Comparing Mobile and Contactless Payments

As we have seen, contactless payments are beginning to move into the mainstream. As my colleague Mark Carpenter has previously noted in a blog, support for contactless transactions is moving out from the metropolis, even to the rarefied environs of his country retreat.

According to Visa Europe, in 2010 it alone issued 10 million contactless cards throughout Europe, the bulk (over 8 million) to UK cardholders. The plan is to double that number in 2011. No doubt Mastercard have similar plans of growth over the coming period.

However, technology doesn’t stand still and only a couple of months ago Orange and Barclaycard announced the availability of their mobile payment solution “Quick Tap”, via a smartphone, which will also provide contactless payments. These payments can be made at exactly the same terminals as those for smartcard contactless terminals, so long as they display the Mastercard Paypass logo.

I thought it might be worthwhile considering the similarities and differences in the two models.

Firstly the similarities; both are permitted to pay for transactions of total value of less than £15 and both require the user to hold the device (card or phone) within close proximity of the reader. Both utilise a technology known as Near Field Communication (NFC).

From a security perspective, a contactless card can only be used a specific number of times without a PIN, before the user is prompted to go through a traditional Chip& PIN transaction. There is an internal counter which is incremented every time a contactless transaction is successful and every time the card is used in a traditional Chip & Pin transaction this counter is reset to zero. If the counter reaches a threshold, then the card is forced to perform a standard Chip & Pin transaction.

From the perspective of a smartphone this is where things differ as this is not possible.  – Getting the phone to fit into a card reader isn’t going to work. Consequently the phone is preloaded with an amount of money, upto £100 in the case of Quick Tap, which can then be used for contactless payments. Once these funds are exhausted a user is required to top up the phone using a phone application and a PIN. In addition it is possible to configure the phone such that a PIN needs to be entered (on the phone) before a contactless payment is made, although this does seem to negate the benefit of contactless and fast payments.

The nice feature of this smartphone system is that it is a zero-cost addition for merchants, if they already support contactless payments from Mastercard and Visa. The fact that the payment is made via a smartphone rather than a smartcard shouldn’t make any difference. In fact the only thing they may need to consider is to train their staff that this is coming along, so when someone does wave a phone at the reader and walks away, it isn’t fraud just the advance of technology.