WHITE PAPER A Cashless Future on the Horizon

WHITE PAPER A Cashless Future on the Horizon
WHITE PAPER
A Cashless
Future on the
Horizon
Contactless solutions
are transforming
payment. Speed,
expediency and
increased operational
efficiency have put
contactless on the
counter in convenience,
quick service and
ticketing environments.
Executive Summary
The European payments landscape is changing. Between 2000 and 2008, the number
of retail cashless payments grew by over 160%, to 87 billion transactions. Retailers
and financial institutions are fuelling the shift from cash to cards, as they seek to
reduce the cost of managing, handling, processing and accepting cash payments.
According to 2010 figures by Retail Banking Research, ‗cash‘ costs the industry
around €84 billion each year - equivalent to 0.6% of Europe‘s total GDP or €130 per
person.
Numerous factors will drive cash substitution including the Payment Services
Directive, the Single Euro Payments Area (SEPA), payment card interchange fees and
Merchant Service Charges. VeriFone believes that retailers‘ acceptance and
promotion of new POS technologies such as contactless will play a crucial part in this
transformation.
Many experts concur that contactless payments for small purchases has the potential
to drive debit card usage even higher and expect to see a significant increase in the
use of contactless cards in countries such as France and the UK from 2010 onwards.
Undoubtedly, momentum behind contactless is growing. Major card issuers are
moving from trial to roll-out; the business case for merchants is becoming
increasingly powerful; and consumer benefits more visible. VeriFone aims to help the
industry move to the next stage by offering a range of compliant, secure and easy to
integrate POS infrastructure capable of meeting their needs today and well into the
future.
VeriFone believes that by using new contactless payments platforms, retailers can
benefit from greater speed, convenience, revenue and loyalty while reducing
consumer reliance on cash and the operational burden that it brings.
A CASHLESS FUTURE ON THE HORIZON
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September 2010
Content
Executive Summary
2
Overview
4
Examining the Gains
5
Momentum is Gaining
- Future Growth
7
8
How Contactless Works
- The Contactless Transaction
- Security Features
- Standards
9
10
10
10
Fast Track Contactless with VeriFone
- VeriFone‘s Contactless Solutions
11
12
Conclusion
14
A CASHLESS FUTURE ON THE HORIZON
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September 2010
Overview
Recent innovations at the point of sale, such as chip and PIN and the adoption of
wireless technologies, have brought about significant changes to the way consumers
pay. As we shift from cash to e-payments, contactless is the latest technological
revolution to transform the customer experience at the point of sale (POS).
Contactless payments are simply payment transactions that require no physical
contact between the consumer payment device and the physical point-of-sale (POS)
terminal. The consumer holds the contactless card or device in close proximity (less
than 2-4 inches) to the merchant POS terminal and the payment account information
is communicated, wirelessly, (via radio frequency (RF)).
In the US, contactless cards are non-EMV and work like magnetic stripe cards –
typically PayPass Magstripe and VISA MSD. The cards do not control amount
remaining and all payment passes without a PIN; and usually in off-line mode. The
security level is no greater than with classical magnetic stripe card transaction. In
Europe, the focus is on EMV cards which have two interfaces: a contact one, which
works as a normal EMV card; and contactless which provides optional PIN
authorisation where additional security is required.
Contactless payment has progressed reasonably quickly since the emergence of the
first products in the USA in 2004. Datamonitor estimated 80 million contactless
devices globally at the end of 2008. Today, it values the global contactless market at
potential value of $963 billion a year. In the US the potential is enormous, with low
value cash transactions of $297 billion per year. The UK is also a major market with
18 billion sub £15 cash transactions each year.
Card issuers and banks have been the first to champion contactless. EurActiv reports
that Visa Europe is spending around €10 million helping retailers to adopt the new
technology with the vast majority of contactless devices distributed across the UK.
Italy and Turkey are the other two front-runners, while pilot projects are in progress
in France, Germany, Poland, Spain and Switzerland.
Outside retail, a major area of potential growth is urban transport. Major trials of
open loop ticketing and payment systems are already being trialed in US, Asia and
Europe. Examples of widely used contactless smart cards are Hong Kong's Octopus
card, South Korea's T-money (bus, subway, taxi), London's Oyster card, and Japan
Rail's Suica Card, which predate the ISO/IEC 14443 standard.
A CASHLESS FUTURE ON THE HORIZON
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September 2010
Examining the Gains
Retailers and consumers have traditionally resisted using payment cards for low
value transactions. Consumers think cards are slower than cash and do not associate
them with buying routine day-to-day items. Retailers see the cost of processing a
traditional card transaction, often needing online authorisation by the card issuer, as
unattractive and too costly for low value payments.
At the same time, everyone recognises that cash does present its own problems. As
well as being inherently insecure, it is expensive to handle, and errors are
commonplace.
There is, therefore, a real and sizeable market for a true cash replacement product
that is faster, more convenient and more secure than notes and coins
Contactless, which combines EMV standards with wireless technology, offers just
such a solution.
For issuers and service providers alike, the contactless payment interface stimulates
additional card-based transactions. The Smart Card Alliance‘s investigation of
contactless payments in the US confirmed that not only is this technology
significantly faster than contact chip and PIN transactions, but also reported:
 increased cardholder transaction volumes
 increased average transaction size
 increased transaction speeds
The two primary benefits of contactless payment for
both consumers and retailers are speed and
convenience. Market research firm Tower Group
estimates that contactless payment can reduce
individual transaction times by 10 to 15 seconds and,
in busy retail environments, this speed of service is
attractive. For this reason, contactless payment
transactions below a certain threshold can be made
without requiring cardholder authentication.
In the USA contactless can be used for transactions
between $5-50. In the eurozone, contactless cards
can be used for total purchases of up to 25 euros. In
the UK the upper threshold has been raised from £10
to £15 to bring them closer in line with European
limits.
A CASHLESS FUTURE ON THE HORIZON
5
CONTACTLESS PAYMENT BENEFITS
Card Associations and issuers:
 increased card transaction
volumes and revenue
 penetrate cash transaction markets
 minimal change to infrastructure
Merchants:
 reduced transaction times
 reduced cash handling and
operating costs
 improved reliability
 ease of introduction to existing
payment infrastructure
Consumers:
 improved transaction speed
and convenience
 trouble-free — no need to
carry cash
September 2010
Faster transactions equate to faster service and shorter queues, and contribute to
lower levels of customer drop-out. For retailers, increased throughput translates to
increased revenue — particularly in convenience and quick service settings. In effect,
contactless payment gives retailers the ability to better serve a higher percentage of
customers entering their premises, thereby generating increased revenue
opportunities and enhanced customer loyalty through improved customer service.
Contactless capabilities at the POS means retailers also benefit from lower costs
through reduced cash handling and improved operational efficiencies. This makes
contactless payment a viable economic proposition, even for small retailers
previously unable to justify the acceptance of card payment for low-value
transactions.
Tap-and-go payment not only transforms the interaction between cardholder and
retailer at the POS but also opens the way to new customer relationship management
(CRM) initiatives. In the future, contactless and near field communications (NFC)
interfaces will enable payment systems to play a key role in recognising and serving
customers in retail environments — cardholders will tap or wave a contactless card
on entering the store — or over specific items — to explore personalised special
offers.
In terms of deployment, a key advantage of implementing contactless solutions is
that the technology can be readily adapted to current payment systems. Existing POS
devices can be easily modified with an interface to a contactless reader, giving
retailers a ‗future proofed‘ solution to support full-scale contactless rollouts.
Millions of consumers are already familiar with contactless payment technologies
through electronic ‗wave and go‘ toll collection systems such as EZPass and FasTraK,
and ‗tap and go‘ travel on transit systems such as Transport for London‘s Oyster
card. Now, an increasing number of consumers worldwide are using contactless
payment devices — such as cards and key fobs — to speed through payment
transactions at gas stations, convenience stores and quick service restaurants (QSRs).
With ever more sophisticated consumers demanding speed and simplicity when
paying for goods and services, contactless payment solutions offer the ideal route to
genuinely improve the customer experience while simultaneously generating wider
business rewards.
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September 2010
Momentum is Gaining
Globally 16 million PayPass cards have been issued for use at more than
56,000 merchants in 19 countries. PayPass alone is now used in 13 countries:
Australia, Canada, Japan, Lebanon, Malaysia, Philippines, South Africa, South
Korea, Taiwan, Thailand, Turkey and the USA. According to Frost and
Sullivan, the global contactless payment card marketplace has grown to
almost 1% of all card-accepting merchants, and roughly 3.5% of all general
purpose payment cards.
In many cases, the consumer incubator for contactless card usage has been transit.
Here, the introduction of bankcard network-branded transport cards has been the
‗mode du jour‘.
Warsaw City cards in Poland, for example, have proved that contactless technology
is highly effective for fare collection in mass transit environments. In addition to
speeding the flow of travellers in bus and train stations, this form of automatic fare
collection has the added benefit of eradicating cash and fraud issues for transit
agencies.
In New York, MasterCard, CitiBank, the Metropolitan Transit Authority (MTA) and
VeriFone created a platform that allowed those with MasterCard PayPass cards to
gain access to 30 city-based subway stations. VeriFone‘s PCI certified Secura 720
unattended payment devices and contactless interface, bills the journey direct to
their MasterCard. With a transaction time of under 0.3 seconds to read, verify,
accept or reject the card and open the turnstile gate, this system allows the subway,
which handles 8 million passengers a day, to keep running at peak efficiency even
during rush hour.
In some cities, transit agencies and card associations are now using open loop
ticketing and payment systems; working together to extend the use of contactless
payment solutions. Oyster and Visa operate a co-branded multi-application card for
transit and retail payment. Under this arrangement, users benefit from Oyster and
Visa‘s ‗wave and pay‘ function on a single card to quickly and securely pay for low
cost items while travelling around London. Similarly, in Hong Kong, over 11 million
Octopus cardholders are now able to pay for groceries as well as transport and
parking using a single contactless card.
Contactless payment is also proving ideal for unattended turnstile applications,
removing the cost of staffing a reception or box office. The technology can be used
to identify season ticket holders at cinemas and sports grounds, paid members or
session users at fitness centres, or to control access to buildings or events such as
exhibitions.
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September 2010
While there is no shortage of transit and ticketing trials, roll-outs and success, there
is a consensus that critical mass is needed for contactless to take off, particularly
within the mainstream retail environment. Historically, there have simply not been
enough cards, in the right places to find readers. Issuers of cards aren‘t interested in
putting cards out unless there are terminals.
However, things are now changing – and fast. In 2010 alone, there have been
hundreds of new implementations. Contactless EMV programs are now running
successfully in Europe, Turkey, Taiwan, Malaysia, Mexico, Lebanon, Korea and South
Africa.
For example, fuel giant Orlen Germany will deploy cashless payment terminals across
its entire 511 service station network by the end of 2010 and has already introduced
the technology in 120 locations. Furthermore, French company Carrefour will also
implement a similar project at its 210 hypermarkets and 1,200 service stations in
France. Within forecourts, contactless reduces customer waiting times and increases
site efficiency; reducing the time a vehicle spends at the station, so more cars can
be served.
By the start of 2010, Visa payWave was live in retail environments in Switzerland,
Turkey and the UK, with pilot programmes and implementation plans well underway
in most other European countries.
In the UK, many of the first London-based contactless pilots have now gone national:
with coffee shops and fast food outlets such as Café Nero, EAT, Krispy Kreme, Prèt a
Manger and Yo Sushi leading the way. Here, Barclaycard, in association with
Barclays, has now issued over six million contactless cards which can be used in over
20,000 retail outlets across the UK.
Thanks to the foresight of card issuers and acquirers, some of Europe‘s largest retail
brands have now committed to contactless payments as part of their future growth
strategies.
Future Growth
According to a study by IMS Research, the number of locations that accept
contactless payments is set to increase by over 12.5 million by the end of 2013.
IMS also forecasts that the number of contactless-enabled points of sale in existence
will grow more than six times faster than the overall EFTPoS market.
A major pioneer of contactless, VISA predicts it will have more than 12 million
contactless cards in Europe by the end of 2010. The London-based Olympics in 2012
will provide a unique platform for contactless and is already being billed as the first
‗cashless‘ Olympics. With much media hype and card based investment surrounding
the Games, contactless in the UK is set to escalate. It is estimated that one in seven
UK residents will have a contactless card by the end of the year.
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September 2010
How Contactless Works
Contactless payment transactions require no physical contact between the consumer
payment device and the POS device. In a contactless payment transaction, the
consumer holds the contactless card or device in close proximity to the merchant
POS solution — there is no need to accurately orient the card or device — and the
payment account information is communicated wirelessly (via radio frequency). If
multiple contactless devices are held within proximity of a reader, anti-collision will
prevent multiple devices from being read. To ensure a deliberate card read, a single
contactless device must be placed within range of the reader.
Contactless technology is ideal for speeding up small-value payment transactions
where cash is the predominant form of payment. Rather than inserting a payment
card into an PIN entry device, or swiping it through a magnetic stripe reader, a
cardholder can use contactless to pay for goods by simply waving a card within
2-4cm of the contactless reader.
With no PIN or signature requirement, contactless payment is easy to operate. As a
result of the flexibility of form factor permitted by the interface, small contactless
key fobs are emerging as a practical and easy access alternative to cards.
The contactless interface can also be used with chip-based cards or in magnetic
stripe card environments. In Chip and PIN scenarios, PIN entry can be used to verify
contactless transactions. In a non-Chip and PIN transaction, data derived from
magnetic stripe-related information and secret data is transmitted by the
contactless chip in response to a signal from an Electronic Funds Transfer Point of
Sale device. In some instances, this data undergoes authorisation in a manner similar
to a magnetic stripe transaction.
The Contactless Transaction
There are two primary components of a contactless system:
Contactless reader: A mechanism which emits electromagnetic waves and is
able to communicate with a contactless card appearing in its range. The high
frequency radio waves emitted are used to both provide power to the contactless
card and to communicate information between the card and the reader.
Contactless card or device: The antenna on the contactless card absorbs the
electromagnetic waves emitted from the contactless reader in order to power the
transponder. The transponder is a chip connected to the antenna which is able to
communicate with the reader. Transponders can be read-only, read-write
memory or processor devices, and can be embedded in a card, paper label, key
fob, mobile phone and so on.
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September 2010
The process underpinning a contactless transaction is:
The cardholder waves a contactless card within a few inches of the contactless
reader. Once a transponder appears within the range of the device‘s contactless
card reader, the characteristics of the reader‘s electromagnetic field are changed
and the contactless smart chip is powered ―on‖.
Once the chip is powered on, a wireless communication protocol (system
agreement on low level communication parameters) is established between the
contactless reader and the card, and the data transmission begins.
Mutual authentication is performed and secured channel (encryption) is
established, if applicable.
Security Features
EMV compliant contactless cards are underpinned by the same advanced technology
that secures chip and PIN transactions. Although the use of a contactless interface
does not routinely require the consumer to enter a PIN, the card‘s chip tracks
activity — and after a number of consecutive transactions may prompt the user to
enter a PIN. This security feature is designed to re-affirm card possession and deter
any potential fraudulent use, should the card be lost or stolen.
Additional security measures can also include a unique built-in 128-bit encrypted key
on every contactless card, generating a Dynamic Card Verification Value. At a system
level, payment networks also have the ability to automatically detect and reject any
attempt to use the same transaction information more than once.
Standards
Contactless payments use the international standard ISO/IEC14443 for contactless
reader-card communications, and leverage the existing payments infrastructure
which has supported payment cards for more than 40 years.
American Express, Discover Network, MasterCard and Visa have all agreed to use a
common mark to communicate the acceptance of contactless payments based on the
ISO/IEC 1443 standard. The symbol enables consumers and merchant staff to
understand how and where to present contactless cards and other devices, so they
interact correctly.
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September 2010
Fast Track Contactless with VeriFone
VeriFone is the industry leader in bringing contactless payment solutions to the
market, in both integrated and peripheral formats. In February 2007, ABI Research
provided independent confirmation of VeriFone‘s technology and thought leadership
in contactless payment, naming VeriFone as one of the top two providers of
contactless readers. ABI Research‘s evaluation criteria included product innovation
and feature set, industry leadership and knowledge transfer, global capacity, as well
as vertical market focus and product adoption.
VeriFone‘s leadership position was established a decade ago, when it provided
integrated contactless readers to support the first Mobil SpeedPass deployments. In
2004 VeriFone undertook the world‘s first national rollout of a contactless payment
programme in conjunction with MasterCard, installing 70,000 Omni 70000MPDs at
McDonald‘s restaurants in the US.
Since then, it has participated in many worldwide implementations – bringing
contactless to everything from banks in Hong Kong and transport systems in Turkey
to retail merchants in Canada, fast food in the UK and taxis in New York.
Implementation of any contactless scheme requires consideration regarding
compliance and certification with individual payment association specifications.
VeriFone POS solutions can be enabled to accept the contactless payment features as
currently defined by the following:
Card Issuer
Format
MasterCard/
Maestro
PayPass: MasterCard International‘s contactless payments
programme
PayPass MagStripe—designed for authorisation networks that
support magnetic-stripe credit or debit applications
PayPass M/Chip—designed for networks that support EMV Chip
data
Visa
Visa Contactless: Visa‘s contactless payment programme which
includes both magnetic-stripe and EMV applications.
American Express
ExpressPay: American Express‘ contactless payments programme,
and contains differentiated specifications for EMV and non-EMV
transactions.
Discover Card
Zip: magnetic stripe contactless scheme.
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September 2010
As standards for contactless payment continue to evolve and change, VeriFone‘s
contactless POS technology is designed to be updated as easily as other POS devices quickly and simply.
VeriFone’s Contactless Solutions
VeriFone‘s modular approach to enabling customer-facing systems with integrated
contactless readers gives retailers a ‗future proofed‘ solution that enables the easy
upgrade of existing POS equipment to support full-scale contactless payments.
VeriFone‘s unique side-by-side application architecture saves on costly
re-certifications by allowing applications to be installed and run independently.
Whether it‘s a new application or update to an existing application, it can be
created and installed individually without affecting existing application
certifications.
VeriFone‘s contactless hardware solutions for contactless include:
VX Evolution
Representing the next generation of VeriFone‘s popular VX payment solutions, VX
Evolution portfolio includes integrated contactless and VeriShield Protect end-toend encryption. The portfolio utilises VeriFone‘s acclaimed Verix platform and
comprises four new systems designed to PCI PED 2.0 specifications, all featuring
industry-leading performance with ARM11 advanced processors and large standard
memory configurations. All optionally include integrated contactless for
acceptance of contactless cards, fobs and mobile-phone initiated payments
VX 520: The countertop workhorse, featuring standard 160MB memory
for unprecedented performance and security as well as multiple
communications options, including dial, Ethernet, and GPRS quad-band,
as well as battery capability for mobile use
VX 680: A leap forward in mobile payment featuring more memory,
more power, and large color display touch screen and full range of
communications options for WiFi, GPRS, CDMA and Bluetooth
connectivity
VX 820: A fully-loaded programmable PIN pad featuring a 3.5" color
display and touch screen, with a back-lit keypad that is easier to use
and builds upon user-based design for easier interaction and data entry.
Connectivity is simplified with a single-port link to USB, Ethernet or
serial communications.
VX 820 DUET: A stylish, hand-over payment device with integrated PIN
pad functionality that consolidates the functions of a modern
countertop device and a separate PIN pad into one, easy-to-handle
device for both consumer and merchant use.
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September 2010
Other VeriFone contactless options include:
QX120 and QX1000
These standalone contactless readers can be easily connected to almost any
payment device or POS system for easy upgrading to provide contactless
functionality. These stylish and robust devices can be freestanding on the
countertop or mounted for maximum customer convenience.
MX 800 Series
VeriFone‘s MX 870, MX 880 and other MX Series devices are customer-facing and
offer optional contactless modules, that can be fitted as and when a retailer
needs. These solutions can be integrated directly with electronic cash registers
and existing POS systems.
Vx 810 and Vx 810 DUET
VeriFone‘s Vx 810 PIN pad and Vx 810 DUET dual-user countertop solution both
offer an optional contactless module that will accept multiple contactless
payment forms, from key fobs to cards to NFC-enabled mobile phones.
Unattended
VeriFone has several unattended multi-media solutions that are perfect for kiosk
and pay-at-pump applications. Retailers such as supermarkets, petroleum
stations, and convenience stores find its ATM-style key pad, hybrid card reader,
and optional contactless reader easy to use. Plus, its large color display allows
retailers to stream advertising messages to customers.
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September 2010
Conclusion
The introduction of EMV chip technology across Europe brings added security
to traditional card transactions and is enabling the payments industry to
introduce new, faster and more convenient ways to pay.
Adding contactless payment to the POS offers significant advantages to retailers
where speed and convenience are crucial to maintaining customer loyalty and
maximising revenue during peak hours. It also helps convert a high proportion of
low-value cash sales to card, thereby reducing operational costs.
Processing payments securely and cost-effectively in seconds, contactless is
an ideal payment method in situations where merchants need to process a
large number of low value transactions, such as in fast food restaurants,
convenience stores and transport terminals. They are also ideal for remote or
unattended payment situations, such as vending machines, road tolls or
parking meters
As consumer acceptance and demand for contactless payment grows, VeriFone is
leading the way by supporting contactless payment at the POS. VeriFone‘s consumerfacing contactless readers can be easily integrated into any POS architecture as
modular add-ons for existing EFTPoS devices, to provide a future proofed solution
that supports full-scale contactless implementations.
From banks to retailers, card issuers and technology vendors, the industry is
gradually uniting behind contactless. The future success of contactless now depends
on broader awareness and a more visible value proposition for the consumer.
With card issuers ramping up consumer campaigns and high profile applications such
as the Olympics 2012 on the horizon, it won‘t be long before everyone begins to buy
in to a ‗cashless‘ future.
www.verifone.com
Copyright ® 2010 VeriFone. All rights reserved. No portion of this document may be reproduced or distributed in any form or by
any means without the prior written permission of said company. All trademarks are the property of their respective owners.
A CASHLESS FUTURE ON THE HORIZON
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September 2010
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