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Mobile NFC - The Chicken and the Egg arrive together!

The full scale launch of a new mobile phone payment solution by Orange and Barclaycard, marks a sea change for electronic payments both in the UK, and a wider afield. We have seen many successful mobile NFC pilots with consumers loving the speed and convenience, but until now no commercial roll out of this technology.

The fact that two of the UKs largest banks and MNOs are working together answers "the chicken or the egg" question that has been holding back wide scale adoption of contactless and NFC payments. The technology and user acceptance has been proven, and now we see that banks and MNOs starting to make the investment to make mobile payments widely available to consumers.The use of an NFC enabled SIM should mean that Orange can make this available to its customers quickly and without having to replace all their handsets.

Some other countries, such as Poland, are now actively rolling out a contactless infrastructure, and all newly installed POS devices will have contactless capability by default. As these all use the established MasterCard and Visa Standards, Orange customers will shortly be able to use their phones to pay there too.

This is good news for the economy, banks and payments processors. Cash is very expensive to handle - it needs counting, storing and physical security - whereas electronic payments can all be handled automatically. Furthermore, electronic payments provide a strong source of revenue for banks and payments processors at a time when there is more pressure than ever to focus on "back to basics banking" rather than high-risk activities.

The key for other banks wanting to offer mobile payments will be to ensure that they have agile payments systems equipped to handle payments from any source. Without putting these types of systems in place, they could find themselves struggling to handle the increasing payments volumes in the future.

For many years debit cards have often been primarily used at ATMs to withdraw cash, which is then spent over the counter. This story goes to show that the UK has passed the tipping point, and we have managed to drive consumers to directly use their debit cards to spend on, rather than to withdraw cash. (Which is also good for the economy as a whole given the costs involved in printing, counting, transporting and managing cash.)

However this certainly isn't the case in many other European countries, where cash is still king. At this week's Central European Card Conference we heard that banks in Poland are now issuing contactless debit cards to encourage consumers to spend directly with their cards, and this does seem to be driving greater card transaction volumes. It will be interesting to see if we see if this approach is adopted elsewhere.

Trying to accurately measure the ‘cost of cash' is something that has been causing problems to the EU for a while, although we do see some brave souls trying to put a figure on it. Back in February RBR stated that cash costs €130 per person in Europe. If this number is accurate, and we have no reason to believe it any less accurate than any other estimate, then it just shows the extent of the problem in Ireland if cash and cheques cost €680 per person there.

Contrasting this piece with today's news about declining cash and cheque use in the UK, it shows just how far the Irish government and banks have to go to create a similar environment to the UK's that encourages electronic payments.

To date, the industry has struggled to really make the case for the consumer to move. It sounds like the NPIP is committed to the end of paper-based payments, but it would be good to see a juicy ‘carrot' rather than a lot of ‘sticks'.

This is an interesting story which demonstrates real progress for the UK, especially in contrast to today's piece about the cost to the Irish economy of cash and cheques. I think it is very positive news for the industry - especially the significant reduction in the number of cheques being written as we gradually get closer to the 2018 deadline.

Clearly customers are embracing debit cards for the control and convenience that they offer, and they are even continuing to use credit cards in growing numbers. The take-up of Faster Payments must also be classed as a massive success.

It will be interesting to see how these payment trends continue to evolve, especially with more innovative payment methods such as contactless payments for low-value transactions, prepaid cards, or even linked family cards, where different family members, including children and teens, have got cards linked to a single family account.

Thanks for your support Bret,

While NFC is a proven technology, I will not hold my breath for the mass rollout in EMEA. There are far more interesting payment opportunities for mobile phones than just merely turning them into expensive contactless cards.

But it still comes back to the same customer centric issue -  How will banks manage both a debit phone and a credit phone if their back end systems are still spread across platforms and silos?

I am sorry I cant join you for tonight's book launch - best wishes.

Paul

Given the cost to the economy of processing cash, stories like this one will definitely make people outside our industry sit up and take notice, but I think if you did a similar piece of research among bankers or merchants, we'd probably see different results.

We're definitely reducing the number of cash transactions, and a lot of innovations and new technology we have seen over the past few years, such as debit cards, contactless, mobile or even the Faster Payments scheme, are driving that change in behaviour. These provide initial key elements of an electronic payments framework that has the capability to replace cash use, but will legal tender be obsolete in 20 years? Personally I doubt it.

I have enjoyed reading your quest Colin, thank you for posting the happy ending.

People buy from people they like and I think sometimes that is forgotten in banks. Brands can build a connection, products can attract attention, processes and systems can enable or destroy personal contact - but to deliver a real one-to-one connection with customers and maintain true customer loyalty, the organisation has to be customer focused from top to bottom.

It will be interesting to hear how your son gets on in his future dealings with his chosen bank!

"Cash is expensive - I don't think that will come as a surprise to any of the professionals here - but to an average consumer cash is still free. People use cash because it is convenient - if they want to lend £10 to a friend in a pub, pay the window cleaner or buy a parking ticket, it is quicker and simpler to use cash. It also works well as a self-budgeting tool - if you take out £100 at the start of the weekend and only use cash, the chances are that you will keep track of what you spend much more accurately than if you use cards.

This is the real challenge for banks. They have to find a way to make electronic payments as easy and flexible for consumers as if they are using cash. So perhaps the focus shouldn't only be on building a business case for the market players, but also finding the 'business case' for the consumer to make the move..."