
purchases. This is not the case, however, as the card needs to be Also in the UK, where contactless payments have been the subject
held within a few centimetres of the reader for the chip to be of much media attention, research conducted by Ingenico found
read. However, until the use of contactless cards becomes more that three quarters of UK consumers feel that they need more
widespread and consumers become more used to using them for education on contactless technology before they would be willing
low-value transactions, this misconception is likely to remain. to use it, and until this happens, the majority would not consider
switching from more conventional payment methods. Ingenico’s
Security is one of the main issues that contactless payment research, which was conducted in April 2011 and involved 1,152
providers will need to overcome if the technology is to be adopted UK adults, also found that just 13% of consumers claim to hold
on a more widespread basis, as discussed in the following sections a contactless card, and that even fewer (5%) have ever used one
of this report. to make a payment. Almost two thirds (61%) of the consumers
that participated in the research stated that they needed further
Challenges to be Addressed reassurance regarding the security of contactless payments
In a number of mature financial markets around the world, before they would use them, and three quarters believe that this
payment-processing organisations like Visa and MasterCard, responsibility rests with the payment card industry.
technology companies like On Target Innovations, and card issuers
are accelerating the progress of contactless payments through the The UK is significant in the development of contactless payments
development of the technology embedded in devices such as cards, within Europe as it is one of the more mature financial services
key fobs, mobile phone antennae, and stickers that can be attached markets, and as such, it is often the test-bed for new payments
to mobile phones. For contactless payments to be adopted by the innovations such as chip and PIN.
mass market, a number of challenges will need to be overcome.
Increase Consumer Education Upgrade POS Equipment Retailers will need to be provided
with an incentive to upgrade their card readers and, in some
To help consumers overcome fears about the security of contactless cases, their POS equipment in order to enable them to accept
payments, industry participants will need to embark on a consumer contactless payments. In the UK, some merchants have approached

11

CHAPTER ES 1 2 3 4 5 TOC www.pira-international.com

 security > e-book > contactless payments

The Contactless Payments Market

MasterCard and Visa in order to secure financial assistance with readers to enable them to accept contactless payments. Wal-Mart
updating their payment equipment and they have subsequently has been vocal in its support of the introduction of chip and PIN in
installed card readers with contactless functionality. UK examples order to reduce fraud and increase the security of payments made
include Spar convenience stores, the Co-operative, McDonalds in its stores, but has remained quiet about when it will introduce
restaurants, and Starbucks, and these are typically outlets that have contactless payments. Contactless payments are counterintuitive
a high throughput of consumers spending less than £15 on each to what the large retailers aim to achieve, to some extent. For most
transaction. large retailers, such as Tesco, Wal-Mart and Home Depot, £15 (or
the equivalent threshold, depending on the country in which the
Spar retailers operate independently, though under the umbrella transaction is made) is at the lowest end of consumer spend per
of Spar’s international brand. This operational model provides the visit, and the aim of the larger retailers is to maximise the average
independent retailers with the buying power of a large retailer transaction value per visit. Contactless payments, therefore, offer
and the brand recognition that results from national marketing little benefit to the large retailers, with the exception of speed
campaigns, but enables them to retain their independence. through the checkout for small-value transactions, and this can
However, it is Spar’s centralised operating function and be increased in other ways that do not restrict consumer spend to
international reach that has enabled them to negotiate access to less than £15. Checkout supervisors, for example, are often seen
financial support in upgrading their card readers and POS systems in large retail outlets, directing customers to the next available
with the assistance of Visa/MasterCard. Independent retailers checkout operative, and self-service tills are commonplace in many
operating as individual brands do not have such influence and, as such outlets.
such, may not receive the same level of financial assistance. They
are therefore unlikely to prioritise investment in new card readers The current debate in major markets like the US is the business
without an incentive to do so, particular in light of the competitive case for the introduction of EMV-compliant payments. Chip and
pressure from supermarkets to maintain competitive prices and the PIN is likely to be introduced in the US gradually, with card issuers
lowest possible cost base. first targeting international travellers who account for about 4% of
all spending on credit cards in the US, and according to bankrate.
Get Major Retailers Onboard In many countries, the retailers com, spend on average six times the amount of their home-bound
that have welcomed contactless payments are those that typically counterparts. However, it is likely to take several years before
have a high volume of low-value transactions, typically made using the mass adoption of chip and PIN occurs in the world’s largest
cash. The large retailers, e.g., Tesco in the UK and Wal-Mart in the payments market, not least due to the profit limitations that
US, have shown a lack of interest in rushing to update their card accompanied the 2009 credit act. Card providers are unlikely to

12

CHAPTER ES 1 2 3 4 5 TOC www.pira-international.com

 security > e-book > contactless payments

The Contactless Payments Market

want to foot the bill to upgrade millions of POS systems, and the began as a faster way of processing people through Hong Kong’s
level of card fraud prevented has been the subject of debate, as public transport network toward the end of the last century, and
discussed later in this report. it has now been broadened to include a wide range of other
retailers in the country, such as some international chains like
Migrate to EMV Although the majority of card issuers and McDonalds restaurants. However, the lack of interoperability of the
terminals in Europe Zone 1 (Western Europe) have migrated to the scheme on an international scale will restrict the extent to which
more secure EMV chip and PIN, there is still much more progress it is developed in other countries, particularly with the advent of
required in other regions before this more secure payment method MasterCard PayPass and Visa Paywave.
is rolled out.
The Global Financial Crisis Some financial institutions are
The majority of retailers in the UK have migrated to chip and PIN, still reeling from the impact of the global financial crisis, which
or Europay, MasterCard, Visa (EMV), and although the rest of has impacted heavily on their profitability, and on their appetites
Europe is in the process of doing so, countries within the area are to invest in new payment technology such as card readers for
at different stages of development, as illustrated in Table 2.1. merchants. Although many are now recovering and returning a
profit, the maintenance of liquidity and investment in other areas
TABLE 2.1 EMV adoption rates by region, 2010 of the business will divert attention away from investment in
Region EMV cards (%) EMV terminals (%) investing in merchant capability to accept contactless payments.
Canada, Latin America and the 26.4 55.6
Caribbean
Commercial Model Unclear Although many mobile payments
Asia Pacific 26.6% 41.5
Africa and Middle East 13.7 62.5
trials have taken place globally, the market is still in its infancy and
Europe Zone 1 (West) 65.4 84.5 there are few handsets available that enable consumers to make
Europe Zone 2 (East) 11.5 61.2 payments. Of the trials that have taken place, the majority have
Note: figures for the US were unavailable been deemed successful based on positive consumer and merchant
Source: EMVCO (September 2010) feedback, and an increase in average transaction values when
compared with the payment methods usually used by consumers.
In some countries, closed-loop contactless payment systems have The current handsets available that are contactless-enabled include
been developed from a basis in public transport. An example of the following:
such a scheme, which is deemed successful with card holding at
over 1 per person in the country, is Octopus. The Octopus scheme

13

CHAPTER ES 1 2 3 4 5 TOC www.pira-international.com

 security > e-book > contactless payments

The Contactless Payments Market

• Samsung Nexus S these markets gain access to the latest handsets before
• Nokia 6131—this was involved in a mobile payments consumers in Western countries do
trial in the UK in 2008, and of those that tested it, • Government support—in a number of markets in Asia
87% said that the trial would have a direct influence on Pacific, government support for the implementation of
their next choice of phone, i.e., NFC-enabled new technologies is greater than in Europe and the US
• Google Android 2.3 (Gingerbread) platform that
has been specifically developed for mobile phone Despite the fact that contactless payments have been present in
application the US market for several years, contactless mobile payments have
yet to catch on. In Europe, numerous isolated trials have taken
It is likely that all of the handset manufacturers have NFC-enabled place, as outlined in Table 2.2.
handsets in development but that they are waiting to launch them
when the market has progressed further. There is the potential for TABLE 2.2 Examples of contactless mobile trials in Europe
a highly fragmented marketplace to emerge in terms of mobile Date and location Companies Trial results
payments due to the complexity of the different organisations of trial involved
2010: Sitges, Spain La Caixa, Consumers carried out 30% more
involved; in order to create interoperability between providers, Telefόnica, transactions using the mobile handset than
many players are likely to take a ‘wait and see’ approach. A further Visa, Samsung they did using their traditional plastic cards,
chapter in this report looks at mobile payments in isolation, and the average purchase value increased
by 23%. 90% of the consumers that were
including those made person-to-person, and the likely importance
provided with an NFC-enabled phone used
of the latter in the developing world. it to make a purchase
2008: Melbourne, National Trial lasted 3 months, during which time,
Low-key Trials Several mobile payments trials have been Australia Australia Bank, consumers who had downloaded the NAB
Visa, Telstra Visa credit card software to their phones
conducted in Europe and the US, but only in Asia have they gained to pay for goods and services of a value of
any kind of traction. The Asian market for contactless payments is $AUS35 or less. 90% of trial participants
infinitely more dynamic than in Europe and the US because of: were very or extremely satisfied with the
system, and 95% were likely or extremely
• Younger demographic—younger consumers tend to be
likely to use it again in future. The majority
more keen to adopt new technology (78%) stated that mobile payments are
• Product innovation—a number of the companies that better than using cash
produce new handsets are based in countries like Japan, Source: Various news reports
Korea and more recently, Malaysia, meaning that

14

CHAPTER ES 1 2 3 4 5 TOC www.pira-international.com

 security > e-book > contactless payments

The Contactless Payments Market

None of these trials have led to full-scale rollouts, and consumers— FIGURE 2.2 Use of contactless mobile payments by country, 2011 (%)
although positive about contactless mobile payments when they
have used them—are hardly clamouring for the technology. In the
UK, for example, which is one of the most developed financial
services markets in Europe, recent research from YouGov (June
2011) found that over two thirds of consumers have no plans to
use contactless mobile payments as they are satisfied with the
current payment methods. In France, research conducted by Ifop
on behalf of Wincor Nixdorf involving 1,025 consumers found that
the majority were against the introduction of mobile payments,
with just 41% either strongly (8%) or quite (33%) in favour of this
development. Despite this apparent lack of consumer appetite, Source: Accenture
the Association Francais pour le Sans Contact Mobile (AFSCM)
announced its intention to deploy one million NFC handsets in The research, which involved consumers who were actively engaged
by the end of 2011, with the support of the French government. with technology in that they were regular users of internet sites and
Having trialled the technology in Nice, it will now be rolled out in owned several internet-connected devices, shows a stark difference
eight more cities under the Cityzi brand: between the East and the West, with the exception of Brazil in
• Paris terms of a desire to pay using a mobile handset.
• Bordeaux
• Caen Despite the media coverage that contactless mobile payments have
• Lille received in the UK, awareness remains low, as illustrated in Figure 2.3.
• Marseille
• Renne
• Strasbourg
• Toulouse

Asian consumers have the biggest appetite for contactless mobile

payments, as illustrated in Figure 2.2.

15

CHAPTER ES 1 2 3 4 5 TOC www.pira-international.com

 security > e-book > contactless payments

The Contactless Payments Market

FIGURE 2.3 Awareness of contactless mobile payments in the UK, 2011 (%) The majority of the UK consumers surveyed would use contactless
mobile payments to fund small purchases (81%), although two-
fifths would use them to fund larger purchases such as games
consoles, grocery shopping and clothing. In terms of adoption,
almost two thirds (60%) of UK consumers expect the supermarkets
to be the first to accept contactless mobile payments, which is
interesting in that very few of the large players in this sector are
rushing to do so. Just 2% believed that their handset is NFC
enabled, and just 5% stated that they will get the technology
when it becomes available.

Source: YouGov In the US, the value of mobile transactions looks set to increase,
according to research conducted by Yankee Group, from US$162 billion
Of those who are aware of contactless mobile payments, under a in 2010 to US$984 billion in 2014. This increase is likely to be in the
quarter are interested in using this payment method instead of areas of mobile banking, mobile couponing and mobile commerce. The
cash, and the majority would use it to fund small purchases, as growth of each from 2009-2010 is illustrated in Figure 2.5.
illustrated in Figure 2.4.
FIGURE 2.5 P
 roportion of mobile consumers using mobile banking,
FIGURE 2.4 I nterest in the different uses of contactless mobile couponing and commerce in the US, 2009-2010 (%)
payments in the UK, 2011

Source: Yankee Group

Source: YouGov
16

CHAPTER ES 1 2 3 4 5 TOC www.pira-international.com

 security > e-book > contactless payments

The Contactless Payments Market

These data illustrate that there are many hurdles to be cleared is prevalent, banking branches are concentrated in the large
before contactless mobile payments are anywhere near to being conurbations and communities are geographically dispersed.
adopted by the mass market, particularly in the US and Europe. In Safaricom is one of the market leaders in this technological
Asia, the younger demographic and level of government support for area, having recognised the limitations of the existing banking
the deployment of new technology will see this market developing infrastructure. It launched M-Pesa (M standing for mobile, and Pesa
faster than in the West. being the Swahili word for money) in collaboration with Vodafone.
The M-Pesa service enables consumers to perform the following
Mobile Payment Growth in Developing Regions functions:
The International Telecommunications Union estimates that • Deposit and withdraw money
there were 5.3 billion mobile subscribers by the end of 2010, an • Transfer money to other M-Pesa users and non-users
increase of 4.6 billion from the end of 2009. According to statistics • Pay bills
published by mobithinking.com, 90% of the world now lives in a • Purchase airtime
place with access to a mobile phone network, although this is lower
in rural communities (80%). It is estimated that there were 3.8 Mobile growth is being driven by demand in the developing world,
billion mobile subscriptions in the developing world, representing according to the International Telecommunications Union, with
72% of global subscriptions. demand in the highly populous China and India fuelling this
growth, as illustrated in Figure 2.6.
Mobile phone penetration is far higher than bank account
ownership in the developing world, as illustrated in Table 2.3. FIGURE 2.6 P
 rojected growth of mobile subscriptions in China and India,
2009-2014 (millions of subscribers)
TABLE 2.3 M
 obile phone vs. bank account ownership in the developing
world, 2011 (%)
Region Bank account penetration Mobile phone penetration
Africa 10 – 50 40 – 100
Asia Pacific 20 – 60 40 – 100
Latin America 30 – 60 60 – 80
Source: Bankingtech.com

Person-to-person (P2P) mobile payments have become increasingly

popular in regions such as sub-Saharan Africa, where poverty
Source: E-Marketer 2010
17

CHAPTER ES 1 2 3 4 5 TOC www.pira-international.com

 security > e-book > contactless payments

The Contactless Payments Market

Contactless P2P mobile payments look set to continue to

grow, particularly in the developing world, where the banking
infrastructure is less well developed and where there is a reliance
on cash. However, in the developed world, mobile banking is
not predicted to become mainstream until 2015, according
to technology research company Gartner. This is due to the
established banking infrastructure and reliance on branch networks
in many countries.

Summary
The global contactless payments market is still in a ‘chicken and
egg’ situation. Consumers cannot make contactless payments
unless they hold a device—card or mobile phone—that enables
them to do so. If they have been issued a card or acquired a mobile
handset that enables them to pay without making contact with the
card reader, this functionality is only available where contactless
card readers have been installed, and in the US—one of the most
mature payments markets in the world—contactless payments
still represent a small proportion of the overall payments market.
Financial incentives that encourage merchants to update their
card readers will be necessary to encourage the growth of this type
of payment, and even then, contactless payments will be most
attractive to merchants that typically experience a high volume of
low-value transactions.

The following chapters of this report focus on the technology

behind contactless payments and examine some of the initiatives
that have developed in different regions of the world.

18

CHAPTER ES 1 2 3 4 5 TOC www.pira-international.com

 security > e-book > contactless payments

Contactless Technology

3
Introduction various aspects of chip card payment systems. ISO/IEC is one of
This chapter reviews the various contactless technologies available the worldwide standard-setting bodies for technology, including Plastic cards have
in the global marketplace, including RFID and NFC. It provides plastic cards. The primary standards for smart cards are ISO/IEC existed in the
information on the various standards for contactless payments, and 7816, ISO/IEC 14445, ISO/IEC 15693 and ISO/IEC 7501.
an explanation of how payments are processed.
payment market
ISO 7816 ISO/IEC 7816 is an international standard consisting since the 1950s,
Plastic Payment Cards of fifteen parts. Parts 1, 2 and 3 are concerned with smart cards and until the
Plastic cards have existed in the payment market since the that need to come into contact with a card reader, and they latter part of the
1950s, and until the latter part of the twentieth century, they define the various aspects of the card and its interfaces, including twentieth century,
did not change very much in terms of the technology involved in its dimensions, the electrical interface and the communications they did not change
storing and registering payment data. The magnetic stripe still protocols. Parts 4-15 of the standard define the logical structure of very much in terms
contained on the majority of payment cards, as explained in the the card in terms of the files and data elements relating to it, the
previous chapter, was the traditional method of data capture various commands used by the application programming interface,
of the technology
and transmission. However, as the penetration of plastic cards application management, biometric verification, cryptographic involved in storing
increased, so did plastic card fraud through methods such as services and application naming. Part 10 relates to member cards and registering
skimming and card theft, leading to increasing financial losses for applications such as prepaid cards or vending machines. payment data.
that have, largely, been absorbed by the financial card issuers but
in some cases have been passed onto consumers in the form of ISO/IEC 14443 ISO/IEC 14443 is and international standard
increasing bank charges. that defines the interfaces for contactless smart cards, including
elements such as the radio frequency, which is 13.56Mhz, with an
Cards containing magnetic stripes are being replaced globally by operational range of up to 10cm, although for payment cards, the
smart cards. Invented and patented in France in the 1970s, smart smart card needs to be held closer to the reader. Further standards
cards were initially used in a mass-market application as payphone exist for cards that interact with readers at a greater distance.
cards, and then later integrated into French Carte Bleue debit cards.
The increase in fraudulent card activity is one of the reasons behind EMV standard EMVCo was formed by Europay International, Visa
the development of EMV Integrated Circuit Card Specifications, International, and MasterCard International in 1999. Since then,
which form the credit card industry standard for chip-based debit Europay has been purchased by MasterCard, and JCB joined the
and credit cards. The EMV Specifications are consistent with the company in 2005. EMV has developed a standard based on the
ISO 7816 Smart Card Standard, which outlines the standards for principles of ISO 7816 to ensure the interoperability of smart cards.

19

CHAPTER ES 1 2 3 4 5 TOC www.pira-international.com

 security > e-book > contactless payments

Contactless Technology

Contactless Payments contactless reader

Contactless cards and other devices have a number of advantages • Development of portable card readers that can gain
over other payment methods, not least the speed at which they access to contactless payment devices when carried
enable consumers to pay, as illustrated in Figure 3.1. around in a wallet or purse

FIGURE 3.1 Transaction times of different payment methods (seconds) According to research undertaken by payments solutions provider
Ingenico in 2011, 73% of UK consumers feel that they need more
education before using contactless payments, and almost half
(47%) are concerned about the safety of doing so.

However, contactless payments are as secure, if not more than,

payments made using a card with a magnetic stripe for a number
of reasons. The card or other payment devices needs to be held
close to the card reader—usually 10cm or less—in order for the card
details to be recognised and for the transaction to be processed.
Payments are processed through existing financial services
Source: technovelgy.com systems, which have many layers of security already built into
them to protect the parties involved in transactions, such as risk
Contactless payments, therefore, reduce queuing times at checkouts management and fraud detection.
and other locations where small payments are made, such as public
transport networks and highway toll booths. According to the Smart Card Alliance, in addition to the existing
security measures in place to protect traditional card transactions,
Security of Contactless Payments made using either a magnetic stripe or chip, additional security
Consumers have a number of concerns relating to contactless measures have been built into contactless payments, although
payments, including the following: these differ by issuer. From the perspective of card security, cards
• Level of financial liability if the contactless payment usually contain a unique security key that uses standard 128-bit
device is lost or stolen encryption technology that generates an individual card verification
• Extent to which payments for other people’s goods and value or cryptogram that exclusively identifies each transaction.
services can be made if the device is in the vicinity of a Payment networks then have the ability to reject any attempt to

20

CHAPTER ES 1 2 3 4 5 TOC www.pira-international.com

 security > e-book > contactless payments

Contactless Technology

use the same transaction information more than once. Therefore, if even accept contactless payments.
a fraudster does try to obtain transaction data through the use of a
portable contactless reader, the data would not be able to be used Another potential security risk is that a card can be intercepted
as it would be rejected by the payments operators. It also prevents by thieves when being mailed out to consumers. In some cases,
the creation of fake duplicate cards as it is the unique transaction contactless cards can be used immediately by fraudsters unless
number that is communicated between the card and the reader. secure card activation is in place, which requires the consumer to
contact the card issuer to answer security questions before the
Ingenico’s research found that around half of British consumers card can be used. However, such ‘calls to action’ on behalf of the
are concerned that their identity could be stolen when using a consumer can be designed to create cross-selling opportunities, and
contactless card. This is unlikely, as the cardholder’s name is not often the card can be used whether or not the activation call has
included in payment transactions, and best practice dictates that been made. Other security measures designed to limit interception
this information is not actually contained within the contactless chip. of cards include RF shields in the mailing envelope, the removal
Also, the risk of skimming, whereby the card details are copied when of the cardholder’s name from the contactless chip and the use of
the card is swiped by a third party is reduced, as the card does not alternate account numbers.
leave the cardholder’s possession during the payment transaction.
Communication Standards
Although it is possible that contactless devices can be read by Although EMV is fast becoming the global standard for processing
portable readers, they would need to be designed to be held in very transactions using chip and PIN cards, the universal standard
close proximity to contactless devices, which are usually contained for contactless cards is not yet adhered to by scheme operators.
in closed wallets or purses, or for a fraudulent reader to be placed The numerous card schemes have, instead, developed their
close to the point-of-sale in a retail environment. The latter would own proprietary specifications, the most prevalent of which are
be very difficult to achieve given the level of security and CCTV in MasterCard PayPass and Visa Paywave. Both MasterCard and
the majority of retail environments, and in the outlets that do not Visa use the same communications protocol that supports devices
have such high security and lower foot traffic, the effort required containing both RFID and NFC technology, based on the ISO/IEC
to install a fraudulent reader would probably not be worthwhile 14443 standard. The protocol is now managed by EMVCo as the
given the low value of transactions made on contactless devices EMV Contactless Communication Protocol Specification, and both
and the low proportion of people that have actually used this Visa and MasterCard have a common Entry Point specification
payment method. Currently, just 5% of UK consumers have used that enables a single contactless kernel interface to support the
this payment method, and in the US, only around 2% of merchants different contactless payments standards that exist.

21

CHAPTER ES 1 2 3 4 5 TOC www.pira-international.com

 security > e-book > contactless payments

Contactless Technology

The EMV Entry Point is able to differentiate between the different • American Express ExpressPay
contactless applications that are present on a card, from which point • Discover Zip
it selects the appropriate payment processing path to follow. On • MIFARE
selection of the appropriate contactless application, the Entry Point • NFC
then hands full control of the contactless payment transaction to
the card’s specific Contactless Kernel, which performs the necessary Proprietary Systems
contactless card interactions and processing before returning the As the cashless means of payment increase, merchants will
final transaction data and outcome to the Entry Point. be looking for a single card reader solution to enable them to
accept all forms of payment. Examples of multi-functional readers
Contactless Readers manufactured by OTI are provided in Figure 3.2.
Card readers usually interface with a PC or terminal that reads and
writes to smart cards. Contactless readers work with a frequency FIGURE 3.2 Multi-functional card readers
that communicates when the card is held close to the reader. The
dominant protocol under ISO 14443 is MIFARE, followed by EMV.
Readers communicate with terminals, which are similar to self-
contained PCs, developed for a specific purpose, e.g., Point of Sale
(POS). Connectivity is typically via Transmission Control Protocol or
Internet Protocol (TCP/IP), or GSM network.

The majority of the readers being manufactured for today’s market

are likely to contain the necessary technology to enable them to read
contactless cards and mobile handsets. In addition, however, due to
the fragmented nature of the payments market in terms of cards and Source: OTI Ltd.
devices, they will also need to contain the following functionality:
• ISO 14443 Payment Implementation (EMVCo) Transaction Values
• MasterCard PayPass Mag Stripe Payment limits on contactless cards and other devices are generally
• MasterCard PayPass M/Chip (EMV) set at a low level in terms of the nature of the transactions that
• Visa Paywave MSD they are used for, and to limit the value of fraudulent activity
• Visa Paywave qVSDC (EMV) should the card be lost or stolen. In the UK, for example, the

22

CHAPTER ES 1 2 3 4 5 TOC www.pira-international.com

 security > e-book > contactless payments

Contactless Technology

maximum amount that can be spent in one transaction using a next chapter. The symbol for contactless payments is illustrated in
contactless card is usually £15, and in the US, it is $15-$20. In Figure 3.3.
Europe, where contactless trials have taken place, the limit has
been set at €15- €20. Contactless cards are intended to be used The main providers of contactless cards are Visa and MasterCard,
for low-value, convenience-type purchases that occur in outlets such although American Express and other providers support contactless
as newsagents, coffeehouses, and fast-food restaurants, where schemes in the US.
customer foot traffic is high, and queue reduction is a priority. FIGURE 3.3
Purchases above these limits require a PIN to be entered where Step one in processing contactless payments involves the merchant The contactless
payments symbol
EMV standards have been implemented or a signature where EMV entering the amount of the transaction into the terminal keypad; if Source: www.contactless.info
has yet to be introduced. that amount is below the contactless threshold, the customer can
be offered the option of using their contactless card. The first step
To limit the extent to which a contactless card or other device can of the process is illustrated in Figure 3.4.
be used if lost or stolen, the number of times that the device can
be used for payment purposes is usually pre-set to, say, 10, before The customer then holds his card close to the contactless reader,
a PIN or signature is required. This limits both the number of times as illustrated in Figure 3.5. The card will not communicate with
that a device can be used when in the wrong hands, and it limits the reader unless it is held in close proximity, about 10cm away at
the total value of expenditure that can take place on it prior to most. Customers are advised to remove the contactless card from FIGURE 3.4
additional verification being requested. their wallet or purse in case they possess more than one such card, Step one of the contactless
payments process
as multiple cardholding will cause a connectivity error and the Source: www.contactless.info
Processing Contactless Transactions payment will registered because the reader cannot differentiate
The steps toward processing contactless transactions depend on the between all the cards in the wallet.
equipment in place—for example, whether it is a stand-alone reader
and terminal or an integrated system. The steps in the process are, The contactless reader display confirms that the transaction has
however, similar and outlined in this section of the report. been successful and provides audible and visual confirmation, as
illustrated in Figure 3.6.
Recognition of Contactless Cards The symbol for contactless
payments must be present on the payment device—at present, Receipts When a stand-alone reader has been used, a merchant FIGURE 3.5
Proximity with which
the device is usually a plastic card, but in the future it could be a receipt will be printed by the terminal to confirm that the
contactless cards need to be
mobile phone, key fob or other portable device, as outlined in the transaction is complete. Where an integrated system has been held to card readers
Source: www.contactless.info

23

CHAPTER ES 1 2 3 4 5 TOC www.pira-international.com

 security > e-book > contactless payments

Contactless Technology

used, the merchant will be offered the option to print a receipt, • Animal tagging to enable them to be identified using a
which must be done should the customer request one. scanner
• Tracking shipping containers
Gratuities Gratuities can be added to contactless payments, • Identifying ownership of other valuable items, such as
although if the total value of the transaction exceeds the musical instruments
contactless threshold when the tip is added onto the bill, the • In anti-theft devices fitted to high-value supermarket
payment will need to be processed as a chip and PIN payment. items
Refunds for purchases made using contactless cards also need to • Secure entry systems within buildings, such as offices or
FIGURE 3.6
be made via insertion of the card into the reader and the entry of apartment blocks
Confirmation of a successful
contactless transaction a PIN. It is not possible to obtain cash via contactless payments—
Source: www.contactless.info again, the card must be entered into the reader and a PIN entered The end-uses of RFID are discussed in the next chapter in more
when a customer requests cash back. detail.

RFID and Contactless Payments How RFID Works RFID systems are made up of three parts:
Radio-frequency identification (RFID) refers to small electronic • A scanning antenna
devices that consist of a small chip, typically capable of carrying • A transceiver with a decoder to interpret the data
2,000 bytes of data, and an antenna. The RFID device essentially • A transponder that has been programmed with
serves the same purpose as a barcode or a magnetic stripe found information
on most payment cards in that it provides a unique identifier for
that object and it needs to be scanned to retrieve the identifying The scanning antenna transmits short-range radio-frequency signals
information—in the case of contactless payments, payment card that communicate with the transponder (the RFID tag) and that
details. RFID has many uses, and it has been in the market for more provide the RFID tag with the energy to communicate, negating
than fifty years, although it is relatively recently that the technology the need for batteries to provide energy. Tags work on different
has been applied to payments. In addition to its use in contactless frequencies, as outlined in Table 3.1, and can be as small as 0.4mm
payments, RFID technology is also used for the following purposes, by 0.4mm with a reading range of 10mm to 5m.
amongst many others:

24

CHAPTER ES 1 2 3 4 5 TOC www.pira-international.com

 security > e-book > contactless payments

Contactless Technology

TABLE 3.1 RFID Frequencies systems within public transport networks around the world. Other
Type of tag Frequency RFID tags are developed for single networks, such as building-
Low-frequency tags 125 – 134kHz access control, requiring consumers to carry several cards for
High-frequency tags 13.56kHz
different purposes.
Ultra-high-frequency tags 868 – 956MHz
Microwave tags 2.45GHz
System Disruption RFID systems use the electromagnetic
Source: Silone.com
spectrum, and because of this, they are relatively easy to disrupt
using energy at the right frequency; this causes delays in queues
Scanning antennae can be either fixed to a surface or handheld.
in retail environments, and more serious problems in hospitals and
When the RFID tag is held in proximity to the scanner, the chip is
secure government buildings due to interference with equipment
alerted, and it transmits the required information from its microchip
and access. Visa recommends the following measures to minimise
to the scanning antenna. In the case of contactless payment
disruption:
cards, the card must be held very close to the reader for the data
• Locate contactless readers at least 200cm away from
transmission to take place. This makes the technology relatively
RFID anti-theft devices
secure, despite the fears of many consumers.
• Do not use contactless cards in close proximity to other
active transmitting devices such as mobile phones,
Problems Associated with RFID There are several problems
personal digital assistants or pagers, as these can
with RFID, which can be categorised as follows:
disrupt contactless transactions
• Standards
• Do not place contactless readers close to electrically
• Disruption
powered equipment such as personal computers, light
• Reader collision
displays, cooking appliances or refrigeration equipment
• Tag collision
• Fit the POS device and contactless card reader with
transient arrestor devices that protect the reader from
Each of these issues is discussed in this section of the report.
power surges, which can disrupt transactions
• Regular testing of all electrically powered devices, such
RFID Standards The implementation of RFID is still in its infancy,
as cash registers, that are located close to the card
and as such, global standards are still being clarified. A number of
reader to ensure that they are electrically grounded
proprietary systems have been developed, such as Octopus in Hong
Kong, Oyster in the UK, and many other contactless payments

25

CHAPTER ES 1 2 3 4 5 TOC www.pira-international.com

 security > e-book > contactless payments

Contactless Technology

• Contactless readers mounted on motor vehicles Set-up and Transaction Costs

need to be mounted away from high-voltage vehicle The cost of setting up the capability to accept contactless payments
components is dependent on factors that vary by merchant and scheme. The
• Ensure that the area between the contactless card and Smart Card Alliance Payment Council has developed a model
reader is clear of metal or metallic objects that enables merchants to calculate the return on investment
• Locate contactless readers at least 30.48cm away for accepting contactless payments. The model, which can be
from each other as the magnetic field of multiple card downloaded in Excel format, asks merchants to enter the data
readers in close proximity to each other may overlap, outlined in Table 3.2.
thereby causing reader collision
TABLE 3.2 Smart Card Alliance model for calculating contactless ROI
Reader Collision Reader collision occurs in RFID systems when
the coverage area of one reader overlaps that of another. Signal Cash transactions in the UK cost an average of 2.1 pence,
interference can result in the contactless device being read by both according to the British Retail Consortium, with debit card
CLICK TO VIEW TABLE
readers—this problem can be overcome by programming readers transactions costing 8.9p and credit cards 33p. In recognition of
that are located within close proximity to each other to read at the low value of contactless card transactions on immediate debit
fractionally different times. cards and to encourage their take-up, Visa and MasterCard have
offered the incentive of reduced interchange fees for merchants.
Tag Collision Tag collision in RFID systems happens when a Contactless transactions are, therefore, around half of the cost of
number of cards or other RFID-enabled devices are in close proximity payments made by chip and PIN, but despite this, research from
to each other. The card reader can energise contactless devices the Payments Council found that 75% of low-value transactions are
simultaneously, and it becomes confused about which one it is still made using cash in the UK.
meant to be reading. Systems have been developed to recognise
when tag collision has taken place; one such system involves a It is apparent from Table 3.2 that the business case to support
special signal sent by the reader, known as a gap pulse. When the contactless payments is extremely complex, and many businesses
contactless tag receives this signal, each tag consults a random will not have the kind of data at hand to enable them to ascertain
number counter to determine the interval to wait before sending whether updating their systems will be worthwhile from a financial
its data. Each tag receives a unique interval and therefore sends its perspective.
data at different times.

26

CHAPTER ES 1 2 3 4 5 TOC www.pira-international.com

 security > e-book > contactless payments

Contactless Technology

NFC and Mobile Payment Technology NFC devices can be used with the existing contactless hardware in
NFC, the brainchild of Sony and NXP, is a very short-range radio place in merchant outlets and on public transport networks without
communication technology. It operates on a standard 13.56MHz the need for new equipment or expensive modification of existing
frequency and can transfer data of up to 424KB per second. equipment. The specification covers the digital interface and half-
Communication is triggered when two NFC-compatible devices are duplex transmission protocol of the NFC-enabled device, including:
held close to each other. The NFC Forum provides a comparison • Bit level coding
between NFC and RFID, as illustrated in Table 3.3. • Bit rates
• Frame formats
TABLE 3.3 Comparison between NFC and RFID • Protocols
NFC RFID • Command sets
Range Up to 10cm Up to 3m
Usability Human-centric, easy, intuitive, fast Item-centric, easy
NFC has been available since 2003, and although it is based
Selectivity High Medium, depending on
operating frequency
on RFID, it has the additional benefit of computing power. This
Consumer Touch, wave, simply connect Get information additional functionality requires the appropriate hardware for it to
experience be used; mobile handsets are ideal for this purpose as they contain
Source: NFC Forum both an antenna and controller as well as software in the form
of an operating system and apps. NFC capabilities can be broken
The NFC Digital Protocol Technical Specification provides an down into three main categories, as outlined in Table 3.4.
implementation specification alongside the ISO/IEC 18092
and ISO/IEC 14445 standards. According to the NFC Forum, ‘It TABLE 3.4 NFC capabilities
harmonises the integrated technologies, specifies implementation Capability Description
options and limits the interpretation of the standards; in essence, Card emulation The phone becomes a payment card and acts like a contactless card
so that the existing contactless payment infrastructure can be used
showing developers how to use NFC, ISO/IEC 14443 and JIS to make payments using the phone
X6319-4 standards together to ensure global interoperability Reader mode The phone is able to read passive RFID tags on posters, stickers and
between different NFC devices, and between NFC devices and other stationary objects, enabling the user to obtain information
existing contactless infrastructure.’ directly to their handset
Peer-to-peer P2P mode facilitates interaction between NFC-enabled phones
mode (P2P) enabling users to perform functions like making payments, sharing
The specification has been developed to ensure that the feature music downloads, and gaming
sets of NFC applications are designed in a consistent way so that Source: Engadget.com

27

CHAPTER ES 1 2 3 4 5 TOC www.pira-international.com

 security > e-book > contactless payments

Contactless Technology

NFC functionality is similar to Bluetooth, but it is faster than the years has had many layers of security built into it.
latter and it connects at a much closer range.
For merchants, the business case for the adoption of contactless
Despite all of the possibilities presented by NFC-enabled mobile payments is complex, and it is likely that stronger incentive than
handsets, and the vision that consumers will be able to leave home just reduced interchange fees will be required to encourage take-up.
with just their mobile phone as their money, identity card, theatre This may involve the card issuers or acquiring banks fully or partly
tickets, etc., older consumers in particular will need to be persuaded funding the replacement or upgrading of readers and terminals to
to embrace this concept, which requires changing deep-set habits. move merchants away from cash payments.
Also, consumers are already accustomed to using credit and debit
cards, so a move to contactless card payments will not be a huge
leap for most, provided that security fears are sufficiently allayed.
Contactless mobile payments and the concept of storing additional
personal details on one device will require far more consumer
education regarding security and safeguards against hacking.

There are other technical issues associated with using the mobile
phone as a payment mechanism. The hardware and software
currently contained within handsets is not perfect and can ‘crash’ at
the time at which payment is made. Also, the batteries that power
the handsets need to be recharged, and many people forget to do
this from time to time.

Summary
Despite consumer concerns, contactless payments are secure, but
it is clear that further education is required before their use is
widespread. Card and account details are not transmitted during a
payment transaction. Rather, a unique number is created for each
transaction that cannot be used again. Contactless payments also
operate within the established payments system, which, over the

28

CHAPTER ES 1 2 3 4 5 TOC www.pira-international.com

 security > e-book > contactless payments

End-use Applications

4
Introduction TABLE 4.1 Examples of contactless card transport schemes
This chapter examines the various industries and end-uses to Scheme Location Contactless plastic
which contactless technology has been applied in recent years. It Octopus Hong Kong
cards are the most
Oyster London, England
explores new innovations in payments, health care, fuel retailing
and transit, and discusses the ways in which contactless technology
Smartrider Perth, Australia popular form
has benefited each industry. It also looks at the form factors that
Navigo Pass Paris, France of contactless
Touch & Go Kuala Lumpur
contactless technology can take, including cards, key fobs, mobile T-Money South Korea
payments,
phones and medical devices. Suica Tokyo although they are
Delhi Metro Delhi, India not widely used in
Contactless Plastic Cards EZ-Link Singapore
most countries.
Contactless plastic cards are the most popular form of contactless Source: Scheme websites
payments, although they are not widely used in most countries.
Card schemes fall into two broad categories—closed-loop and Closed-loop contactless cards are usually pre-loaded with value
open-loop. Transport systems, such as Transport for London’s Oyster before they can be used. Such closed-loop cards are relatively low
card, is closed-loop in that it can only be used where Oyster cards risk in that they can only be used until the stored value runs out, and
are accepted, and this is, at present, limited to London’s transport consumers do not generally load large amounts of money onto them.
network and a small number of retail outlets.
The application of contactless payment technology to transit
Open-loop cards can be used in a variety of outlets, where EMV benefits both the consumer and transport operator in several ways.
card readers have been upgraded to accept contactless cards; open-
loop cards include Visa Paywave and MasterCard PayPass. Consumer benefits include:
• Reduced reliance on carrying cash to purchase tickets
Closed-loop Contactless Cards Many of the current closed-loop • Reduced time spent in queues at ticket machines or
contactless card schemes have originated from transport systems, travel centres
as outlined in Table 4.1. • Often, lower journey costs if the contactless system has
been programmed to calculate the lowest ticket price
when the card is swiped at the start and end of the
journey, as is the case for London’s Oyster scheme
• Faster transit times as the need to insert tickets at

29

CHAPTER ES 1 2 3 4 5 TOC www.pira-international.com

 security > e-book > contactless payments

End-use Applications

barriers is eliminated in the majority of cases TABLE 4.2 Types and costs (HK$) of Octopus cards available
Child Adult Elder Personalised
For transport operators, the benefits are: Deposit 50 50 50 50
• More efficient processing of passengers through busy Initial stored value 20 100 20 30
Handling charge - - - 20
transport gates
Fare concession eligibility Age 3-11 - Various Automatic
• Reduced cash handling costs dependent on
• Reduced staffing costs in travel centres network
Source: Octopus Cards Ltd.
Of the transit schemes contained in Table 4.1, the Octopus card
in Hong Kong was one of the first to be rolled out to scale and Deposits are returnable on loaned cards, and any excess stored
implemented in retail outlets other than the transport system. There value is refunded on returned cards.
are currently more than 23 million cards in circulation amongst
a population of 7 million. Octopus processes over 11 million Closed-loop, or proprietary, contactless card schemes have a number
transactions a day, with a value of HKD$100 million. of disadvantages. They are expensive to run, as the operator acts
as the bank, clearing house and payment processor. The payment
The card is accepted at over 9,000 retail outlets from over 3,000 devices that operate within closed-loop schemes are also limited to
service providers in addition to the transport network providers in merchants that have opted into the scheme, and these are often
Hong Kong, including the following: very localised like the Octopus scheme, which, although having
• McDonalds been implemented in a small number of locations other than Hong
• Chickeeduck children’s clothing Kong, is still confined to a condensed geographic region.
• Various MTR shopping malls
• Market Place supermarkets Open-loop Contactless Cards Open-loop contactless plastic cards
• UA Cinemas are those enabled by payments companies, including Visa, MasterCard
• Q-Pets and American Express, and issued by banks. Open-loop cards can
be used in the majority of locations that accept Visa/MasterCard
There are over 50,000 Octopus card readers in Hong Kong, and over payments, and where a contactless-enabled reader has been installed.
2.4 million cardholders have joined the scheme’s loyalty programme. They tend to be general-purpose payment cards that can be used
Cards are issued on a ‘sold’ or ‘on loan’ basis. Table 4.2 outlines the to acquire cash from ATMs as well as for contactless payments in
types of Octopus cards available and the associated costs. merchant outlets that accept them.

30

CHAPTER ES 1 2 3 4 5 TOC www.pira-international.com

 security > e-book > contactless payments

End-use Applications

Open-loop contactless cards are usually attached to a bank account The benefits of using RFID in government include an increase in
or credit card and, as such, carry greater potential risk of financial visibility and accountability, and efficiency gains that (in theory)
loss should the card be lost or stolen, as thieves have access to lead to lower costs for consumers and increased safety and security.
potentially large lines of credit or bank account deposits. Open-loop However, the issues associated with privacy when storing and
cards can also be used in a variety of merchant outlets relative to using personal information have led to a number of laws being
closed loop (Octopus is an exception), and a thief can, therefore, introduced to ensure that this data is not misused.
potentially run up a large bill without having to enter any security
details at the point of sale. To reduce the risk associated with these Fuel Retailing
types of cards, transaction limits are usually imposed when they Contactless and cashless payments are also being introduced
are used in a contactless transaction. Additional security measures to fuel retailing with the emergence of technology that is
are also built into them, such as the need to enter a PIN after a programmed to recognise vehicles, link them to a payment account
particular number of transactions, thereby limiting the number of and control the amount of fuel permitted to be dispensed.
times that the card can be used fraudulently.
One such system is EasyFuel Plus, operated by contactless
Government Applications technology company OTI. A vehicle tag is installed in the vehicle,
RFID is used in a number of ways to store and transmit the packaged in a waterproof enclosure, with an antenna mounted
personal data held by government departments as well as around the fuel inlet. The vehicle antenna communicates with a
information contained in official documents such as national ID remote antenna that is located in the petrol station building in
cards, driving licences, passports and welfare systems. order to access information stored on the vehicle tag. On entering
the petrol station, the remote antenna detects the vehicle tag. The
In the US, for example, Homeland Security uses the RFID system tag contains information specific to the vehicle, including:
to track and identify assets, baggage on flights and dangerous • Vehicle registration number and other ID information
weapons. The Department of State now issues electronic • The amount of fuel that the driver is permitted to
passports to citizens to enhance border security and to prevent dispense
the unauthorised entry into or exit from the US. In addition, RFID • The type of fuel that should be dispensed
is used to track hazardous waste, such as nuclear waste or toxic • Length of time between refuelling
chemicals to ensure its safe storage or disposal. • Distance travelled between refuelling
• Payment/billing information
• Multiple driver identification

31

CHAPTER ES 1 2 3 4 5 TOC www.pira-international.com

 security > e-book > contactless payments

End-use Applications

The system is able to detect if a vehicle tag is not valid, and it is petrol payment solution, OTI has developed a solution for
possible to detect that the other controls have not been breached, contactless car park payments named EasyPark. EasyPark, which
or the fuel pump will not be authorised for use. The tag contained has 600,000 users in Israel, charges motorists for the exact period
within the vehicle is a microprocessor-based smart card, as of time parked through the installation of an in-vehicle device
illustrated in Figure 4.1. designed to behave like an electronic parking meter, as illustrated
in Figure 4.3. The system operates using proprietary software and
Other information can be downloaded onto the tag, such as it can either be used as a stand-alone single vehicle solution or on
vehicle maintenance records, and although the tag’s power source top of an existing parking system.
FIGURE 4.1 FIGURE 4.3
is the vehicle, it runs on a very low current that does not affect on
Fuel smart tag Contactless parking
Source: OTI
the vehicle’s performance. Communication between the various EasyPark devices do not contain any stored value when purchased. payment device
elements of the system is encrypted and, therefore, secure. The tag Value is added by the purchaser at a range of locations as required Source: OTI Ltd.
usually takes the form of a key fob, an example of which is provided using cash or a payment card. Locations include petrol stations,
in Figure 4.2. convenience stores, post offices and shopping malls. The system has
been fully implemented throughout Israel as it does not require a
This type of technology has far-reaching implications for the way in large supporting infrastructure, and it can be easily integrated with
which fuel is purchased in the future. At present, it is being marketed existing parking systems. Consumers benefit from the elimination
as a product for companies with fleets of vehicles that may currently of the need for cash when parking and from only being charged
provide their drivers with a fuel card, or claim the cost of fuel on for the exact time they are actually parked in a particular location.
expenses. It has the potential to reduce staff costs through the Customers can also receive details of their parking history from
automation of fuel access authorisation, and through fewer customers reloading stations.
queuing to pay for their purchases. It also has the potential to improve
the customer experience through reduced queue times and improved Municipalities benefit from, amongst other things, a reduction in
FIGURE 4.2
Fuel smart tag in key fob form convenience. OTI’s solution can also accommodate the addition of cash handling costs, as collected parking fees are automatically
Source: OTI a loyalty programme enabling consumers to collect rewards where transferred to the municipality via the system’s clearing centre
applicable without having to visit the kiosk. when the card is reloaded. An enforcement device is used to
communicate with the in-car device where parking inspections
Car Parks are required. In Tel Aviv, parking revenues are reported to have
A number of contactless solutions have been developed to replace increased by 20% as a result of fairer parking charges.
cash when paying for car parking. In addition to its contactless

32

CHAPTER ES 1 2 3 4 5 TOC www.pira-international.com

 security > e-book > contactless payments

End-use Applications

Payment Stickers according to NFC Times). The sticker operates independently

Contactless smart card technology can also take the form of of the mobile phone, and transactions were not intended to be
stickers that can be applied to a range of devices, but have so far communicated back to the phone via text message. Citigroup is
mainly been used in conjunction with mobile phone handsets. The not actively promoting the stickers at the time of this writing, but
stickers, which are specifically designed to work with mobile phones the stickers are available on request. An example of Citi’s sticker is
in terms of size and cohesion, are being ‘softly’ launched by a illustrated in Figure 4.4.
number of providers in order to accelerate the development of the
contactless mobile payments market in a number of countries. Mobile sticker trials have taken places in other regions of the
FIGURE 4.4
world. In Slovenia, for example, UniCredit Group is making the
Citi’s contactless mobile
Stickers, which are attached to the back of the case of mobile stickers available to its current account customers. During the phone sticker
phones, have the advantage of bypassing the complex business pilot, customers will be able to use their mobile handset to make Source: Citigroup
model that pure mobile payments represent as they are usually payments of €20 or less without entering a PIN. For transaction
issued by card issuers and linked to an existing credit or debit values above €20, a PIN will be requested. In July 2011,
card. Payments made using the sticker are processed by the card approximately 3,000 merchants accepted contactless payments,
issuer and clearing house, and they are linked to a bank account including fast-food outlets, cinemas, and supermarkets. Slovakian
or credit card facility. As outlined in the previous section of this consumers currently use contactless payments on the public
report, handset manufacturers appear to be reluctant to release transport network, and UniCredit is hoping that this will make them
NFC-enabled handsets due to both a lack of merchant acceptance, more likely to use contactless mobile payments. An example of
and consumer apathy (despite the ‘positive’ trial results). So in UniCredit’s contactless sticker is provided in Figure 4.5. The stickers
the meantime, stickers are a relatively low-cost alternative to are manufactured by French company Optelio, and they contain
encouraging consumers to reduce their reliance on cash and to MasterCard PayPass technology. FIGURE 4.5
help them get used to using a mobile phone as a payment device. UniCredit’s contactless
In Canada, a consortium of telecom providers has launched a payment sticker
Source: UniCredit
In 2010, US-based Citigroup launched its contactless payments similar sticker product that can be attached to a mobile phone,
sticker, although rather than issuing it to segments of its customer enabling the phone to be used as a payment device. Zoompass
base, it initially made it available via its website. The sticker is was developed by EnStream, a collaboration between Bell Mobility,
equipped with MasterCard PayPass technology, and it enables Rogers Communications and Telus Corp. Linked to a credit card
consumers to ‘tap and pay’ for purchases of under $50 where account, the sticker also enables consumers to use their phone as
PayPass is accepted in the US (about 70,000 merchant outlets, a contactless payment device; Zoompass can also be used to send

33

CHAPTER ES 1 2 3 4 5 TOC www.pira-international.com

 security > e-book > contactless payments

End-use Applications

money to family and friends via an iPhone or BlackBerry app. • Mobile wallets controlled by mobile network operators,
ISIS and Sprint
Similarly, in Germany, it was reported in June 2011 that mobile • Mobile wallets controlled by the retailers/stored-value
operators are planning to launch a further contactless payments companies, i.e., CorFire and Incomm
trial using stickers. Deutsche Telekom, Vodafone D2 and Telefónica • Mobile wallets controlled by the banks and card networks.
(O2) are planning to trial the payment methodology in Bonn,
Dusseldorf, and Cologne before the end of 2011. The stickers will The lack of clarity around the commercial model that will work for
be branded with mpass, the Internet payment service operated by all parties is one of the reasons that mobile payments have not
the three telecom companies. New payment terminals will need to taken off the way some analysts have predicted. Coupled with a
be installed within merchant locations due to the current lack of lack of general merchant acceptance in most countries as well as a
contactless-enabled readers in Germany. If successful, the scheme lack of consumer demand, mobile payments are unlikely to become
could potentially bypass major German banks and card networks mass market for at least two years.
Visa and MasterCard by operating under the telecom companies’
own banking or e-money license. Retailers Considering NFC Fifty-seven percent of retailers in
the UK are considering NFC as part of their existing or planned
Although the contactless stickers provide a simple interim solution strategies, mainly to retain a competitive edge and to address
to the lack of NFC-enabled handsets available on the market, perceived consumer demand, as illustrated in Figure 4.6.
whether consumers will want to attach them to their mobile
phones remains to be seen. FIGURE 4.6 Reasons for retailer consideration of NFC, 2011 (%)

Contactless Mobile Phone Payments

In addition to the issuance of contactless payment stickers, mobile
handset manufacturers have been developing NFC-enabled
handsets, although few have been made available to the mass
market in many countries. The business model for mobile payments
is complex, with at least four possible scenarios in terms of control
of the mobile wallet. These scenarios are:
• Mobile wallets controlled by the handset manufacturers,
i.e., Apple and Google
Source: Vanson Bourne research, published by Kony Solutions

34

CHAPTER ES 1 2 3 4 5 TOC www.pira-international.com

 security > e-book > contactless payments

End-use Applications

However, there is a gap between the perceptions of retailers and Mobile Commerce Strategy According to research undertaken
the actual consumer demand for mobile payments. Research by Kony Solutions, published in April 2011, just 16% of UK retailers
undertaken and published by the same companies, involving 1,000 have a mobile commerce strategy fully in place, and almost one
UK respondents, found that just 25% of consumers would use their third of the 100 marketing and IT managers interviewed stated
mobile phone instead of cash or cards to pay for items in store. that they had no intention of putting one in place, as illustrated in
Figure 4.8.
NFC: Benefit to the Retailer? Although the majority of retailers
are considering NFC and the advantages that it can bring their FIGURE 4.8 P
 roportion of UK retailers with a mobile commerce strategy
in place, 2011 (%)
businesses, there are a number of reasons that some are not
considering introducing the technology. More than one third of
retailers perceive the technology to be too expensive to implement,
and the same proportion felt that there is a lack of demand for the
payment methodology. Just under a third felt that mobile payments
add no additional value to their business.

FIGURE 4.7 Reasons that UK retailers are not considering NFC, 2011 (%)

Source: Vanson Bourne research, published by Kony Solutions

The most important mobile commerce channels to retailers were

found to be mobile applications, and mobile internet. Only one
in ten retailers stated that SMS/MMS was the most important
platform for their business, with one in twenty citing tablet
applications, as illustrated in Figure 4.9.
Source: Vanson Bourne research, published by Kony Solutions

35

CHAPTER ES 1 2 3 4 5 TOC www.pira-international.com

 security > e-book > contactless payments

End-use Applications

FIGURE 4.9 I mportance of mobile commerce channels to UK retail However, the timeframe for consumer adoption of mobile
businesses, 2011 (%) commerce is perceived to be far in the future, with two thirds of
retailers stating that it will not reach the same level of use as
e-commerce or online shopping for 2 to 5 years, and around one in
ten stating that mobile commerce will never reach these levels.

FIGURE 4.11 T imeframe for consumer adoption of mobile commerce,

2011 (%)

Source: Vanson Bourne research, published by Kony Solutions

Mobile Commerce and Shopping Behaviour One fifth of the

retailers that participated in the Vanson Bourne research perceive
mobile commerce to be already impacting on consumer shopping
behaviour in store, whereas a similar proportion felt that it would
start to impact in 1 to 2 years. Just one in twenty felt that mobile Source: Vanson Bourne research, published by Kony Solutions
commerce would never affect their business, as illustrated in Figure
4.10. Consumer Concerns Seventy-five percent of consumers that
participated in the survey stated that they would not use mobile
FIGURE 4.10 Impact of mobile commerce on in-store consumer shopping payments instead of cash or plastic cards to pay for items bought in
behaviour, 2011 (%) store. The main reason for this reluctance to use a mobile handset
as a payment tool was found to be a lack of security, followed by a
preference for credit and debit cards.

FIGURE 4.12 M
 ain reasons that consumers would not use their mobile CLICK TO VIEW
phones to pay for items, 2011 (%)

36

Source: Vanson Bourne research, published by Kony Solutions

CHAPTER ES 1 2 3 4 5 TOC www.pira-international.com

 security > e-book > contactless payments

End-use Applications

Conversely, the main reasons that consumers would like to use manufacturers need to work more closely to establish a common
mobile payments instead of cash or cards are convenience (59%), business model. In addition to these industry issues, the benefits
cost savings from mobile vouchers and discounts (27%) and ease of using contactless payments and further information on security,
and flexibility (14%). billing and how to use a phone to make a payment need to be
communicated to consumers. At present, there is a lack of mass-
In terms of billing, the overwhelming majority of consumers would market interest in mobile payments, and a sense that ‘if it isn’t
prefer mobile payments to be directly linked to a credit or debit broken, don’t fix it.’
card, with just 16% stating that they would want to be billed on a
monthly basis by their mobile operator. Japanese Users Perhaps unsurprisingly, the Japanese are the
biggest consumers of contactless mobile payments. NTT DoCoMo
FIGURE 4.13 Mobile payments billing preferences, 2011 (%) launched its mobile wallet in 2004, and it witnessed sluggish
adoption, initially. However, the launch of mobile couponing has
accelerated the growth of mobile money, and in 2011, the majority
of the population has been reported to use eMoney on a daily basis
with FeliCa RFID wallet phones. They are used to purchase public
transport tickets as well as to pay at vending machines, restaurants
and convenience stores. The number of mobile payments made by
Japanese mobile subscribers by location is illustrated in Figure 4.14.

Source: Vanson Bourne research, published by Kony Solutions

It is clear from this research that, at least in the UK, there is

much work to be done in the following areas in order for mobile
payments to steal market share from traditional cash and card
payments. Merchant acceptance needs to be much wider,
and handset manufacturers need to issue more NFC-enabled
handsets. Mobile network operators, card issuers and handset

37

CHAPTER ES 1 2 3 4 5 TOC www.pira-international.com

 security > e-book > contactless payments

End-use Applications

FIGURE 4.14 V
 olume of mobile wallet purchases in Japan by merchant The amount spent on e-money cards each month varies, with 17%
type, December 2010 (million) spending less than 1,000 yen and 26% spending 5,000-29,999
yen per month. One in five spends 1,000 yen to 1,999 yen each
month. The breakdown of monthly spending on e-money cards is
illustrated in Figure 4.16.

FIGURE 4.16 Monthly spending on e-money cards in Japan, 2010 (yen and %)

E-money cards are often provided with a line of credit, and many
schemes offer points rewards for using the credit ‘portion’ of the
CLICK TO VIEW
card, as much as 3% in some cases, which compares favourably
with most of the loyalty schemes in operation in the UK. By offering
Source: ComScore MobiLens, December 2010 a credit facility, cards belonging to specific retailer schemes can be
used in other locations.
E-money cards are also widely used in Japan. According to research
published by goo Research, such cards are mainly used to pay for public Although contactless payments are growing in Japan, there is more
transport, although around half of the 1,156 Japanese respondents that consumer interest in using NFC functionality for other purposes,
took part in an online survey stated that they also use their e-money such as couponing and loyalty programmes. NTT DoCoMo has
cards in convenience stores, as illustrated in Figure 4.15. released a range of NFC-enabled phones that have the capability
to read tags, and a downloadable software programme that will
FIGURE 4.15 M
 erchant locations in which e-money cards are used in
Japan, 2010 (%) provide the functionality to other phones. A spokesperson told the
online publication NFC World in November 2010:

‘‘NTT DoCoMo developed ‘iC Tag Reader,’ a mobile software

application that allows users to retrieve data stored in a FeliCa Lite
tag, which is compliant with the NFC Forum’s Type 3 standard, just
by waving a mobile wallet (Osaifu-Keitai) handset over it. A possible
application is placing a tag with a URL of a promotional mobile
website in a poster. Once the app is launched, users can

38

Source: goo Research, July 2010

CHAPTER ES 1 2 3 4 5 TOC www.pira-international.com

 security > e-book > contactless payments

End-use Applications

immediately access the mobile website without having to type in Google’s Nexus S, with Android 2.3 technology was launched in
the URL. The system also allows user to register new contact data 2010. The handset, which contains Wi-Fi (802.11n), 3G, Bluetooth
in a phonebook, get e-coupons, save images (JPEG and GIF), tones and assisted GPS, also supports NFC, although it cannot be used
(SMF, MFI) and texts as well as open a mail composition screen with for payments in many locations. An example of the Nexus S phone,
a specific mobile mail address’.’ manufactured by Samsung, is shown in Figure 4.17.

A number of the mobile payments developments that have occurred Google has partnered with MasterCard to support its mobile wallet,
in Japan and South Korea have, to date, been non-standard and and reports suggest that as of February 2011, 500,000 handsets
proprietary. However, in 2010, Japanese mobile network operators FIGURE 4.17
had been sold. Research from Juniper suggests that 257 million
Google’s Nexus S NFC-
(MNOs) KDDO and Softbank Mobile, together with Korean MNO SK NFC-enabled devices will be shipped by 2015, up from 10 million enabled mobile handset
Telecom have signed an agreement to standardize the approach to in 2011, and Gartner projects that transactions via mobile payment Source: IntoMobile
NFC. KDDI and Softbank Mobile currently participate in the widely will reach USD$245 billion by 2014, from USD$32 billion in 2010.
used Osaifu-Keirai service that was developed by NTT DoCoMo,
based on Sony’s FeliCa technology; SK Telecom’s service is a solution There is speculation that the next version of the Apple iPhone and
that was developed in-house. iPad will be NFC-enabled. Other models have been developed by
manufacturers including Nokia and Samsung, but until merchant
NFC-enabled Handsets Clearly, the lack of mobile handsets that acceptance is more widespread, they are unlikely to be released to
are equipped to enable contactless payments is one of the sticking the mass market. Mobile payments will most likely develop through
points in this sector of the payments market. At present, only a industry ‘push’ rather than consumer demand.
handful of handsets contain this technology, although it has been
around for several years. Undoubtedly, handset manufacturers Visa and ANZ Trials Visa Inc. and Australia’s fourth largest bank,
have developed NFC-enabled handsets, but they are holding off ANZ, announced in June 2011 that they would be putting mobile
launching them until the market is more developed. News and payments on hold for a while. The two companies conducted
speculation regarding when the launches will take place vary by a small mobile payments test in early 2011 involving 50 ANZ
provider. Even though Research in Motion, the manufacturers of employees in Sydney and Melbourne. Employees were provided
Blackberry, has announced that all of its handsets will have NFC with phone cases containing a MicroSD chip that enabled them
technology from late 2011, Google and Apple are at the forefront to pay for goods by waving their phones across a reader for a
of this technological launch. period of four weeks. Although the trial was successful, with 90%
of employees stating that they liked being able to pay using their

39

CHAPTER ES 1 2 3 4 5 TOC www.pira-international.com

 security > e-book > contactless payments

End-use Applications

phones, and with the majority feeling secure whilst doing so, ANZ the payment technology. However, Brazilians are high users of
is taking a ‘wait and see’ approach to the technology, just as many person-to-person mobile payments, and this was found to be a key
other players in this segment of the payments market are doing. indicator of the propensity to use contactless payments. Consumers
in South Korea (4.2%) and Singapore (3.9%) were the second and
Incentives to Increase Demand third most likely to adopt NFC contactless payments, with a number
Contactless payments operate using Near Field Communication of trials having been conducted in these countries to date.
(NFC), a technology that operates similarly to RFID. Like RFID,
NFC is a short-range wireless radio-frequency technology that uses Potential adopters of NFC tend to be between the ages of 35 and
interacting electromagnetic radio fields instead of the direct radio 49 (37%) with consumers aged 25 to 34 the next largest group
transmissions used in other forms of contactless payments. NFC is likely to adopt the technology (33.8%). More affluent consumers
used where a physical touch or very close contact between the device were also found to be more likely to adopt NFC than lower-income
and the reader is required to maintain security of the communication. groups. However, Datamonitor has partly based its projections on
existing use of or interest in mobile banking and the frequency
An additional inhibitor to the development of contactless mobile of the use of payment cards and, by its own admission, can only
payments is a lack of consumer demand. Although trials have provide indicative potential use of contactless mobile payments.
been successful, as identified in Chapter 2, according to the online
publication NFC Times, UK-based research company Datamonitor Trials do not give accurate indications of the potential take-up of
found that consumer demand for the payment functionality is a new payment methodology. They are more than often than not
low. In a 2010 study involving 12,000 consumers from fifteen accompanied by incentives such as a free state-of-the-art mobile
countries, just 1.8% of consumers were found to be highly likely phone, or one that is pre-loaded with stored value, or both. For
to use NFC mobile handsets for payments on acquisition of them, example, a trial conducted in London in 2007 involving O2,
and only a further 12.2% were moderately likely to use as soon as Barclaycard, Transport for London, TranSys, Visa Europe, Nokia and
it is introduced. Around a third of consumers surveyed had a low AEG found that 78% of the trial participants were interested in
likelihood of using the payment technology in the short term, with using contactless mobile payments. However, the phones were pre-
more than half of consumers unlikely to adopt it at all. loaded with money for transportation tickets and other purchases,
which will have biased participants in favour of using the device as
Perhaps surprisingly, given the penetration of payment terminals in a payment tool. One of the big concerns around using contactless
comparison to other countries, Datamonitor estimates that Brazil mobile payments is security, but this concern was likely somewhat
has the highest propensity to use, with 5.1% highly likely to adopt neutralised by the fact that participants were spending ‘free’ money.

40

CHAPTER ES 1 2 3 4 5 TOC www.pira-international.com

 security > e-book > contactless payments

End-use Applications

RFID and NFC in Health Care TABLE 4.3 Applications of RFID in healthcare
According to the Institute of Medicine (IOM), medical errors RFID application Benefits / uses
account for between 44,000 and 98,000 preventable deaths a Tracking RFID tags can be attached to valuable equipment to track and
locate it if lost or stolen
year in the US, and the Food and Drug Administration estimate
Tags can be attached to vulnerable people, such as those with
that 500,000 cases of medical mistakes occur each year. In dementia
addition to the need to reduce medical mistakes, there is pressure RFID can also be used to track hospital employees to ensure their
on health-care organisations to improve the efficiency with which safety
they operate. Health-care costs are increasing for a number of Medication can be tracked from production to delivery to ensure
its authenticity
reasons: Identification and Reduced misidentification through the use of a patient wristband
• Loss of equipment due to theft verification containing a smart chip containing the patient’s details—
• Medication counterfeiting, leading to increased health including use on newborn babies to avoid accidental switching
problems Reduced mistakes in specimen labelling
Increased ease of identifying the contents of medical items such
• Inefficient paper-based operational processes that divert as syringes including the volume of medicine contained, dosage
health-care practitioners from patient care and expiry date
Personal medical data can be stored on a portable device, such as
RFID is being used in a number of ways to improve efficiency and a plastic card or key fob that can be scanned in an emergency to
inform medical personnel
patient care in health-care organisations, as outlined in Table 4.3.
Intervention RFID can be embedded into medication dispensers to ensure that
patients take the correct dose when at home
Automating patient discharge times
Navigation RFID can be used in assisted-living systems by installing
navigation maps on the white canes used by visually impaired
people that are linked up with sensors in corridors and doorways
Source: Wen Yao, Chao-Hsien Chu and Zang Li, The Use of RFID in Healthcare:
Benefits and Barriers

Whilst there is no doubt that RFID can be a useful tool in health-

care in terms of reduced patient error and improved efficiency that
can lead to much-needed cost savings, there are disadvantages to
its use.

41

CHAPTER ES 1 2 3 4 5 TOC www.pira-international.com

 security > e-book > contactless payments

End-use Applications

Barriers to Adopting RFID in Health Care There are a number of a wireless glucometer and an insulin pump that communicate
of technological, economic and social barriers to the adoption with each other when held close together to ensure that the correct
of RFID in health care. From a technological perspective, the insulin dose is administered. The glucometer records the blood
radio waves emitted by RFID devices can interfere with hospital sugar reading and then recommends a dose of insulin. If the patient
equipment, and the technology is not always 100% reliable, which accepts the dosage level, he or she swipes the glucometer against
can put people’s lives at risk if, for example, vital data cannot be the insulin pump and the dose is delivered. The confirmation feature
quickly retrieved in an emergency situation. of the system ensures that the patient retains control over his/her
medication.
FIGURE 4.18
From a social perspective, many people have concerns about their
NFC-enabled diabetes
most intimate personal details being held electronically, and there are The devices are fully portable and can be worn underneath monitor
other privacy issues concerned with tracking employees and patients. clothing, as illustrated in Figure 4.18, making them discreet. Source: engadget.com
They are also equipped to record data on blood sugar levels and
Economically, there are obviously costs associated with the recommended dosages, which helps health-care professionals better
installation of the hardware and software required to enable RFID, manage patients’ conditions.
and once the equipment has been installed health-care employees
need to be trained in how to use it. In addition, there are no global According to the World Health Organisation, the number of people
standards for implementation of this type of technology, which with diabetes will reach 366 million by 2030. There is clearly a
means that it is not possible to achieve large economies of scale large global market for such innovations.
through bulk purchasing and implementation.
Summary
Despite these barriers and disadvantages, RFID is a positive It is clear that there are many different uses for contactless
development in health care in terms of efficiency gains and better technology outside of payments and that it can improve efficiency
patient care overall. However, these devices do not replace the and reduce costs. However, there are concerns about its application
human element of health care. in a number of industries. Privacy is a large concern as far as
storing personal data is concerned in health care, government
NFC in Health Care NFC has also been applied to health care. and other industries. In terms of payments, security is a major
In 2006, Cambridge Consultants unveiled an NFC-based device concern amongst consumers who lack education in how contactless
designed to help patients to manage diabetes. The system was payments work.
developed in collaboration with Philips, and the device consists

42

CHAPTER ES 1 2 3 4 5 TOC www.pira-international.com

 security > e-book > contactless payments

End-use Applications

The next chapter of this report examines the future outlook for
contactless payments, including the introduction of new technology
to the industry.

43

CHAPTER ES 1 2 3 4 5 TOC www.pira-international.com

 security > e-book > contactless payments

Outlook for Contactless Technology

5
This chapter examines developments in some of the technologies and Starbucks are rolling out the technology across their stores
reviewed in this report. It provides forward-looking data, where in some countries, suburban and rural areas will probably not see Consumers
available, and analysis and opinion on how and when the various contactless payments being introduced until the benefits truly are becoming
technologies will progress. outweigh the cost of installing the necessary hardware into smaller,
independent stores.
increasingly aware
Awareness and Acceptance of Contactless Cards of the existence
Consumers are becoming increasingly aware of the existence Consumer education will be key to advancing the contactless and use of
and use of contactless cards. In the UK, for example, a survey payment cards markets in many countries. Barclaycard’s research contactless cards.
commissioned by Barclaycard involving 2,000 randomly selected found that UK consumers are often unaware that they have
consumers, found that 44% now recognise the universal contactless been issued a contactless card, despite a high profile above-the-
logo, an increase of 28% from the same time in 2010. The survey line advertising campaign. In addition to being unaware of how
also found increased awareness of contactless cards, from 45% contactless payments work, consumers are still concerned about
in 2010 to 62% in 2011. Two thirds of consumers stated that security and require education in this area.
they found carrying cash to be a ‘nuisance,’ with one in eight not
carrying any cash—and of those who do carry it, only £23 is carried. Merchants still need to be convinced about the business case for
contactless payments, and Barclaycard has paid for the majority
In the UK, contactless cards are the immediate future of contactless of the contactless readers now present in the UK. Large retailers
payments, as opposed to payments made using a mobile phone. like Tesco and Wal-Mart are unlikely to be in any rush to adopt the
Barclays and Barclaycard have made a significant investment in the technology due to the cost of replacing or updating all of their
development of the UK contactless payments market, having issued point-of-sale terminals, and because contactless payments are
13 million contactless-enabled debit and credit cards and more rather counterintuitive to what they are trying to achieve in terms
than 50,000 point-of-sale terminals to date. of average transaction values.

However, the volume of contactless cards in issue in the UK However, there is no doubt that contactless cards are here to stay,
represents about 10% of the total volume of credit and debit or that financial-service providers are keen to get rid of cash in
cards in issue, whereas in countries like South Korea, China and society. In Asia Pacific, Frost and Sullivan project that the number
Singapore, the proportion is closer to one third. Also, contactless of cards that will be shipped to the region will reach 1.9 billion
payment acceptance tends to be concentrated in large cities, by 2016, up from 590 million in 2009, with revenue of USD$2.0
and although some international retail chains like McDonalds billion. Globally, ABI Research has forecasted the number of

44

CHAPTER ES 1 2 3 4 5 TOC www.pira-international.com

 security > e-book > contactless payments

Outlook for Contactless Technology

contactless cards in issue by 2016 to be one billion, including EMV and London’s transport network. Barclaycard predicts that by the
and non-EMV cards, and that the volume of contactless cards in end of 2012, there will be 50 million cards in issue and that 20%
issue will overtake those with a magnetic stripe by 2015. of UK merchants will accept this form of payment. However, this
will still be largely confined to the UK’s capital, and the extent to
There is some debate around when the ‘tipping point’ for which other areas will adopt the technology will be dependent on
contactless cards will occur. In Europe, the UK is the country that the help received by the card issuers and scheme operators.
has the most contactless cards in issue and it provides a barometer
for what will happen in the rest of Europe. By the end of 2011, Transit Systems
there will be roughly 25 million cards in issue and around 10% Many major cities around the world have implemented contactless
of merchants will accept them, according to James McDonald of payment systems to increase the efficiency with which passengers
Barclaycard. At present, contactless accounts for less than 1% are processed through public transport systems including Melbourne,
of the transactions that are conducted within merchant outlets Beijing, London, Salt Lake City, Singapore and Hong Kong. Depending
equipped with contactless terminals. on the transport and payment system in place in individual cities,
contactless cards can be used on buses, underground rail, overground
If the projection of 5 million to 6 million contactless transactions rail, ferries and taxis. Transport operators benefit from the use of
comes to pass, it would be three times the number of contactless contactless payments in a number of ways, not least financially. It is
transactions by UK consumers as in 2010. Contactless payment reported that in the US, for example, collecting cash fares costs 34
activity was even smaller in 2009, during which Barclaycard cents for every dollar collected, whereas card payments can cost as
recorded only about 200,000 contactless transactions and only one little as 3 cents per dollar.
tenth of that in 2008, the first full year after the bank launched
contactless payment in London, in September 2007. Furthermore, Whilst contactless payments have undoubtedly benefited transport
Streamline (part of WorldPay, the UK’s largest merchant acquirer) scheme operators, the vast majority have, to date, been closed-
states that each of the contactless point-of-sale terminals installed loop and therefore limited in their use to transport systems—and,
in merchant outlets in the UK is used on average four to five times in some cases, a limited number of retailers that have opted in.
per month at present. However, the transit market appears to be moving toward the
implementation of open-loop systems that will enable consumers
The tipping point for contactless cards in the UK is more likely to use their MasterCard PayPass, Visa Paywave, American Express
to come in 2012, with the upcoming Olympics, and the planned Express Pay and Discover Zip cards to pay for their journeys.
broader acceptance of contactless cards both in the Olympic Village

45

CHAPTER ES 1 2 3 4 5 TOC www.pira-international.com

 security > e-book > contactless payments

Outlook for Contactless Technology

Turkey is one of the only countries that accept open-loop According to estimates, over 30% of all phones globally will have
contactless payments for transit, and it has been doing so for NFC built in within the next four years. The main driver of growth is
two to three years. Utah Transit Authority also accepts open- likely to be payments, and China will be a key driver of this growth.
loop payment cards. Cities including Philadelphia, London, New A forecast from ABI Research projects that contactless mobile
York, Chicago, Vancouver, Toronto, and Washington, DC, have payments in China will grow from US$900 million in 2011, to US$8
all announced plans to trial or roll out open-loop contactless billion by 2014, by which time, NFC-enabled phones will surpass
payments, and this is likely to be the future path for other ‘bridge’ technology solutions such as add-on antennae and stickers.
contactless transit systems. As stated in a previous chapter of this ABI projects that the shipment of bridge solutions, in particular,
report, closed-loop proprietary contactless payment systems are flexible antennae, will increase from 2.5 million in 2010 to 6.5
expensive to run, and it is difficult to see how scheme operators will million in 2014. The popularity of this type of solution to facilitate
be able to compete with the strength and reach of payments giants contactless payments is cost. Fewer than 50,000 NFC-enabled
like Visa and MasterCard. Also, as consumers become more used to handsets were shipped to China in 2010, and this is expected to
using contactless cards for other payments, it is likely that they will reach 7 million by 2014, although this still represents a very small
want to carry just one card around with them as opposed to several proportion of the total number of mobile subscribers in the country,
for different payment purposes. which was around 900 million in 2010.

An increased use of open-loop cards on transit systems will also Until this year, China Mobile had been developing and promoting
raise the visibility of the branding of such schemes, which will, its own contactless mobile technology, RF-SIM, but has since
in turn, increase familiarity with contactless scheme branding opted to use the standard technology supported by Unicom,
and encourage the use of cards in other locations. If more transit China Telecom and payment network UnionPay. China Mobile has
schemes convert to open-loop, this could provide a catalyst for signalled its support for contactless mobile payments by acquiring
increased merchant acceptance elsewhere. a 20% stake in the Shanghai Pudong Development Bank in 2010.

Mobile Payment Outlook Partnerships

Shipments of NFC handsets are expected to grow rapidly over Joint ventures between competing mobile network operators
the next four years. A forecast from IHS iSuppli projects that the (MNOs) are inevitable if common platforms for contactless mobile
shipment of mobile phones will increase from 93.2 million in 2011, payments are to be developed and control over the provision of
to 411.8 million in 2014, reaching 544.7 million by 2015. NFC services maintained by the operators. This has been recognised
in a number of countries, including Denmark, the Netherlands, the

46

CHAPTER ES 1 2 3 4 5 TOC www.pira-international.com

 security > e-book > contactless payments

Outlook for Contactless Technology

US and the UK, where major MNOs have come together in order to payments will probably not materialise until 2013, MNO’s are
achieve this. looking to retain control of this space.

In Denmark, network operators TDC, Telenor, TeliaSonera and NFC: Beyond Payments
3 Denmark have formed a joint venture to develop a common Although payments are likely to be the driving force behind the
platform and possibly a common brand for their planned NFC growth of NFC-enabled handsets, not least due to the potential
mobile wallets. By doing so, they intend to simplify mobile revenue streams that can be generated through interchange fees
payments for consumers by having a standardised operating and handset sales, NFC has many more applications than this. This
platform and by opening up their mobile wallets to all banks. The is being recognised by the MNOs, and a crop of new services is
SIM-based services that will be available on NFC-enabled handsets beginning to emerge.
are likely to include payment, loyalty schemes, ticketing and ID
verification. The mobile wallets are unlikely to be launched until Turkish MNO Turkcell, for example, has launched a pilot programme
2012 as the operators are waiting for a broader range of NFC- involving 50 of its employees that enables them to pay for meals
enabled handsets to become available to consumers. with pre-paid meal vouchers loaded onto SIM cards contained
within Turkcell’s own branded T20 NFC handsets. In addition to
Similarly, in the UK, MNOs Vodafone, O2 (Telefónica UK) and the T20 handset, trial participants can also use SIMs connected
Everything Everywhere have created a joint venture aimed at to flexible antennae that are compatible with a wide range of
offering a single point of commercial contact and technical handsets. Turkey is relatively advanced in terms of mobile payments
standards for merchants, banks and advertisers. Each of the through the use of ‘bridge’ technology that consists mainly of
operators will continue to develop its own products, such as mobile flexible antennae, with Turkcell having launched its mobile wallet
wallets, but they have recognised that doing this as individual in April 2011. The NFC-enabled T20, which is manufactured in
brands alone will lead to a very fragmented market. China, was launched in July.

Another reason that this culture of collaboration is emerging in In the US and other locations, trials are being conducted using
various mobile markets is the threat posed by Google, which has smart posters that interact with NFC-enabled handsets. In New York
already unveiled its NFC-enabled Google Wallet in the US and and Los Angeles, for example, smart posters containing NFC tags
announced plans to launch it in Europe in H1 2012. Google’s have recently been used to promote a reality TV programme called
NFC development has put pressure on traditional MNOs to move ‘Basketball Wives’ that follows the lives of existing and ex-partners
into the mobile payments space, and whilst full rollouts of NFC of NBA players. A small number of employees from advertising

47

CHAPTER ES 1 2 3 4 5 TOC www.pira-international.com

 security > e-book > contactless payments

Outlook for Contactless Technology

agency Posterscope are involved in the trial in collaboration with of market penetration, some analysts are already discussing the
Nokia, which has distributed its C7 NFC-enabled smart phone to advent of ‘T-commerce,’ or ‘tablet commerce.’ According to research
selected employees. When the phone is tapped against the smart conducted by Forrester, involving over 28,000 US online shoppers,
posters, trial participants can view trailers for the TV programme consumers prefer tablets to smartphones when shopping. They use
and link up with its Facebook page. Consumers who own other tablets for shopping, browsing web stores and making purchases,
NFC-enabled phones will also be able to tap the smart posters and Forrester projects a 51% CAGR in sales of the devices from
and acquire their content, but the trial is not intended to involve 2010 to 2015. New models are frequently being released, and at
the general public. Rather, it is being used as a showcase for new the Las Vegas Consumer Electronics Show in January 2011, about
advertising media. eighty new models were announced or released. More than 52
million tablets are forecast to be shipped in 2011.
Mobile couponing has been popular in Japan for a number of
years, and this, as well as the development of mobile payments Tablets have a number of advantages over smartphones, not least
loyalty schemes, is likely to be introduced in less-mature markets. To the size of the screen on which online stores are viewed. They can
obtain mobile coupons, consumers with NFC-enabled phones tap also provide a more engaging shopping experience in comparison
their handsets against media containing NFC tags (e.g., posters, with smartphones as consumers are able to flip pages and view
point-of-sale promotional material) and the coupon details are sent video, which are potentially attractive features for catalogue
to the phone. This technology can also be used for mobile ticketing; retailers. Although, at the time of writing, NFC-enabled tablets were
for example, a consumer may see an NFC-tagged poster advertising not widely available, it is highly probable that they will be released
a free concert and by holding their NFC-enabled handset against when NFC smartphones become more popular and widely used for
the poster, tickets are delivered directly to the phone. The mobile payment purposes.
ticket is stored on the phone and can be used at NFC-enabled
turnstiles to gain admission to the concert. In addition to new contactless payment hardware, new
technologies to facilitate the payment process are beginning to
The uses of NFC on mobile handsets go way beyond payments. It is, emerge. One such example, developed by Silicon Valley–based
however, beyond the scope of this report to provide an exhaustive Naratte Inc., is a new technology called Zoosh. Zoosh uses
analysis of this aspect of the contactless market. electronic frequencies to transmit data between devices that
contain a speaker and a microphone, providing them with the same
New NFC Form Factors capabilities as those equipped with NFC. The technology can be
Although NFC mobile handsets are still in their infancy in terms used on a broad range of handset types, and it is secure enough to

48

CHAPTER ES 1 2 3 4 5 TOC www.pira-international.com

 security > e-book > contactless payments

Outlook for Contactless Technology

be used for payment purposes. • Convenient

• Longevity
The cost of upgrading POS terminals to accept Zoosh transactions • Universal
is around $30, compared with $100 to $850 for terminals that • Acceptability
support contactless NFC transactions. It is available for immediate
integration into applications, with several companies reportedly The most common biometric solutions are fingerprint and hand
in the process of developing apps around the technology. Naratte readers, iris scanners, and voice recognition, which work by
is aiming to reduce the time for contactless mobile payments to measuring particular physical characteristics and later comparing
become mass market, which, with existing providers, is not expected them to a library of characteristics belonging to other people. A
until 2015. scanning device is usually used to convert the scanned information
into digital form and store it in a database. There are three steps to
A number of new handset launches are planned through 2012. the biometric scanning process:
Samsung is launching an NFC-equipped version of the Galaxy S • A sensor records a biometric signature of the individual,
II, and RIM has announced that the BlackBerry Bold Touch 9900 usually a fingerprint or iris recognition, both of which
will also be NFC-capable, as well as any devices using OS 7 going are unique to that person
forward. HTC is working on embedding chips into its hardware, and • A computer algorithm converts the biometric signature
there is speculation around whether the next version of the iPhone into the same format that other signatures on the
will include the technology. database are stored in
• Matching software compares the converted signature
Biometric Payment Trials against the rest of the formatted signatures on the
Biometric identification involves the identification of individuals database and provides a score depending on the
through unique and measurable characteristics like fingerprints similarity with other stored signatures
or irises. Biometrics are usually used to either verify a person’s
identification or to record information about them, as is the case The advantages of biometric identification and verification systems are:
with criminals, for example. In order for biometrics to be used for • The person to be identified is required to be physically
identification, they need to fulfil a number of requirements, including: present at the point of identification
• Reliability • The need to remember passwords is negated
• Uniqueness • The variable used to identify people cannot easily be
• Collectible lost or forged.

49

CHAPTER ES 1 2 3 4 5 TOC www.pira-international.com

 security > e-book > contactless payments

Outlook for Contactless Technology

benefits can be worthwhile. In the US, for example, a large decline

E xisting Applications of Biometric Systems To date, biometric in benefit claims followed implementation of biometric verification,
identification and verification systems have been used for a range including a fall in multiple claims that had presumably been made
of security-related purposes: fraudulently.
• Prison visitor systems to ensure that identities are not
swapped during visits Potential Applications of Biometrics Some of the other areas
• Driving licences to verify that the licence holder is of interest in terms of the application of biometrics for verification
authentic and that the licence has not been exchanged, purposes are listed below:
particularly when crossing state lines or national • ATM machine use
borders • Workstation and network access, particularly in open-
• Catering administration on campuses where some plan offices
students qualify for subsidised meals • Public identity cards
• Benefits payments systems to verify the identity of the • Internet transactions
person collecting the benefit claim • Personal computer access
• Border control, an example of which in the US being the
INSPASS trial where travellers were issued with a card Biometric authentication has also been applied to the payments
enabling them to use biometric terminals to avoid long industry, although it is by no means widespread. Fingerprint
immigration queues scanning is the most common biometric payment method, and it
• Schools, to protect children from abduction or can involve either the fingerprint replacing the physical payment
kidnapping card, by linking up the image with the card details and a PIN being
• Workplace secure access entered to further verify the payment, or the fingerprint being
used to authenticate a card payment. The benefits of biometric
South Africa has been one of the more progressive countries payments are increased security and speed of transaction.
in terms of the implementation of biometric identification and
authentication, with 25% of its formal workforce using biometric In the developing world, biometric payments have been introduced
identification to access the workplace securely. to reduce the reliance on cash. In some cases, farmers of coffee
beans and other crops are illiterate and unable to write down
Although the initial investment in the technology to facilitate a PIN code for a plastic card, or sign their names. Fingerprint
biometric identification and verification can be high, the resulting authentication has been an ideal solution for these groups of

50

CHAPTER ES 1 2 3 4 5 TOC www.pira-international.com

 security > e-book > contactless payments

Outlook for Contactless Technology

people, as all that is required is a swipe of their finger over a operating platforms for merchants. The joint-venture companies
biometric reader. have also stated that they will work with a number of banks, which
will make their mobile payments offerings relevant to a broader
Biometrics will continue to progress in the various market group of consumers. This is in contrast to some of the mobile
sectors where security and speed of transaction are important payments trials that have been conducted to date, whereby a single
considerations. However, in many sectors, particularly in the MNO has partnered with one card issuer and payment processor,
financial industry, there are other more pressing issues to resolve thereby limiting the market to a single card issuer’s customer base.
before this becomes a mass-market method of authenticating
payments. The rollout of chip and PIN is most likely to be the next Mobile handset manufacturers have not been quick to release NFC-
natural progression to increase security in regions that have not enabled models onto the market, although the technology has been
yet implemented the technology; where chip and PIN is relatively around for a number of years. As a result, technology companies
mature and widespread, the focus is on contactless cards. have developed NFC ‘bridge’ products that can be added onto the
phone to facilitate contactless payments. The flexible SIM-based
Summary antenna is a popular such add-on, and it is likely that these, along
There are many pilots and trials occurring throughout the worlds of with stickers and other bridge products will continue to be shipped
RFID, NFC and biometrics and, equally, many applications for the in the interim. In addition, new technologies that negate the need
technologies. In the world of payments, which is perhaps the most for full NFC implementation are beginning to emerge, and the
high-profile industry to which RFID and NFC in particular are being companies that have developed the solutions have a window of
applied, there is a great deal of fragmentation. With the exception of opportunity to gain a foothold in the mobile payments market
a handful of countries in the Asia Pacific region, contactless payments during the time taken for the large MNOs to organise themselves.
have yet to make an impact on debit cards in particular due to a lack
of merchant acceptance, card issuance, and consumer education. Biometrics have wide-ranging applications that increase security
and transaction speeds. The technology has yet to affect the
Mobile payments using NFC technology are lagging behind payments industry as chip and PIN has reduced fraud significantly
contactless plastic cards due to the complexity of the operating where it has been rolled out, and many merchants are still getting
model and number of different players involved. A positive over the cost and disruption of implementing that new technology.
development in this aspect of the payments market has been the It is likely that biometrics will be the future in many industries,
formation of joint ventures between competing MNOs in various but the technology has been around for a long time and in most
countries in an attempt to create a more harmonised approach to markets, it is not yet the industry standard.

51

CHAPTER ES 1 2 3 4 5 TOC www.pira-international.com

 security > e-book > contactless payments

FIGURE 0.3 Main reasons that consumers would not use their mobile phones to pay for items (%) FIGURE 4.12 M
 ain reasons that consumers would not use their mobile phones
 to pay for items, 2011 (%)


Source: Vanson Bourne research, published by Kony Solutions

RETURN TO PAGE Source: Vanson Bourne research, published by Kony Solutions
RETURN TO PAGE

www.pira-international.com
 security > e-book > contactless payments

FIGURE 4.16 Monthly spending on e-money cards in Japan, 2010 (yen and %) TABLE 3.2 Smart Card Alliance model for calculating contactless ROI
 Information to be input Details required
Revenue/sales information Year 1 annual revenue
Sales growth percentage – year 2
Sales growth percentage – year 3
Store information Number of stores – year 1
Number of stores – year 2
Number of stores – year 3
Average POS devices per store
Transaction information Total payment transactions – year 1
Transaction growth rate – year 2
Transaction growth rate – year 3
Transaction information - BASIC Percentage of total transactions using card – year 1
Percentage of total transactions using card – year 2
Percentage of total transactions using card – year 3
Average amount of a cash transaction – year 1
Projected cash transaction growth rate – year 2
Projected cash transaction growth rate – year 3
Contactless penetration information Contactless business (% of total transactions) – year 1
What will be the percentage increase in contactless transactions – year 2?
What will be the percentage increase in year 3?
Percentage of transactions that are: Converted from cash
Converted from cheque
Converted from existing plastic cards
Source: goo Research, July 2010 Proprietary/gift conversion
RETURN TO PAGE Incremental
Transaction information Average transaction speed in seconds
Estimated time savings by using contactless in seconds
Terminal infrastructure (contactless portion New hardware cost per POS
only) Installation cost per POS
Annual service/support cost
Training cost per store
In-store materials per store
System infrastructure Software customisation
On-going costs / savings Estimated annual chargeback costs
Estimates cost of handling cash and coins (per $100)
Estimated cost of handling cheques
Contribution margin
Interchange fee for credit/contactless transactions (%)
Credit/contactless transaction fee per transaction ($)
Source: Smartcard Alliance Payments Council

RETURN TO PAGE
www.pira-international.com
 security > e-book > contactless payments

List of Tables and Figures

List of Tables FIGURE 4.4 Citi’s contactless mobile phone sticker

TABLE 1.1 Technical definitions and acronyms FIGURE 4.5 UniCredit’s contactless payment sticker
TABLE 2.1 EMV adoption rates by region, 2010 FIGURE 4.6 Reasons for retailer consideration of NFC, 2011 (%)
TABLE 2.2 Examples of contactless mobile trials in Europe FIGURE 4.7 Reasons that UK retailers are not considering NFC, 2011 (%)
TABLE 2.3 Mobile phone vs. bank account ownership in the developing world, 2011 (%) FIGURE 4.8 Proportion of UK retailers with a mobile commerce strategy in place, 2011 (%)
TABLE 3.1 RFID Frequencies FIGURE 4.9 Importance of mobile commerce channels to UK retail businesses, 2011 (%)
TABLE 3.2 Smart Card Alliance model for calculating contactless ROI FIGURE 4.10 Impact of mobile commerce on in-store consumer shopping behaviour, 2011 (%)
TABLE 3.3 Comparison between NFC and RFID FIGURE 4.11 Timeframe for consumer adoption of mobile commerce, 2011 (%)
TABLE 3.4 NFC capabilities FIGURE 4.12 Main reasons that consumers would not use their mobile phones to pay for items,
TABLE 4.1 Examples of contactless card transport schemes 2011 (%)
TABLE 4.2 Types and costs (HK$) of Octopus cards available FIGURE 4.13 Mobile payments billing preferences, 2011 (%)
TABLE 4.3 Applications of RFID in healthcare FIGURE 4.14 Volume of mobile wallet purchases in Japan by merchant type, December 2010
(million)
List of Figures FIGURE 4.15 Merchant locations in which e-money cards are used in Japan, 2010 (%)
FIGURE 0.1 Transaction times of different payment methods (seconds) FIGURE 4.16 Monthly spending on e-money cards in Japan, 2010 (yen and %)
FIGURE 0.2 Use of contactless mobile payments by country, 2011 (%) FIGURE 4.17 Google’s Nexus S NFC-enabled mobile handset
FIGURE 0.3 Main reasons that consumers would not use their mobile phones to pay for items (%) FIGURE 4.18 NFC-enabled diabetes monitor
FIGURE 2.1 Total reported losses from ATM-related fraud attacks in Europe, 2007-2010 (€m)
FIGURE 2.2 Use of contactless mobile payments by country, 2011 (%)
FIGURE 2.3 Awareness of contactless mobile payments in the UK, 2011 (%)
FIGURE 2.4 Interest in the different uses of contactless mobile payments in the UK, 2011
FIGURE 2.5 P roportion of mobile consumers using mobile banking, couponing and commerce in
the US, 2009-2010 (%)
FIGURE 2.6 P rojected growth of mobile subscriptions in China and India, 2009-2014 (millions of
subscribers)
FIGURE 3.1 Transaction times of different payment methods (seconds)
FIGURE 3.2 Multi-functional card readers
FIGURE 3.3 The contactless payments symbol
FIGURE 3.4 Step one of the contactless payments process
FIGURE 3.5 Proximity with which contactless cards need to be held to card readers
FIGURE 3.6 Confirmation of a successful contactless transaction
FIGURE 4.1 Fuel smart tag 55
FIGURE 4.2 Fuel smart tag in key fob form
FIGURE 4.3 Contactless parking payment device

CHAPTER ES 1 2 3 4 5 TOC www.pira-international.com