Shoppers purchasing items worth less than £10 may soon be able to pay by simply tapping their debit card on a terminal before walking away.
MasterCard’s new Tap & Go system, which will offer retailers much lower payment processing charges than on normal credit or debit card transactions, does not require a PIN number or signature because the purchase value is so low. It works by means of radio waves, which are sent from a special chip in the card and picked up by the PayPass terminal. Payment can be made in less than a second and only works with transactions of less than £10.
The Royal Bank of Scotland (RBS) will trial the new technology, which is also dubbed ‘contactless payment’, on Maestro debit cards at its Gogaburn headquarters in Scotland. Lasting for six months from June, the scheme will see retailers at its headquarters, including a c-store, deli and coffee shop, using the PayPass system to take payment from RBS’s 3,000 employees. The shops are not open to the general public, so the trial will be completely closed.
MasterCard, which plans to roll out the technology across Europe, says Tap & Go cards will help cut queues and offer customers a more convenient way of paying for low-cost items compared to cash. The scheme has already found success in the US where McDonald’s, supermarkets and cinema chains use the system.
Retailers in the RBS pilot scheme will be supplied the PayPass terminals free of charge. The small device is fitted to conventional Chip and PIN readers or can stand alone. The special EMV chip required for these low-value payments will be added to all new RBS debit cards issued to staff taking part in the scheme.
Once the PayPass system is rolled out nationally, retailers will be able to rent or buy the scanners outright. Charges will be much lower than with conventional debit or credit card payments, because the transaction does not have to be authorised online, thereby cutting time and costs. The scanner automatically deducts funds from the payer’s account.
The system could be of particular use to sandwich chains and high-volume bakeries as a way of cutting queues during peak trading periods, such as lunchtime. Malcolm Simpson, Greggs’ financial director, says he is always looking at methods to improve customer experiences.
“We don’t have Chip and PIN units in our shops because most of our transactions are below £2, but working in cash has its own costs. This sort of thing would be of great interest to us, not just because of peak trading times, but because of convenience for customers.”
Alexander Labak, president of MasterCard Europe, says: “Low-value transactions, where consumers traditionally rely on cash, are the next frontier for debit cards. By breaking cost barriers and creating a simple alternative to cash, we’re creating an attractive situation for banks, consumers and merchants.”
According to Rob Keenan, product leader, Tap & Go has been driven by merchants looking for a quick, convenient way to receive payments, while reducing the amount of cash they have to deal with. “There has been real co-operation between retailers, banks and ourselves. It’s similar to how Chip and PIN first developed.”
The US experience
In 2005, contactless payments expanded from regional trials in the US to a broader more nationwide acceptance of the technology.
In the past year, major banks including Chase, Citibank and HSBC, have begun to issue MasterCard PayPass-enhanced credit cards, debit cards and key rings. Major merchants also announced plans to accept MasterCard PayPass, including McDonald’s, Duane Reade drug stores and 7-11.
In December 2005, there were more than 4.3m MasterCard PayPass cards and key rings and approximately 25,000 merchants accepting the payment. “In 2006 we expect to see the adoption and appeal of contactless payments grow considerably in the US,” said Cathleen Conforti, MasterCard’s senior vice-president and PayPass global product manager. “As more consumers become comfortable with Tap & Go payments, they will show preference for those merchants that allow them to speed through check-outs with a ‘tap’. This shift in their shopping patterns will encourage broader acceptance by national and regional merchants.”
She adds that new developments will arise, such as the launch of non-card products. “Citibank, for example, has already announced the roll-out of its contactless debit key fobs in the US,” she says. “MasterCard also continues to work with handset manufacturers to pilot the use of mobile phones as contactless payment devices. We have made great progress with the technology involved. We have now integrated PayPass technology into the phone itself.”