Contactless payments such as the use of near field communication (NFL) have been developing over the last few years and have evolved into reliable and secure methods of payment which are gaining acceptance from both buyers and vendors. The contactless mode of payment uses a short range frequency identification chip (RFID) to transfer data embedded electronically in microchips attached to a mobile device such as a mobile phone or a personal digital assistant or a credit or a debit card. The major difference with the contact based mode of payment is that in the case of contactless payment, the user of the technology does not physically swipe or insert the device or card to a contact reader but only makes use of the short range radio frequency to transfer data from the device or card when the user places the device within 20 centimeters of a reader and no physical contact occurs.
A good example on the use of contactless payment technology is by the American transit companies. These are companies which operate transport business either by use of rail or road. The operational inefficiencies of operating in cash has contributed to the development of contactless payments, as over the years the sector shifted from the use of cash (mainly coins) to the use of contact based electronic methods such as credit and debit cards and then finally to the use of the near field communication to complete electronic transactions (Quibria 2008).
This gradual shift towards the use of this technology has been influenced majorly by the costs of transacting in the industry using cash. Receiving and handling cash payments in the transit industry required high operating expenses due to the high number of personnel required to complete the transactions, the complex back office processing requirements of counting, recording and storing the cash collections and the increased risk of handling cash (Quibria 2008). The process was also time consuming due to the long transaction processing time. This resulted in the operators making considerations for using smartcards that would employ the use of contactless payment technology by issuing smart cards that used the NFL technology to customers as a way of replacing the cash fare payments.
The operators in this industry, desirous to reduce the associated high costs of cash fare collection started considering alternatives that would enable them make significant reductions in such costs. A study in 2005 indicated that adoption of regional contactless fare card system to replace the cash based collection system would result in a six-fold reduction in aggregate operating costs (Quibria 2008).
The adoption of contactless payments represented an opportunity for more efficiency and would significantly reduce the number of customer complaints and customer related costs. The transactions would also be easier to trace since it would be possible to deactivate a lost or stolen contactless payment smart card and make a replacement with the balance of the unused fare amount. This would be a far cry from the expensive and difficult to trace disputable cash payments which not only require high manpower, but which also have a limited possibility of reversal and are costly. These reasons made the adoption of electronic contactless payment method more attractive to mass transit service providers and customers (Quibria 2008).
Business alliance with major credit and debit card companies such as Visa and MasterCard enable the ordinary bank issue of such card using the contactless technology. This enables commuters to pay their fares using such cards. The commuter merely waves the card to a reader and the fare amount is automatically deducted from the debit or credit card.
The Oyster travel card which is issued by Transport for London has been in use since 2003. The card uses the contactless payment technology to pay for transit charges by commuters on London’s underground transit system. The use of the card accounts for approximately 80% of all London’s underground bus payments (Quibria 2008). The fact that the contactless card system is used in a small geographical area has been cited as one of the factors for the success of the Oyster contactless payment card. Another factor cited for the success of the Oyster card is the full support its introduction had by local and regional transport operators. This success has resulted in the development of the prepaid card to function as a credit card to pay for non transit purchases. The payments for the two services are however made on two different accounts. Another success story in the use of contactless transit payment system is the Hong Kong’s Octopus card. The card uses contactless technology to pay for commuter charges on Hong Kong’s underground train system. The card can also be used to pay for other services such as payments in fast food stores and retail stores (Quibria 2008).
The credit card companies Visa and MasterCard have been keen to adopt the use of the contactless payment technologies. The companies issue credit cards which use the contactless payment technology rather than the conventional contact based microchip embedded on the card. With enhanced security measures to avoid fraud, the cards issued can be used in a similar manner as the ordinary credit cards to make payments for goods and services. Visa boasts of having issued more than six million credit cards that use the contactless payment technology. the ability to issue credit cards that have the ability to use both contactless payment technology and the contact based technology further makes the use of the cards more attractive since they can be used to make payments at point of sale that either use contactless payment technology or contact based technology (McCarthy 2006).
Orange, a service provider operating in the United Kingdom, is one of the cell phone service providers that offer electronic wallet capabilities. By partnering with Barclaycard, the mobile phone service provider gives customers the opportunity to make payments for goods and services using their mobile phone handsets. The payments are made by waving the mobile phone handset at a reader, and customers are able to pay for retailer services, ticketing and transport.
Two of the largest mobile phone service operators in the united states, AT & T and Verizon Wireless, have teamed up with the credit card company, Discover card to offer mobile contactless payment solutions in the united states. This enables customers to carry only their mobile handsets which act as payment mediums by simply waving them against readers to pay for goods and services. The mobile devices can then be used in the same manner that conventional credit and debit cards are used to make payments at points of sale by simply waving the device near a reader.
The transport industry could benefit greatly from the use of the contactless payment system. This is because the system offers considerable advantage over the other modes of payment available to the industry. Since the system is easy to use and requires the user to merely wave the mobile phone device closely at a reader, it would substantially reduce the costs associated with the payment of transport services in cash. Airline companies, bus companies and train companies would find this technology not only cost effective but also convenient to both the service provider and the customer. It would present increased security in the making of payments and thus improve the profitability of the transport service operators while at the same time improving convenience to customers.
The credit and debit card industry, and the banking sector in general can also be commercial beneficiaries of this technology. The costs associated with the actual issue of credit and debit cards can be reduced substantially by offering the option of using mobile devices to customers. Instead of issuing a credit card, the companies can offer to install a microchip in the customers’ mobile devices for the purposes of using the Near Field Communication (NFC) technology to serve a similar purpose. This would be cheaper compared to the actual issue of credit card companies and would offer substantial cost reduction and thus improve on the sector’s profitability (McCarthy 2006).
The advertising industry could also benefit substantially by the use of the Near Field Technology. The NFC technology offers advertisers opportunity for more value addition to their products. By using mobile devices embedded with a RFID (Radio Frequency Identification) chip, customers can be able to access promotional materials on their electronic hand held devices such as mobile phones and personal digital assistants. This would present a new advertising platform that can be utilized to increase the revenues of advertising companies. Advertisers would benefit by having an increased audience to their products.
The airline industry could benefit from the use of the near field communication technology. The ticketing process of airlines could benefit substantially by allowing their clients to use information embedded on their mobile digital devices such as mobile phones and personal digital assistants and then using readers to access this information when required. This would result in enormous cost savings in the operations of airlines and result in increased profitability for airlines.
Another industry that can benefit from the use of near field communication is the private security industry. Access to buildings can be made easier and safer by introducing readers for the information stored in the digital mobile devices of those authorized to access such premises.
This would reduce the manpower required to man such buildings and reduce the operational costs of private security companies.
The oil industry could also benefit from the use of the near field technology. By partnering with major credit card companies, oil companies can allow their customers to pay for their gas using their mobile phones and other digital mobile devices fitted with the NFC chips containing their credit information. This would make it more convenient to their customers to pay for the purchase of gas at filling stations.
The gradual adoption of the contactless payments technology by many credit card companies, banks, transport companies and major retail outlets such as Wal-Mart heralds a new beginning with the use of the Near Field Communication technology a reality. The adoption of the technology and its growing acceptance means that in future, it will be one of the most widely used technologies not only for payments but also for other purposes. The implementation of the technology by different players in different industries means that the usage of the technology is already a reality the technology will be used for many purposes in the future.
References
Quibria, N. (2008). The Contactless Wave: A Case Study in Transit Payments. Emerging Payments Industry Briefing. Retrieved from: http://www.bos.frb.org/economic/cprc/publications/briefings/transit.pdf
McCarthy, M. (2006). Visa Contactless Payment. Retrieved from: http://www.ftc.gov/bcp/workshops/techade/pdfs/presentations/maccarthy.pdf
