The disappearance of cash – advances in payment technology
Our speaker was Tim Lambertstock, Technology Strategy Manager at Voca.
Voca runs the BACS payment service handling 5 billion payments totalling €4.5 trillion per annum with some 80 million transactions on a peak day. Voca has recently completed the complete renewal of its technology and was now focussing on new business opportunities in Europe and on innovative solutions in the mobile and Internet arena. Tim took us through some advances in payment technology and covered:
- UK Payments Landscape
- Faster Payments
- Contactless Payments
UK Payments Landscape
There is a steady decline in the use of cheques which is now a small percentage of total payments. Electronic payments and credit/debit cards are by far the most popular method and showing continued growth according to figures produced by industry body APACS http://www.apacs.org.uk/ Internet and Telephone banking transactions currently account for about 7% of electronic payments and are set to grow as the number of users of Internet banks increases.
Following pressure from the Office of Fair Trading, the payments industry announced in December 2005 that it would introduce a new way of making same-day payments in late 2007. This is mainly aimed at Internet and Telephone banking users and would also eliminate "float" from Standing Order payments. Tim gave the examples that if you: make an ATM withdrawal, the money is taken from your account immediately and you have the cash. If you buy from Amazon with a credit or debit card, the withdrawal and receipt of payment are almost synchronous. However, if you pay your Barclaycard through an on-line bank account, whilst the withdrawal is immediate, the money will not reach your credit card account for at least two working days, Voca and LINK (which operates the UK ATM network) are developing the IT systems to support Faster Payments. Payments will be made in near real-time but it could be a couple of hours before the payment is visible in your account depending on the systems used by the receiving bank. This should improve as banks upgrade their legacy systems over time.
The main disadvantages of the most popular methods of payment, from the retailer’s point of view and to some extent of the consumer, are:
- Cash – it’s costly (has to be counted and kept secure) and ‘horrors’ it’s anonymous (the retailers like to know what we are up to i.e. what we buy).
- Credit / debit cards -it’s costly to the merchant and slow at the till.
Tim suggested that Contactless payments are a viable alternative, particularly for smaller value purchases. Contactless payments rely on a technology known as Near Field Communications (NFC) which is a specific implementation of Radio Frequency Identification (RFID). NFC chips could be embedded in credit and debit cards or in other devices such as mobile phones or watches or (as a member of the audience suggested) even your body! A user would simply need to touch the device on a suitable Point of Sale terminal and the sale would be completed without the need to sign, enter PINs or give change. A similar technology is used for Oyster cards which many people will be familiar with.
Tim believes that there is likely to be a major take-off of the technology in 2007 following the agreement of international standards and major investment by chip makers and others. The major providers are likely to be MasterCard with PayPass and Visa with Wave although a number of non-bank providers are poised to enter the market with stored-value propositions that may offer a number of other services beyond low-value payments. MasterCard is already claiming about 10 million customers for PayPass in the US and has seen a 45% increase in total transactions per account.
Tim said that Voca should shortly be announcing its involvement in a contactless payments public trial using mobile phones equipped with and ISO 14443 compliant NFC chip but, unfortunately, further information is not yet in the public domain.
This is a cheap way for retailers to take money. It is certainly cheaper than credit cards and possibly cheaper than cash to a small retailer. However, there are significant infrastructure costs and providers are struggling to develop viable business models for how the technology can be used.
Tim’s relaxed and inclusive style elicited a great deal of audience participation and we all chipped in.
Tim finished off with a demo of the kit that may be used in the Voca trial and showed how easy it was to make payments.