LAHAK BANKA

SURAJ AMBRE

CONTACTLESS PAYMENTS

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Table of Contents

1. INTRODUCTION .................................................................................................................................... 2

2. GROWTH LIMITATORS ....................................................................................................................... 7

3. ISSUES FACED BY CONTACTLESS PAYMENT CARDS ................................................................ 8

4. SURVEY .................................................................................................................................................. 9

5. THE FUTURE ....................................................................................................................................... 10

6. CONCLUSION ...................................................................................................................................... 12

7. QUESTIONNAIRE ................................................................................................................................ 13

8. R E F E R E N C E S .............................................................................................................................. 14

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1. INTRODUCTION

1.1 EXECUTIVE SUMMARY

The way consumers make payments have changed significantly over years due to innovations in the

payment method – debit cards/credit cards, mobile wallets, cryptocurrencies, etc.

Contactless Payments systems are credit cards and debit cards, or other devices like smartphones,

key fobs or other mobile devices that uses the Radio Frequency Identification (RFID) or Near Field

Communication (NFC) technology for making secure payments.

It is said that the transactions can be almost twice as fast as the conventional cash or credit/debit card

methods of payments. Contactless Payments however will not be accepted overnight as change in

payments is usually very slow and it has been there since 2008 but the presence of it is still not felt

in most parts of the world.

However, contactless payments have already started providing benefits to both consumers and

retailers in terms of convenience and ease of use.

The major presence of Contactless Payments in terms of usage is seen in :

Australia - With 2/3rd of the population being aware of what a contactless transaction is and

approximately 53% made a contactless transaction using a contactless card.

New Zealand - Approximately 50% of the population have made a transaction using contactless card

Singapore - The 2nd largest market with 54% of the population owning a contactless card and 45%

having made a transaction using one.

Taiwan - 41% of the population using a contactless card to make a transaction

London - The % of people using a contactless card is 15.6 . However, it has the largest overall

transaction with 2.96 million

USA - It has the lowest penetration with only 14% owning a contactless card and 9% having made a

transaction using one.

India - With the UPI coming up the payment world would ease out a bit but a strong presence yet to

be felt.

Apart from that, India also saw its first mobile contactless solution launch by ICICI which works on

the Host Card Emulation (HCE) technology.

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Recent Statistics indicate:

Travel made up 15.5% of mobile transactions on global payments.

13% of transactions for airlines are currently happening on mobile.

Payments on the tube, bus, and rail network have risen in number by a massive 532% since

launch.

By 2025, 65% of all transactions are predicted to be by smartphones.

There will be more than 200 million mobile-wallet users across the U.S. by the end of 2016

~ Juniper Research

Euro monitor International expects there to be a 29% CAGR of wearable electronic devices

from 2015 to 2020 or an increase of 220 million devices.

Contactless transactions increased by 164% in value and 135% in volume last year alone

compared with 2014.

56% were contactless out of the two billion chip cards issued in 2015

On seeing the few recent trends, we see that the world is moving towards a cashless economy.

Contactless Payments allows transaction without any physical connection between the POS terminal

and customer's payment device (contactless cards, wearables, etc.).

The various payment methods for contactless payments are :

Point Of Sale/mPOS

Contactless/NFC

Digital Wallets

Wearables

Alternative Digital Currencies - e.g., cryptocurrencies

Out of the following payment methods, Visa/Master Card (POS/Contactless NFC) and Apple Pay

are mostly used.

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Going by the regulations, it is more or less the same as the traditional payment system. However, there are payment limits for different countries for contactless payments –

Economic Space Limit Comment

No Limit Above A$100, Pin

required Australia

UK £30 Some retailers will allow higher value purchases using newer hardware that supports high value purchases if the contactless authentication method is biometric (e.g. Apple Pay)

Canada No limit There is no law limiting the amounts.

New Zealand No Limit For each transaction

over NZ$80 a PIN is

required.

Taiwan No Limit Signatures may be

required for large

purchases.

India Rs 2000 Beyond Rs 2000, It will be through a contact card

USA US$25 -

1.2 Working of Contactless Payment cards

While using contactless cards, we need not to swipe the card in a card reader machine. It works just

by positioning the card near the card reader machine. So, any physical touch is not required between

the card and the machine. Contactless cards look very similar to normal plastic money cards except

having on it, a small radio symbol very much similar to a toppled Wi-Fi symbol. These cards work

with radio frequency identification (RFID) based Near Field Communication(NFC) technology for

its connection establishment. Because the card works on a weak radio wave, it must be positioned

within a distance range of 4-20 centimetres from the machine for making a payment. For some cards,

neither it is required to enter the PIN nor is it essential to sign the receipt while making a payment

amount that is within the permissible limit as notified by RBI from time to time. We can use the

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contactless cards as normal debit or credit cards when the point of sale(PoS) machine is not

supporting the contactless transactions.

1.3 Adoption Challenges/Risks/Gainers & Losers

There are few adoption challenges that need to be overcome to make contactless payments a success.

They are -

Lack of Integration - Mobile sites and applications offer consumers great content but the

lack of integration with the offline world disjoints the user experience and adds friction. As

a result, the value created by mobile content and messaging delivery is vastly reduced from

what it could be.

Security

Social Mindset

Regular and faster settlement

There are various risks associated with contactless payments. Due to these risks, it has become

challenging for people to adopt the new payment system. The risks associated are -

Technology

Card Fraud Risk

Identity Theft/Data Cloning

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Threat to freedom (Recent demonetization in India) – Government might get

extraordinary access to information and power over citizens. Although, it might restrict

blackmarket transactions and restricted work, it might become difficult for companies and

individuals to transact on a daily basis owning to the size of the business they hold.

There are various industries that would gain/lose if contactless payments take over completely. They

are -

Gainers

o Digital/ IT/ Fintech Companies

o Telecom Operators

Losers

o Infrastructure Providers

The presence of contactless payments is seen more in the Travel and Retail Sector. Contactless

Payment in the travel sector is seen mostly in the UK (specifically London). Transport for London

has been a data driven organization for more than 40 years now. It has always been a data rich

organization which has been recording information since 1971 but it was only after the Oyster cards

came in 2003, the volume and richness of the data could be exploded.

1.4 Benefits of Contactless Payments in Travel and Retail Sector :

Operational efficiency - Industry research has shown that contactless transactions are faster

than both cash and conventional card transactions— averaging 12.5 seconds, compared to

26.7 seconds for conventional card transactions and 33.7 seconds for cash transactions2. This

reduced transaction time can result in shorter queues, increased revenue and better customer

satisfaction.

Competitive differentiation - Retailers that accept contactless payments are especially well-

positioned to benefit from the emergence of mobile phone based payments, which are

predicted to be an especially popular payment choice among young and affluent consumers.

Risk reduction

Customer experience

1.5 Benefits of Contactless Payments to Consumers :

Convenience & Ease of use - Instead of swiping time and again you just wave the card near

the reader

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Flexibility of alternate form factors - Contactless payment technology doesn’t have to be

delivered on conventional plastic cards. Contactless technology is increasingly available to

consumers in other forms, such as mini-cards, stickers, key fobs and even mobile wallets that

turn contactless-enabled phones into payment devices—reducing the need to carry a physical

wallet at all.

2. GROWTH LIMITATORS

A. Internet/Connectivity issues:

There are some incidents in the nations where they were introduced, wherein hackers were able to skim the data from the contactless cards by the use of mobile applications. Identity of the card holder can be stolen with the data so acquired.

There could be some accidental transaction happening when our card comes in and around the card reader machine unless proper security measures are implemented in the card for eavesdropping attacks.

When two or more cards are near the PoS machine, confusion may arise and incorrect payments can be executed by the merchant.

PoS machines can fail to detect the card if there happens to be a small damage to the card due to improper handling.

B. Convenience:

It will be arduous in present situation to find contactless enabled merchant machines everywhere to make our transactions.

The permissible limit for PIN less and signature less transaction is set by RBI, so we may be asked to enter our PIN or put a signature on the receipt every time we cross this permissible limit. (limit set in India is of Rs 2000)

C. Physical Strength:

The plastic card in which the chip is embedded is fairly flexible. The larger the chip, the higher the probability that normal use could damage it. Cards are often carried in wallets or pockets, a harsh environment for a chip.

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This is an era of Global disruptions. Talking about disruption, every small opportunity has something

hidden in it. The whole strategy of disruption will shift from an uber disruption transportation

industry. It is a notion of micro experiences. Disruption comes only when it is a disruption for the

end user and you cannot build a great platform or technology to disrupt. You got to rewire yourself

where everyday where you are thinking who is your end user and what are the journeys that one has

to take. Disruption is going to look at micro experience and that is where you need to rewire yourself.

A great learning would be to increase the voice of millenials. Anything is a bonus for people who

have not lived this life. It is more of a cultural element.

For Contactless Payments, the biggest disruptions are :

Internet of Things and Wearable Technology

Blockchain

Digital Wallets

3. ISSUES FACED BY CONTACTLESS PAYMENT CARDS

Compatibility and Necessary Hardware

To add a payment card to your mobile payment system and use it at a particular merchant,

two things need to happen: The card’s issuer (Visa, MasterCard, etc.) must agree to work

with the payment system (Apple Pay, Samsung Pay, etc.), and the merchant must have a

working NFC reader (also called NFC terminal) – or, if online, accept your chosen mobile

payment system.

Compatibility : Platform-Issuer Compatibility varies somewhat by platform. Although most major card issuers and payment

processors partner with most mobile payment platforms, there are exceptions. For instance,

Apple Pay wasn’t compatible with Discover cards until late 2015. Additionally, arrangements

between card issuers and payment platforms are subject to interruption or discontinuation at

any time due to corporate disagreements, meaning tap-to-pay users need to keep one eye on

the news.

Store loyalty cards present separate challenges that don’t fatally impact payments, but still

inconvenience users. Some mobile payment systems, such as Apple Pay, aren’t compatible

(or have limited compatibility) with store loyalty cards. Others sync seamlessly with loyalty

cards, automatically conferring discounts and accruing loyalty points with relevant merchants.

Online acceptance and NFC Reader availability

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The NFC reader issue is more straightforward. NFC terminals are relatively inexpensive –

they generally cost less than $50, and some payment platforms actually give them away for

free. Because mobile payment systems want merchants to adopt, accepting contactless

payments doesn’t cost the merchant anything beyond the credit card’s standard interchange

fee (usually 2% to 3% of total transaction value).

Syncing NFC readers with store point-of-sale systems isn’t difficult either. And accepting

mobile payments for online purchases is as easy as taking a few minutes to download the

mobile payment system’s free software and creating a free merchant account.

On the other hand, many merchants with physical stores are understandably hesitant to deploy

a new, unfamiliar payment technology – particularly when many customers continue to use

traditional credit cards. However, the adoption of EMV (chip-and-PIN) “smart” cards, which

use similar contactless technology bundled into many existing NFC terminal models, is likely

to speed adoption and broaden mobile payment compatibility in the years ahead.

4. SURVEY

A survey was conducted with a population of total 150 Applicants to know the response of the

number of people who are willing to accept contact less payment.

Each category had a sample size of 30 people

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

18-25 25-35 35-45 45-60 60+

Series1

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It is been observed that the young population is willing to accept contactless payment cards much

easily as compared to the older population.

Our survey shows that for the population in the category between -

18-25: 80% of the population is willing to accept it

25-35: 60% of the population is willing to accept it

35-45: 45% of the population is willing to accept it

45-60: 30% of the population is willing to accept it

60 and above: Hardly 10 % of the population willing to accept it

5. THE FUTURE

Contactless cards are in line to experience stratospheric growth in the next few years as Europe is

expected to witness a nine-fold rise in contactless payment volume by 2020 compared to 2014,

according to research from RBR.

The Slow Start

The NFC cards have truly overcome a slow start in Europe last year when at the end of 2014 there

were 223 million contactless cards in issue in Europe, up 65 per cent compared to 2013, and

representing 15 per cent of all payment cards.

And with increasing acceptance comes accelerated growth of usage as , there were 1.4 billion

contactless payments worth €15 billion in Europe in 2014, rises of 155 per cent and 190 per cent

respectively compared to 2013, RBR has revealed in its study, Global Payment Cards Data and

Forecasts to 2020.

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The future work to be done

However, despite describing these figures as “staggering”, the research firm said we should not be

carried away by them just yet as “contactless transactions still represent just 2 per cent of the overall

volume of card payments in the region and 0.5 per cent of their value.”

Despite the technology being fantastically deployed in countries such as the UK and the Czech

Republic, like with any new payment method, it is just as much about need as it is about convenience.

Even as recently as the end of 2014, there were no contactless cards at all issued in Denmark, Estonia,

Lithuania, Norway or Sweden, whilst more than 60 per cent of all cards in the Czech Republic,

Poland and Slovakia were contactless.

In countries like the UK we traditionally used cards for higher value purchases and cash for lower-

value, so there was a need factor, a convenience factor and therefore a business case to make a new

type of card that would make low value payments easier.

But this is not the case in all European countries. According to RBR, Sweden started to issue

contactless cards only in 2015, because traditional cards already well established and consumers

were frequently using them for low-value payments. Therefore, the business case for contactless

payments was lessened compared to other markets where cards were typically only used for

transactions above a certain value.

As well as a need factor, there is also the cost factor that comes into play. In Russia, for example,

owing to the high cost of converting cards to contactless, banks focused initially on issuing only

premium and high-tier contactless cards.

Impact of Demonetisation on contactless payment observed in India

To put an end to the Black market transactions, Government took this step thereby promoting

cashless transactions. One of the effect to demonetisation was an increase in cashless transaction

where the Mobile Payment platform Paytm recorded a 435% increase in its overall traffic within

hours of ban on INR 500 and INR 1000 notes. Also, it was mentioned that the company noticed a

200% hike in the number of App downloads and a 250% surge in the overall transactions. On the

similar grounds, Freecharge reported a sharp 12x increase in the average wallet balance.

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6. CONCLUSION

There is no doubt that contactless payment has taken up by storm. However, it will not be universally

accepted overnight. Change in payments is usually very slow and Contactless has been around since

2008 but is still not accepted in most parts of the world.

Be it the travel or the retail sector, Contactless payments has been a success on whichever platform it

entered. The convenience of it has taken the payment system to a different level and considering the

speed of technology adoption, the journey will get covered faster. However, the major concern lies in

changing the consumer's behaviour to adopt this new payment system. It is difficult to break a habit

and build trust on something new.

It would take time but with the Internet of Things gaining popularity, the acceptance of contactless

payment will be adopted all over very soon. It is predicted that by 2025, contactless would be the

driver and more than 50.2% of the transactions will be contactless.

The Road Ahead

Despite a few obstacles, RBR’s data suggests there is only one way the technology’s popularity can

go up.

The volume of contactless payments is forecast to rise almost nine-fold to 12.2 billion in 2020,

and RBR forecasts the number of contactless cards in issue to treble between 2014 and 2020 to just

short of 700 million cards, representing more than 40 per cent of the total regional card base.

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Contactless mandates

There were 2.5 million contactless-enabled terminals in Europe at the end of 2014, representing 16

per cent of all EFTPOS terminals in the region. That figure is set to soar as both MasterCard and Visa

have insisted on all new terminals being capable of accepting contactless transactions by the

beginning of 2016 and all existing terminals should be contactless by the beginning of 2020.

Furthermore, the interchange fee for contactless cards in many countries is lower than that for other

payment cards, which will also encourage growth in acceptance generally and in contactless

acceptance in particular, as some retailers sign up to accept cards for the first time and others replace

older terminals.

RBR believes that contactless will continue to spread throughout the region aided by the card

schemes’ mandates for terminals to be capable of accepting contactless transactions. At some stage

there will be a tipping point, after which the movement to contactless will be extremely quick. That

point has not quite been reached, but it is becoming closer all the time.

7. QUESTIONNAIRE

Questionnaire for checking the acceptance of contactless payments

Name:

Gender:

Sex:

Amount Spend on daily transactions:

Type of payment used: Cash/Card/Other

If provided with an opportunity to use contactless payment would you use it?

How comfortable are you using contactless payment? (scale of 1-5 ,1 being lowest and 5

being highest)

Do you feel there are any risks present in contactless payments? If so please mention below

Do you find an Electronic Data Capture Machine in all outlets?

Has your daily routine transactions become easier with contactless payments? (YES/NO, If

Yes, how?)

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8. R E F E R E N C E S

http://www.bbc.com/news/business-12310810

http://www.paymenteye.com/2016/05/23/cash-to-be-overtaken-by-debit-cards-by-2021/

http://www.livemint.com/Money/d18QNP1Dg7tl7ZuHo7qRvL/RBI-puts-up-draft-rules-for-

contactless-cards.html

http://www.paymenteye.com/2016/05/23/cash-to-be-overtaken-by-debit-cards-by-2021/

http://www.itproportal.com/2016/01/25/top-5-payment-technology-trends-to-look-out-for-in-

2016/

http://www.marketsandmarkets.com/ResearchInsight/contactless-payments.asp

http://www.theukcardsassociation.org.uk/contactless_merchant/retailers_benefits_of_contac

tless.asp

https://letstalkpayments.com/10-countries-riding-contactless-payments-wave/

http://www.telegraph.co.uk/finance/personalfinance/bank-accounts/10416659/Engineers-

claim-to-prove-risks-of-contactless-bank-cards.html

http://tonetag.com/blog/tag/contactless/

https://www.b2bmarketing.net/resources/blog/nfc-rfid-and-ble-contactless-technologies-will-

shake-and-wake-events http://www.visa.co.in/personal/features/visapaywave.shtml https://letstalkpayments.com/visa-paywave-leads-to-drive-contactless-payments-in-india/

http://www.indiastudychannel.com/resources/168260-Pros-and-cons-of-contactless-bank-cards.aspx

https://en.wikipedia.org/wiki/Contactless_smart_card

http://www.paymenteye.com/2015/12/10/what-is-the-future-of-contactless-cards/

http://www.moneycrashers.com/mobile-contactless-cards-payment-technology

http://profit.ndtv.com/news/property/article-real-estate-resale-market-to-be-adversely-hit-by-demonetization-1623404