CONTACTLESS PAYMENTSEverything you need to know for your business

Everything you need to know about contactless paymentRapid developments in technology are changing the way we live, work, learn, socialise and especially the way we pay.

Contactless payment is booming. It takes less than a second to process a transaction, making it perfect for our fast paced lives where we’re always on-the-go, with no time to hang around.

There are 36.3million contactless enabled cards in circulation in the UK and an estimated 125 transactions a minute on VISA cards alone in Britain. Contactless activity is growing at an average of 22 per cent every quarter. In the year to September 2013, an astonishing £461.6million was spent with VISA contactless cards in the UK.

Business owners love it because it speeds up transaction times, cuts down on queues and reduces sales lost with people deciding they’re ‘too busy to wait’.

Major high street names such as Marks & Spencer, Co-Op, Waitrose, Post Office, Boots, Costa, Greggs, McDonalds, Wilkinsons, WH Smith, Wetherspoons and even The National Trust are among the organisations that have adopted the technology - with 164,000 contactless terminals in operation in the UK, according to industry body the UK Cards Association.

There will be at least one business on your high street using contactless technology as this next step in the smart payments journey becomes more commonplace. And of course, whilst harder to measure, take-up in the independent business sector is increasing too. In fact many businesses already have contactless enabled payment terminals, but are unaware of the additional capabilities they hold.

So, let’s dive in to the world of ‘Tap And Go’ to see how you and your customers can get the most out of this technology.

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Who supports it?Banks who have issued contactless cards include Barclays, NatWest, HSBC, Capital One, Co-operative Bank, Lloyds, MBNA, RBS and Newcastle Building Society. MasterCard branded cards use a system called PayPass while Visa has its own version called PayWave.

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What is contactless?Contactless payment uses a short range wireless system called Near Field Communications (NFC). Debit and credit chip cards are fitted with an antenna that enable them to communicate with devices at a radius of up to five centimeters. Cardholders pass their cards close to a contactless enabled payment machine at the point of sale to register their payment.

Originally developed back in 2008, its use became more widespread after the huge success of the London Underground Oyster system, which uses contactless payment to debit amounts from pre-loaded cards. This drove down costs for the operator, led to fewer cases of fraud and provided the public with quicker journey times.

How does it work?Following the success of Oyster in London, contactless was seen as the solution to faster payments for businesses and the public across all sectors, particularly those with low value, frequent transactions such as newsagents, bakeries, convenience stores, chemists, takeaways and bars.

While the main benefit of contactless is to speed up the process by removing the need for the customer to verify every transaction, there are still checks in place. The cardholder has a ‘ceiling’ on their card of £20 per transaction and cannot go more than five contactless transactions without being prompted to enter their PIN to confirm identity.

Contactless terminals are programmed so that only one payment from one card for one transaction can go through at any time. In order to put a second payment through, the card has to be removed from the NFC range and a new transaction has to be initiated. In addition, if the payment terminal senses more than one card in the NFC range, the transaction is rejected.

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Is it safe for my business and my customers?

In a word, yes.According to a survey by Retail Week magazine in July last year, 82 per cent of the public still had security fears over contactless payment. Stories abound of people unwittingly paying for items via the card that’s in their purse or inside their handbag that they had just rested near the payment machine. And worse, of people having no idea they’ve even made a transaction until they see it on their statement a month later.

However, such instances are extremely isolated and are being put down to errors at the point of sale by the business and cardholder as these cards – like any other – do not just ‘take payments’ automatically. In a typical transaction, the sales assistant enters the amount first before the card is presented and the contactless card needs to be less than 5cms away to register.

Businesses won’t be exposed to any greater risk of fraud as contactless cards use the same high level technology that’s behind chip and PIN.

Specific ‘anti-collision’ software is also installed on contactless-enabled terminals – if a reader detects two cards, the merchant is asked to clarify with the cardholder which one to make the payment from.

Cardholders can also improve the safety and security of their cards by always removing them from their purse or wallet before presenting it to a contactless reader.

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How susceptible are these cards to fraud?Retailers have the same protection against fraud as they do with chip and PIN transactions. And just like any other card, as soon as it is reported missing or stolen it’s blocked and if reasonable steps have been taken to ensure its safety, the cardholder won’t be liable for any activity on the card after it is reported.

From the cardholder’s viewpoint, if thieves stole a card, they would only be able to make a handful of £20 or less purchases before being required to enter a PIN.

According to Financial Fraud Action UK, the total amount of UK fraud reported from contactless cards in 2012 was £13,700. To put this into context, £216million of fraud was reported on debit and credit cards in the UK.

Earlier this year, researchers at the University of Surrey claimed to have invented technology that allowed them to read the details of all cards being used at up to half a metre away from a contactless terminal. However, the UK Cards Association insists that no useable information would be able to be picked up, therefore fraud is highly unlikely.

A mobile application has also been developed by Newcastle University that claims to be able to read the name, number and expiry date from a contactless card. This could allow fraudsters to rack up purchases on websites that do not ask for the three-digit security code before completing transactions. However, while technically possible, the effort required is deemed to far outweigh the possible return.

According to the website contactless.info, set up by the participating bodies in contactless technology, the security built into the chip on a card means that any data intercepted would not work if someone tried to use it again.

The card generates a unique cryptogram for each transaction (based on the secret cryptographic keys in the chip, the transaction counter, and a random number produced by the terminal) that is used to validate the data.

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Customer case studyHow does it work in practice? Here’s the experience of one retailer, Hasan Akis, of Tarves Food and Wine in south east London.

“We went contactless about six months ago and we wouldn’t be without it now. Being able to take payments this way has benefited our business dramatically with payments of £20 or less taking less than a second.

“This, in turn, reduces queuing time and allows us to serve more customers. At busy times, the difference in store has been noticeable and there’s less frustration among customers and staff. Being able to spend more than just the change in their pockets has also led to an increase in the average spend of our customers too.

“Some customers didn’t understand at first that their cards were enabled with contactless technology. But we’d made sure all of our staff had been trained in what it was all about and how it worked so we were able to guide customers through the process.

“A few customers have asked about how secure contactless payments are and we have been able to reassure them that their transaction is as safe as a regular chip and PIN transaction. This is such a quick and easy process that it’s clearly the next step in electronic payments and before long everyone will be using it.”

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What else can be done with a contactless terminal?The terminals are able to do everything a chip and PIN terminal can. If you are in a business where tips are common, these gratuities can be added, although they need to be added up beforehand so one amount is put through the terminal. Contactless transactions cannot be performed for cashback or refunds. Receipts are usually not automatically issued, but can be given to cardholders on request.

Is it more expensive?Contactless transactions on debit cards attract lower charges for businesses than chip and PIN transactions, which make them ideal for low value sales. For credit cards it’s the same rate as chip and PIN i.e. a percentage charge.

Businesses may need a new payment terminal when deciding to take contactless payments. This is generally no more expensive than a traditional chip and PIN terminal.

Contactless machines are available with colour screens and there will be savings to be made on paper rolls as the machines only issue merchant receipts (the cardholder can request a receipt), which is environmentally friendly as well as quicker to process.

In addition, all staff will need to be trained in how to operate the terminal and how the contactless process works, so they are able to advise cardholders and avoid problems. Display material at point of sale will also raise awareness that the service is now on offer.

THREE STEPS TO REMEMBER

Confirm: A beep means the payment has been successfully processed.

Touch: Look at how the cardholder presents their card to the reader, and ensure they hold it in place until the light turns green.

Look: Make sure the contactless sign is clearly displayed around your point of sale.1

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Future developmentsIt’s not just about cards, there are a range of future developments using the same technology to facilitate payment transactions, including contactless enabled smartphones, wrist bands and watches all supporting e-wallets containing a customer’s virtual card. The £20 transaction limit is also being reviewed and the industry is developing contactless ‘higher value payments’ which will enable payments of more than £20 to be made. Further anti-fraud measures will go hand in hand with such developments to safeguard the integrity of contactless.

Why should I be offering contactless payment to my customers?Whatever kind of business you are, the number one rule is to listen to what your customers want. Having the option to offer contactless payment is clear proof that you are keeping up with the way public spending habits are changing and not missing out on sales. Despite the hype, the risk for businesses and cardholders is no different to chip and PIN transactions.

We know that there are also business owners who prefer to engage their customers and therefore don’t want a quick transaction. In these instances, contactless would provide a new tech option that leaves more time to talk and engage as the payment process is over in the blink of an eye.

With so many cards in circulation and more being issued all the time, this will soon be the way customers expect to pay. So can you afford to ignore contactless?

The speed of transaction is the obvious benefit to the cardholder. Many business owners see the advantage of this too, with quick ‘tap and go’ payments helping to reduce queues at peak times and get more customers through the door.

Find out moreWe hope you found this information useful, however we understand that the payments industry is complicated, so if you’d like to talk to Handepay about your business needs and how contactless technology can benefit you, please get in touch by emailing marketing@handepay.co.uk or call 0800 377 7382.

Handepay has also produced a guide to getting started with card payments, it’s free to download and is available from www.handepay.co.uk/accepting-card-payments