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Payment ceiling could limit contactless scheme for Mastercard and Visa

Mastercard and Visa´s decision to participate in a contactless payment scheme in the UK seems a prudent strategy, due to the high number of low value transactions in the region.

Furthermore, service stations represent the largest potential market for contactless payment in the UK. However, given the £10 ceiling, the scheme will only cover a small proportion of service station transactions. Mastercard and Visa have given their approval to a new contactless payment project in the UK

Contactless payment systems enable customers to pay by card up to a limit of £10 without requiring any direct physical interface between the payment piece and the terminal such as entering a PIN number. The project will run for a trial period, with the possibility of a wider rollout in 2008. Contactless payment has been growing in popularity over the last few years, as it offers a number of significant benefits to both retailers and customers.

These include faster customer service at the point of sale; customer satisfaction as consumers appreciate the convenience of contactless payments; higher spend as consumers are less inhibited when paying by card than with cash; greater frequency of transactions; reduced cash handling fees; potential reductions in staff costs, and the opportunity to register customer data. The scheme could well prove successful, as Datamonitor research shows that the UK, along with Germany, presents the greatest opportunities for contactless payment in Europe.

This is essentially because the UK has the largest market for low value cash transactions and therefore offers the greatest theoretical potential for such a payment mechanism. Although service stations represent the largest segment for contactless payment, as most transactions in this market are higher than £10, they are not eligible for the payment method. Indeed, with the ceiling set at £10, only around 18% of service station transactions are suitable for contactless payment.

However, Datamonitor research shows that this would increase to around 40% if the ceiling was increased to £20. All the signs suggest that contactless payment will be a success in the UK, especially considering the size of the market for low value transactions. However, given the ceiling of £10, at first, the machines are only likely to be installed by retailers with a high number of low value transactions. Therefore, because the majority of service station transactions are over £10, it is unlikely that many will install the technology until it gains momentum. (