Visa Contactless

Visa Contactless – the ‘wave and pay’ alternative to cash for low value transactions

Contactless Payments – Overview

The introduction of EMV chip technology across Europe brings added security to traditional card transactions and is enabling the payments industry to introduce new, faster and more convenient ways to pay

Contactless payments are where payment instructions are securely exchanged between a contactless chip card and acceptance terminal using wireless communication technologies

The same type of payment instructions could also be exchanged between an acceptance terminal and a contactless EMV standard application in a mobile phone or an item such as a key fob

Irrespective of which method is used, contactless payments can be processed securely and cost-effectively in seconds

They are therefore an ideal payment method in situations where merchants need to process a large number of low value transactions, such as in fast food restaurants, convenience stores and transport terminals. They are also ideal for remote or unattended payment situations, such as vending machines, road tolls or parking meters

Why is there a market for contactless payments?

Cash continues to dominate lower value payments although payment cards have successfully displaced cash and cheques in favour of higher value transactions

In the UK it is estimated that consumers make 27 billion cash transactions a year, worth a total of £250 billion. However, over 80 percent are for purchases of less than £10.00

Retailers and consumers have traditionally resisted using payment cards for low value transactions. Consumers think cards are slower than cash and do not associate them with buying routine day-to-day items. Retailers see the cost of processing a traditional card transaction, often needing online authorisation by the card issuer, as unattractive and too costly for low value payments

At the same time, everyone recognises that cash does present its own problems. As well as being inherently insecure, it is expensive to handle, and errors are commonplace

There is therefore a real and sizeable market for a true cash replacement product that is faster, more convenient and more secure than notes and coins

Visa believes that the combination of the EMV standards and wireless technologies offers just such a solution

The role for EMV chip technology

EMV is the global payment standard for chip cards – providing banks, vendors and merchants with a single, interoperable set of specifications for chip-enabled payment cards and acceptance devices

Across Europe more than 4,600 European banks are in the process of issuing a quarter of a billion Visa EMV chip cards and upgrading millions of card acceptance devices

Although Europe is leading the way, the migration is truly international. EMV programmes are running worldwide and, in some countries, the number of EMV acceptance terminals is beginning to outnumber traditional magnetic stripe terminals

These EMV specifications give card issuers far greater control over how different transaction types should be processed

In the case of low value payments, for example, card issuers can programme certain security parameters onto an individual card. For instance freezing the PIN verification requirement for transactions below a certain limit so that they can be authorised offline

This means that transactions can be completed much more quickly. It also means that these lower risk low value transactions can be processed more cost-effectively than higher-value transactions

Contactless card payments – Visa payWave

EMV chip technology could potentially address many barriers which have traditionally prevented payment cards from being used for lower value transactions. By going one step further – and combining EMV standards/concepts with today’s wireless technologies – Visa offers entirely viable cash replacement solution

The solution uses a standard Visa Smart Debit and Credit (VSDC) application on a dual interface EMV chip card (a chip that enables both contact and contactless payments). Using the existing ISO 14443 Radio Frequency specification, the card communicates with a Point of Sale terminal connected to a ‘plug-in’, contactless reader

Faster and more secure than cash, the solution is ideal for busy sectors such as fast food, convenience stores and public transportation – who process large numbers of low value transactions

The solution allows the card issuer to maintain a high degree of control over the way that transactions are processed. For example, the issuer could personalise a card to enable ‘wave and pay’ offline transactions where each transaction amount is below a threshold of about £10 in the UK (c.€20), and the total of these offline transactions does not exceed for example £50 (c.€70). Once this limit is reached, the card will only operate in contact chip and PIN mode, at which point the issuer can authenticate the cardholder and reset the contactless counters

This means that if a card is lost or stolen or the cardholder exceeds their personal pre-authorised offline limit, the card issuer’s financial exposure is kept to an acceptable level. Costs are expected to come down significantly as contactless technology is rolled out in volume

Visa payWave developments

Visa payWave was launched in London during September 2007. The launch is in partnership with five member banks – HSBC, HBOS, Lloyds TSB, RBS and Barclays.

In September 2007, the new multifunction Barclaycard Visa credit card, Barclacyard OnePulse, was launched. This card was developed in partnership with Transport for London* and TranSys* and features three separate functions on a single card - New Visa 'payWave' technology for speedy purchasesof £10 and under, without the need to usechip and PIN, Oyster smartcard for use when travelling around London and the standard Chip and PIN credit/debit card facility.

* Transport for London is the organisation that runs London’s buses, tubes, Tramlink, DLR and selected National Rail services

** Transys is the consortium which designed and implemented Oyster and which now manages the system on behalf of Transport for London

In May 2007, Visa Europe and Denizbank announced the first application of Visa payWave contactless technology in Turkey. With a transaction time of less than a second, the contactless trial will begin using the ‘Sea & Miles’ card in Istanbul

In June, 2007, Visa Europe in partnership with Société Générale and Gemalto announced the first transaction in France. A pilot scheme was announced in the Paris La Defense business district from July onwards in which 1,000 card holders will be able to pay for small purchases in less than one second flat using a Visa payWave “contactless” card

In July 07, Visa Europe and “la Caixa” in Spain conducted the first contactless payment initiative with Visa payWave. ”la Caixa” has become the first financial entity to implement Visa payWave technology in Spain, installing specially adapted terminals at Kinepolis cinema halls in Madrid. The company has also issued new cards to its customers in the area.

Visa payWave will also be used in a mobile payment trial in Germany, with the Rhein-Main-Verkehrsverbund, a transit agency in the greater Frankfurt area. The project, RMV2go, has already been testing mobile ticketing. The first phase of the trial this autumn will involve Visa payWave and NFC enabled readers in retail locations at mainline railway stations between the Frankfurt airport and the city center.

In December 07, Visa announced the first transaction of Visa payWave technology in Switzerland and chose FIFA’s headquarters in Zurich to kick off the initiative.

In February 2008, Cornèr Bank, the leading private and independent Swiss banking institution and Visa Europe announced the first Visa payWave card in Switzerland will be available to customers.

Mobile related opportunities

Although contactless card payments represent the most immediate opportunity, there are a variety of ways that contactless payments can be processed

A wireless technology called Near Field Communication (NFC) is set to be integrated into mobile devices such as phones, PDAs, cameras and music players. Originally developed by Philips, the technology is endorsed by Sony and Nokia. It operates at 13.56 Mhz across distances of up to 20 centimetres and is designed to be easy and intuitive to use

To illustrate the potential, Visa Europe has demonstrated a contactless payment solution with “la Caixa” bank using a Nokia 6131i. In addition, in Germany Visa Europe announced a joint partnership with Nokia, T-Systems and the Rhein-Main-Verkehrsverbund (RMV) called RMV2go. This project will enable the creation of payment solutions via mobile phones using Visa payWave. Visa will support the project with its expertise in developing, testing and launching payment application for mobile phones based on the Near Field Communication Technology (NFC). The initial tests with Visa payWave will already be conducted in autumn 2007

In November, Visa Europe announced its participation in a large scale UK mobile pilot for payments – entitled “mobile wallet”. The six month pilot will examine the use of mobile phones to pay for purchases, access events or even be used as Oyster cards for travel around London, simply by touching the phone to a reader.

In Spain, BBVA, Visa Europe and Nokia announced an NFC pilot with BBVA employees

In France, Visa Europe is part of a joint pilot with six major French banks as well as four mobile operators. This trial tests mobile payments with 1000 customers at 200 sales outlets in Caen and Strasbourg.

In January 2007, Visa Inc. announced a mobile payments platform laying the foundation for commercial mobile payments, and has since announced several market trials in a number of countries including Australia, Brazil, Canada, Korea, Malaysia, Taiwan and USA.

Further information

Journalists should contact the Visa Europe press office:

Tel: +44 (0)20 7795 5463
Email: europeanmedia@visa.com