Technology: Contactless payment systems

Contactless payment systems are evolving fast, and mobile phones are destined to become the preferred method of payment. Added security, speed and direct marketing capabilities are the clear benefits for hospitality businesses. Ben Walker reports

You probably already use your mobile phone to take photos, listen to music, check e-mails and play games. So why not use it as a credit card too?

Londoners are already using their phones to pay for parking and the congestion charge by sending an SMS. Now mobile phone companies predict that in three years' time it will be common to pay for most services by simply pointing your phone at a till.

Last month, the Nokia 6131 NFC handset was unveiled at the Consumer Electronics Show in Las Vegas. Near field communications (NFC) technology enables the phone to be used like a credit card by simply pointing it at any vending machine or electronic till that is also NFC-enabled.

Transactions are processed after entering a pin or password. The phone company takes a small percentage of each transaction, just as a credit card company does. But Nokia claims that using the mobile phone for payment is more secure than a credit card because it can be set to allow payment only after entering a password.

Self-governing

Stephen Minall, managing director of consultancy Moving Food, adds: "You have convenience, security and no credit card abuse or theft. You still have 30 days' credit until the phone bill arrives, and the system is self-governing because if you don't pay, your phone is switched off."

In Japan, 40% of all phones are NFC-enabled, and the Japanese are used to paying for public transport, the cinema, and food and drink with their phones.

The Nokia 6131 NFC phone goes on sale in March for about £175 and NFC payment is expected to become widespread in the West by 2010. We could see a time when the mobile phone completely replaces the debit or credit card for everyday purchases.

In the meantime, contactless cards are becoming a popular medium for payment, converging a number of uses on to one piece of plastic. Last month Citibank MasterCard and wireless company Cingular joined forces in the USA to provide New Yorkers with a single "wave and pay" card to use on public transport, and at participating retailers such as McDonald's, local convenience stores and chemists.

In the UK, a similar deal has been struck between Transport for London and Barclaycard. A new card will combine the Oyster card and Visa on one piece of plastic and will have three separate functions: as a standard chip-and-PIN credit card facility, Oyster travel card and a new Visa "wave and pay" function for contactless payments up to the value of £10.

Jay Walder, Transport for London's director for finance and planning, says: "Bringing together Oyster with the Visa ‘wave and pay' function on a single card will allow customers to pay for low-cost items such as coffee and newspapers quickly and securely while getting from A to B throughout London."

Technical trial

A technical trial is currently taking place at the Aramark-run Barclaycard staff restaurant in Northampton. The card is expected to be available this summer. A Barclaycard spokeswoman said the names of participating outlets had not been confirmed but the service was open to all businesses and not just national chains.

She said fitting the card reader, which is plugged in alongside the till, was straightforward and the cost would vary, depending on the existing POS system in place. London businesses that want to sign up and be fitted with the card reader should call Barclaycard Business on 0800 616161.

Cashless payment systems have also found their way into the accommodation sector. Globetrotter Inns runs two hostels in London and Edinburgh which are popular with backpackers and students. The 382-room Edinburgh property includes a bar, shop, pool room, cinema, gym, laundry and travel desk. The management wanted to remove cash from the site completely, with the exception of one till at the front desk.

The Edinburgh branch recently adopted the EPnet system from Quintus Systems. Guests add credit to their account using a money loader in the foyer, which gives a visual read-out of the credit balance. Guests can use the card to access their rooms and to pay for all purchases on site. All purchases are made in real time, with the value being debited from the guest's account instantly.

At checkout time their account is closed and any credit remaining is refunded, except for a small administration charge. Since the EPnet is integrated into the property management system no additional administration is incurred. Cards are issued and deleted by the PMS itself.

Such examples demonstrate how technology is maximising convenience by eliminating cash from specific day-to-day areas of life, such as the journey to work or the stay away from home. Once NFC technology becomes widespread, the phone will replace the card as the medium.

Direct marketing

For hospitality businesses the advantages of the phone over card are its direct marketing capabilities. Visa has developed a mobile payments system in partnership with Nokia and others. Operators can send e-coupons direct to customers' phones. In Frankfurt, NFC ticketing has already replaced paper two-for-one vouchers in most of the city's restaurants.

The phone will also provide a way of controlling and driving footfall. For example, customers can receive promotions such as "if you turn up in the next two hours you'll get a free main course".

The NFC technology unveiled in Las Vegas last month goes further than just payment. By leveraging the phone's computing power, wireless internet access and user interface, it can also be used to gain entry, receive and record information.

Juha Kokkonen of Nokia says: "In a trade show environment, one of my favourite applications is using NFC-enabled business cards. Instead of going home with a pocketful of business cards I can simply touch the card and I have all of the contact information right in my phone."

Loyalty cards

To coincide with the launch of its international payment card, Starbucks commissioned a survey of more than 3,000 people in the UK which found that 40% had found themselves stranded at high-street tills without enough cash to pay for their goods.

Nearly a quarter (23%) of respondents had arrived in a foreign country without the cash to buy a drink or sandwich, and a third of women in the survey took less than £5 to work with them on a Monday morning.

In November 2006 Starbucks launched its top-up card in the UK which can be loaded with any amount from £2 to £150. The same card can also be used in North America, Canada, Australia and Thailand.

Costa Coffee has also introduced loyalty swipe cards which can be topped up to a maximum of £75 either in store or through an individual customer account at www.costa.co.uk. A trial showed that one in 10 customers signed up for the scheme, with more than a third using the card daily.

Minall comments: "This basically creates a bank account for the brands as they sit on their customers' money. Only 65% of those who register the cards end up being regular users."

The cards offer convenience for the "office runner" who often has orders of more than four coffees per visit. Eliminating the cash transaction reduces queues and eventually, Minall reckons, will lead to express lanes, similar to "less than 10 items" lanes in supermarkets.

The card also gives the chains easy access to sales data, helping them to allocate stock and human resources.