2012: The year of NFC contactless payments?

Though many retailers and consumers remain sceptical, the rise of NFC technology and contactless pay ments will make wallets and cash obsolete, according to some experts.

The mental checklist of 'keys, mobile, wallet' before you leave the house could soon be a thing of the past, thanks to the rise of the mobile wallet and NFC contactless payment.

As major banks, network providers and retailers take tentative steps in contactless payment in the UK, many industry experts say this is the year when adoption of the technology will become mainstream, but others are less convinced.

Compared with other markets, the UK lags behind when it comes to using NFC to enable contactless payments in-store via mobile devices. Orange and Barclaycard have been the major proponents of the service in Britain, rolling out the 'Quick Tap' contactless payment scheme last June. It has made purchases using a handset possible at food outlets including Pret A Manger, EAT, McDonald's and Subway.

While contactless payments make sense for chains such as Starbucks (see box), where it can reduce queuing times, major retailers are yet to adopt, or at least roll out, the technology. Despite the growing number of NFC-enabled handsets on the market, and the availability of an NFC conversion sticker for phones, penetration remains low.

'Its use is growing, but not as fast as we would like,' says a spokesman for Subway. 'People are sceptical from a security perspective, (but) it is also a peer thing. When people see others use it, they may be more likely to use it.'

Mark Austin, head of contactless for Visa Europe, argues that the London 2012 Olympics will be a 'major milestone' and driver for contactless payments. To this end, Visa has partnered Samsung to launch an NFC-enabled Olympic phone.

However, O2, which last week launched its 'mobile wallet' proposition, does not yet enable contactless payments. Sally Cowdry, marketing director of O2, says that while NFC technology is an 'exciting prospect, there is still a need to educate all parties about how to best use the technology'.

She adds: 'It's still in its infancy and until there's a national infrastructure in place and privacy concerns are addressed, NFC will take some time to be adopted en masse.'

O2, Everything Everywhere and Vodafone announced last June that they had joined forces to speed up mobile payments, in an initiative named 'Project Oscar'. However, the venture is now the subject of an antitrust probe by the European Commission, over concerns it could stifle innovation, with the ruling expected in August.

Even those brands using NFC, such as PayPal, which handled $4bn in payments last year, and enables NFC through its Android app, are guarded about its future. PayPal says it is only a small part of its focus. Moreover, Rob Skinner, head of social media at PayPal, is unconvinced that the mobile will replace the wallet anytime soon.

'The reality is that, in the UK, barely anyone has NFC-enabled phones,' says Skinner. 'NFC requires more retailers to change their systems. It's a big investment.'

Another issue hampering uptake is security. A recent Channel 4 investigation claimed that millions of Barclays contactless Visa card users were vulnerable to having their card data 'pickpocketed' with a swipe of a mobile phone (see box), reflecting wider consumer concerns.

Nonetheless, Geoff MacGillivray, manager of services security, payments and NFC at BlackBerry-owner Research in Motion, argues that NFC is more secure than other technologies. 'You have the ability to remotely wipe it or lock it,' he says.

Skinner agrees, but adds that the industry must do more to explain what consumers should do to keep their information secure.

Whether 2012 is the year contactless payments gain traction is far from certain. However, with so many brands - from Asda to Burger King - having invested in this area, and the hotly anticipated UK launch of Google's Wallet, NFC seems destined to some day usher in 'frictionless' shopping trips for the masses.


A Channel 4 investigation, broadcast in March, brought the issue of contactless payment security into the spotlight. The report claimed that millions of Barclays contactless Visa card users were exposed to fraud, because data could be stolen from cards in wallets and pockets with a swipe of a mobile phone.

The investigation, in conjunction with mobile phone security company ViaForensics, claimed it had lifted information from a Barclays-issued Visa card, which could then be used to purchase products on Amazon. The transaction was possible because Amazon does not require the three-digit security code on the back of the card.

In the broadcast, Thomas Cannon, director of ViaForensics, said that all he did was tap his phone over the person's wallet, and the wireless reader on the phone was able to lift the details from the card. This included the long card number, expiry date and name. 'It was simply a case of the details coming out through the air,' added Cannon.

Barclays said the issue was not with contactless payment but with retailers who took insufficient 'card not present' payment checks.

In a statement, Barclays said: 'The security of our customers' money and personal details is a top priority, so we are concerned about these transactions. The only information which can be obtained from a chip is the same as that which is printed on the front of the card - this does not include secure information such as PIN or signature (CVV) code.'

Barclays said it was now engaging with retailers 'as a matter of urgency' to ensure the latter run adequate checks.


James Le Brocq, managing director, O2 Money

- Why did you launch your mobile wallet without NFC services?

There is a brilliant opportunity to bring ecommerce to mobiles. That desire is greater than desire for NFC technology; but NFC is brilliant, and at the right moment we will be keen to provide those services.

- Is regulation around 'Project Oscar' standing in the way of NFC in the UK?

There are no barriers to NFC. The challenge is persuading organisations that they need to make an investment to do it. It may be that retailers perceive the cost of NFC transactions to be greater. There are some bits of grit in the system, but, over time, customers will be crying out for NFC capabilities. NFC is not just about payments; we could be using it to discover exciting information.

- When will this happen?

The turning point will be when TfL switches Oyster to the EMV (Europay, MasterCard and Visa) payment standard. The next will be when a major UK retailer makes it available in all its stores.

- When do you envisage mobile phones replacing the wallet?

For different people it will happen at different paces, but the need for cash or a wallet will disappear as contactless becomes widespread.


Rather than waiting for NFC technology to become more widely available, Starbucks decided to go it alone and create its own custom-built mobile payment app.

It meant that consumers did not need to have an NFC-enabled handset to make a payment. An iPhone app made its UK debut in January 2012 and an Android version is to launch later this year. The app is available only to members of the Starbucks Loyalty programme.

'Since we launched in the US, we have had 42m transactions,' explains Ian Cranna, vice-president marketing and category, Starbucks UK and Ireland. 'It has also been massive in the UK. We hear from our customers all the time that they like the speed of it, and not having to carry cash with them.

'We get a lot of comments on Twitter and Facebook all the time about the app. One customer recently tweeted: "My life is now complete after I discovered the UK Starbucks app."'