Tapping away at checkout with a card, mobile, and now wearable

Australia may be a small country, but it has been making waves in the world of contactless payments. In fact, Australia is the leading country in terms of penetration of contactless payments and the number of taps per month.

Recent data compiled by Westpac has forecasted that contactless payments via mobile will reach just under a whopping AU$3 billion by 2015.

This prediction comes based on a trail of skyrocketing evidence where about 18 months ago, when contactless payments was still gaining momentum in the Australian market, it was already making up 18 percent of all scheme debit card transactions in the country, and in the last 12 months that figure jumped to 60 percent.

"We've probably never seen a shift in customer preference or customer behaviour like that before, and Australia is leading the world in this trend," said David Lindberg, Westpac chief product officer.

"We've probably never seen a shift in customer preference or customer behaviour like that before, and Australia is leading the world in this trend," said David Lindberg, Westpac chief product officer.

But the uptake of contactless mobile payments would not have been possible if Australians did share the same inclination for smartphones, many of which are now built in with near-field communication (NFC) technology that enable contactless transactions to happen. The ACMA Communications report 2012-13 showed there were 11.19 million smartphone users in Australia at May 2013, up 29 percent since May 2012.

Westpac head of everyday banking Andy Kerr said as devices integrated with NFC-technology become more prominent, it's going to make tap-and-go transactions even faster and more convenient for customers.

"Contactless payments on the phone, particularly for customers that are 18-35, they're out and about and they always have their phone, and they want to be able to keep going whether they have their wallet with them or not. That was at the heart of allowing customers to make contactless payments, which we knew they loved," he said.

"60 percent of all debit transactions are now contactless so it was all about bringing together customer needs with a way of paying that they were used to doing and allowing them to do it on their phone."

Previously, Paypal Australia spokesperson Adrian Christie told ZDNet that digital wallets would be, in time, seen as the major innovation of the current period.

"If you look at payments innovation, such as the credit card in the '50s and the ATM in the '80s, we really haven't seen much change," he said.

"But, digital wallets will be as big an innovation as credit cards and ATMs, and it is evolving really quickly and will not be in the form factor that we see today."

This explains why we're seeing major banks including Westpac signing contract deals with mobile manufacturers such as Samsung to bring tap-and-go transactions a little closer to customers. Westpac customers who are owners of either a Samsung Galaxy S4, S5, or Note 3 — all with in-built NFC technology — are now able to use their devices at any contactless terminal where MasterCard PayPass and Visa payWave are accepted to make a payment.

Then there are others such as card issuer, Cuscal, that has opted to use Host Card Emulation (HCE) technology in its redi2PAY mobile payment app to transform any NFC-enabled smartphone running the latest Android operating system — KitKat 4.4 or later — into a contactless payment device. The use of HCE means there is no requirement for a third party such as a teleco provider or handset manufacturer to be involved.

CUA is the first Cuscal customer to rollout the redi2PAY app, and it's the first time a company in Asia-Pacific to opt for HCE technology.

However, not all phones on the market today are NFC-enabled. But this has not completely ruled out the option of contactless payments for the rest of the population, mainly Apple iPhone users.

Commonwealth Bank, for example, has brought to market a smart sticker embedded with NFC technology. It was the first of its kind where customers are charged a one-time AU$2.99 fee for the PayTag sticker that is affixed to a phone, and can be used in lieu of a credit or debit card at a Paypass terminal. 

Even retailer Coles has got on board launching its version of the mobile wallet. Last October, the retailer began trialling its Mastercard's Pay Tag technology, and just weeks ago, it made the technology available to the public, integrating it into its Flybuys and credit card program. During the trial, Coles found that 77 percent of participants found using the Pay Tag more convenient than using a traditional credit card.

"We understand that Coles customers are doing even more from their mobile devices whether that be surfing for recipes or managing their finances. With this in mind, it is exciting to launch the Coles Mobile Wallet which puts customers in control of their spending and introduces Australians to an entirely new way to pay," said Richard Wormald, Coles general manager of financial services.

In fact, contactless payments only reached a tipping point when Coles and Woolworths, two of the country's largest supermarket chains, completed the deployment of contactless terminals across their stores in 2012, and acted as driving the "educational piece" on how consumers would be able to use contactless payment technology on their everyday purchases.

"When they came on board, we saw a significant uptake in terms of volume in the usage of [contactless payments]," said George Lawson, Visa Australia senior director for emerging products and innovation.

While Coles is the 20th largest retailer globally, it has been ranked as MasterCards' number one PayPass merchant where 75 percent of its transactions are currently contactless, with contactless-enabled payment terminals in over 760 supermarkets across the country.

"Australian customers have demonstrated that they are early adopters of new technology, especially if it is going to make life a little easier, with greater convenience and added security," a Coles spokesperson said.

Although, Coles was not always keen on the idea of bringing tap-and-go payment terminals to its stores in fear that it could possible "end up getting it wrong and damaging the customer experience".

Coles head of payment services Douglas Swansson previously told ZDNet that contactless cards were rating well amongst younger shoppers, but the older generations were less willing to use it.

"Some [shoppers] aged 50 years and over are concerned about contactless card implementation," he said.

But by the end of 2011, Coles' confidence in contactless payments was lifted when it announced it was going to complete the rollout of new readers by mid-July of that year.

"Australian customers have demonstrated that they are early adopters of new technology, especially if it is going to make life a little easier, with greater convenience and added security," a Coles spokesperson said.

Rival supermarket giant Woolworths has equally seen similar results. A Woolworths spokesperson said around 70 percent of its total transactions are now contactless.

"This has ramped up quickly since Woolworths rolled out our contactless PINpads. Despite the contactless PINpads now having been in place for more than 12 months at Woolworths, we continue to see steady growth in contactless transactions each month," the spokesperson said, attributing the popularity of contactless payments to "speed and convenience".

While contactless card payments in Australia will be remain the mainstream way to pay over next two to five years, particularly as other areas such as loyalty cards and transportation move to adopt contactless card payments — where paper tickets are being replaced by smart cards such as by New South Wales' Opal card and Victoria's myki cards — Robert Liong, Infosys managing partner consulting and systems integration, believes the smartphone has a lot of potential in becoming the single payment technology going forward. 

"It's likely these ecosystems will naturally converge onto the mobile phone when the most practical of challenges is solved," he said.

"That is, the 'single point of failure', when the customer only carries their smartphone as a payment device and communications device, and can neither make a payment or alert their bank if this is lost. Biometric security on the phone, if sophisticated enough, may solve the security risk, but not the communication issue."

Wearable wallets

A glimpse of what contactless payments will potentially look like in the future is already here. Britain's Barclay Bank's Barclaycard division last month launched its bPay band, a wristband that will be open to all irrespective of the user's banks and allow users to pre-load their card to make purchases of up to £20 at any contactless payment terminal.

Similarly, Spain's CaixaBank announced it will be introducing its contactless waterproof wristband in conjunction with Visa. The wristband will be made available via the bank's entire branch network in the second half of the year.

According to CaixaBank, inside, the wristwatch will have a microtag with the customer's encrypted card details, and it will be protected with the same EMV technology found on chip and pin cards. The wristwatch can then be used to be swiped at point of sale much like a standard contactless card. 

As with any contactless card payment in Europe, for purchases over 20 euro customers will have to enter their pin to validate the transaction. Purchases of less than 20 euros can be made by bringing the device to the merchant's POS.

"By diversifying payment formats, customers can choose the system that suits them best: card, mobile or wearable device. CaixaBank currently has more cards in circulation than any other bank in Spain, at more than 12.5 million, and has also pioneered mobile payments via its NFC service," CaixaBank said in a statement.

As for whether Australia will see anything like this in the near future, major card issuers Visa and American Express have both expressed that there are no immediate plans for either companies to introduce contactless technology to a wearables device in Australia, but agree that it's "pretty exciting stuff" and it's really about "changing the form factor" of how the technology is presented.

For Westpac, the focus in the meantime will be mobile contactless payments, as the use case of wearable technology for most has only been used for targeted deployments, such as at music festivals, but it will not rule out anything if an opportunity arises.

"I'd say at the minute, customers are adopting and adapting the mobile device to pay is probably a first stepping stone to then encourage customers to use other mobile form factors, and given we're still in early days of mobile devices we'll probably have to see that transition to see customers to become comfortable in using the device itself," Kerr said.

"To date, we've seen them as quite targeted in their deployment they have yet to make the jump in become a standard way for people to pay."

In the interim, the extent Australian banks are willing to experiment when it comes to wearable technology and banking has been exemplified by Westpac New Zealand, which is currently trialling its Cash Tank app on Google Glass to give users access to their account balance when they wear the Google Glass over their right eye. St. George Bank has also launched its mobile banking app on the Sony SmartWatch2, with plans to extend its capabilities other smartwatch devices, including Samsung and Pebble.

The beginning of time

The first time contactless made its way to the market was back in the early 2000s when MasterCard announced it had plans to simplify debit and credit card transactions for consumers by introducing a EMV (Europay Mastercard Visa) chip technology where micro computer chips are embedded into each card.

Most of Australia's POS terminals have since now been upgraded to accept EMV chip-based cards. National Australia Bank was the first to lead the rollout of these terminals back in 2009 when it announced that over 2,500 Visa payWave system readers were going to be rolled out by December of that year.

"With Visa payWave, customers don't need to juggle loose change or even take the card out of their wallet for it to work," Visa's general manager for Australia and New Zealand, Chris Clark, said in a statement at the time. "We believe contactless payments will transform the retail environment in much the same way that contactless tolls have reduced traffic congestion."

Not long after Commonwealth Bank followed suit rolling out its version of the contactless payment terminals, which was supported by MasterCard. However, unlike NAB's terminals, which are closely aligned to Visa and limits MasterCard PayPass cardholders to spend up to AU$35 before a pin verification is needed, Commonwealth Bank terminals enable both Visa and MasterCard cardholders to tap-and-go for payments valued up to AU$100.

Visa now estimates that there are now 100,000 contactless terminals and over one million contactless transactions made per day, with contactless card transactions representing over 10 percent of all card transactions.

"At the moment we've got 47 percent of our face to face payments that are contactless in Australia, nearly one in two presenting their card at point-of-sale is from a contactless perspective," said George Lawson, Visa Australia senior director for emerging products and innovation.

"So there has been a phenomenal uptake when you think about it in that context, and Australia is leading the world in terms of this level of contactless.

"We have 51 million contactless transactions per month so it's well and truly gone beyond that tipping point; consumers are now essentially expecting that kind of contactless experience at the point of sale."

Similarly, MasterCard has 320,000 MasterCard terminals tap-and-go enabled cards on the market in stores including Coles, Woolworths, JB Hi-Fi, and 7-Eleven.

Set to join the bandwagon of contactless payments soon is eftpos Australia where cheque and savings are still the most used payment types in the country. It expects to begin rolling out eftpos chip cards later this year, which will enable cardholders the capability to conduct contactless transactions, which it says will be "better than our competitors".

"eftpos has always been an affordable payments choice for Australian retailers and consumers. Traditionally eftpos payments have not attracted the same types of surcharges as credit card payments and I don’t see why contactless would be any different," said Bruce Mansfield, eftpos CEO.

Safety first

But the real question for many is: How safe is it?

"It's very secure; it uses the same cryptographic technique we have in contact cards," Lawson said.

Each contactless transaction is identified by its own unique identifier. This 16 digit number is generated by a contactless-enabled terminal for every tap, making it almost impossible to replicate. Also, given that when a tap-and-go transaction occurs, often the card never leaves the hand of the consumers making it less likely for it to be stolen.

MasterCard has previously downplayed that tap-and-go technology is a boon for fraudsters after a Perth woman was sentenced in court for using someone else's PayPass debit card more than 30 times before being caught out.

A Mastercard spokeswoman at the time said the vast majority of lost, stolen, or 'never arrived' cards used by fraudsters did not involve contactless transactions.

"Lost or stolen cards can be used online or for telephone transactions as the fraudsters have access to the CVV2 code on the back of the card," she said.

"At the moment we've got 47 percent of our face to face payments that are contactless in Australia, nearly one in two presenting their card at point-of-sale is from a contactless perspective," said George Lawson, Visa Australia senior director for emerging products and innovation.

The spokeswoman said fraud using contactless means accounted for less than two per cent of all total card fraud.

"This is in the context of massive growth in the contactless category," she said. "Contactless transactions have grown by 350 per cent year-on-year from calendar 2012 to calendar 2013."

Matt Barr, MasterCard Australia head of innovation and development, reiterated that fraudsters do not see a lot of value of being able to conduct low value transactions, and rather are migrating online to defraud consumers.

In May, however, Victoria Police chief commissioner Ken Lay said tap-and-go credit cards were one of the main factors behind a 5 percent surge in the state's crime rates.

Although a Victoria Police spokesperson said its consumers who are to blame for this increase as people are not keeping their cards secure.

Pin or sign?

August 1 marked the day when chip and pin became mandated across all card payment terminals in Australia. The industry-wide move was announced by the Industry Security Initiative, a collective of Australia's major card schemes. It has now seen signatures as a form of verification for credit and debit card payments to be phased out.

Carlton said using pin as a form of security verification at point-of-sale is safer and faster than signing.

"Chip technology has many security benefits. For most transactions, Card Members with a chip card need to use a unique PIN to authorise payments. PIN transactions are encrypted and sent in real-time to a card issuer to be authorised, which would mean a fraudster would need to have both your card and your PIN which would be rare," he said.

Liong believes the mandate will further increase the use of contactless payments in Australia.

"As signature authentication is phased out this month and replaced with PIN only credit card transactions from August 1, 2014, I expect to see [contactless payments] increase further," he said.

However, recent research by PayPal showed that less than half of small to medium enterprises (SMEs) were prepared for the change, and that 54 percent of Australian SMEs did not accept chip and pin credit and debit payments.

The research also showed 36 percent of SMEs who currently accept credit card payments say they do not accept chip and pin payments, with 64 percent of SMEs responding they don't know what chip and pin technology means, despite the fact that credit card payments are the second most common payment method used by customers

"We need to ensure that Australian small businesses are armed with the technology and resources needed to adapt to the new payment landscape and can keep up with the shifts in consumer behaviour at the checkout," Andrew Rechtman, PayPal Australia senior director of SMB, retail and strategy said.