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Contactless Payments 2006
Datamonitor, June 2006, Pages: 83
Introduction 10
What is this report about? 10
Who is the target reader? 10
How to use this report 11
Introduction TO CONTACTLESS PAYMENTS 12
Introduction 12
Defining contactless payments 12
Contactless payments offer an opportunity for issuers to grow transaction volumes and therefore revenues 13
Contactless payments allow issuers to account for a greater share of low value payments, offering significant potential benefits 13
Plastic cards in their present form can only account for a certain proportion of the overall payment landscape 13
Capturing a portion of these transactions will generate significant additional revenues for issuers 15
Contactless payments offer strong benefits for both consumers and merchants 16
Consumers benefit from greater speed, security and convenience 16
Merchants experience higher revenues and lower costs 17
Summary 18
RECENT DEVELOPMENTS IN CONTACTLESS 20
Introduction 20
Americas - the US is the most developed contactless payment market in the world 20
There are now over 10 million contactless devices in circulation in the US 21
Chase Banks full commercial rollout has driven growth in the US 22
Chase Bank customers can now blink their payments 23
Several other US issuers have since launched contactless 25
Product design and positioning in the US differ from that elsewhere 26
US contactless forms are all based on magnetic stripe technology, necessitating online authorization 26
There are also important differences in product positioning between the US and other markets 27
Current developments suggest further growth in the near future 28
Citibank is conducting a six-month trial of contactless payments at ticket barriers on the New York subway 28
Visa introduces a contactless Mini Card 28
Asia-Pacific - launches in several markets have resulted in growth across the region 29
Malaysia: the first market to deploy Visa Wave in mobile handsets 29
Taiwan: Visa Wave is also growing strongly in this market 30
Taiwan: MasterCard has announced a PayPass trial 30
South Korea: Visa Wave has become popular, with a mobile payments launch a probability 30
Singapore: Visa has teamed up with EZ-Link to offer contactless 31
MasterCard is conducting further trials across the region 31
Europe - no issuer has moved beyond the trial stage, but developments are imminent 32
UK: RBS the first to trial PayPass in Europe 32
However, Transport for London has dropped its own contactless plan 33
Germany: Vodafone launches contactless transport payments 33
Summary 34
SIZING THE CONTACTLESS OPPORTUNITY 35
Introduction 35
Our Contactless Payment Market Opportunity Model 35
The model covers 41 countries in three global regions, and focuses on six key retail sectors in each 35
The model presents data for 41 countries in three regions 36
Market sizing data is presented for each of the key retail sectors 37
Methodology and key assumptions 38
Stage 1: Collection of total sales revenue by sector 38
Stage 2: Breaking down this sales data by transaction value 38
Stage 3: Determining the value of cash payments within each of the individual value bands 39
Stage 4: Determining the range of values for contactless payments 40
Stage 5: Preparing the output 40
Contactless payments - a global opportunity of US$724.2 billion 40
Across each of the regions covered, the combined value of cash payments in the selected sectors was US$724.2 billion in 2004 41
Transactions in the range $5-25 present the greatest opportunity 42
Service station retailing accounts for more than half the value of cash payments in the target value range 42
Europe represents the largest opportunity at the regional level 43
Americas: the US accounts for the bulk of the contactless payment opportunity 44
Across the Americas, the total contactless payment opportunity is US$285 billion 44
Petrol retailing presents the single largest opportunity for contactless payments in the Americas 45
The US, Mexico, and Canada are the largest potential markets for contactless payments 46
As in the case of Asia-Pacific, the regional opportunity is concentrated in only a few markets 47
The petrol retail and fast food markets represent the largest opportunites in the US market 48
The petrol retail and convenience store sectors offer the greatest opportunities in Mexico 49
Petrol retailing and fast food lead the way in Canada 50
Asia-Pacific: Japan and China present the greatest opportunities 51
Across the region, the total contactless payment opportunity is US$149 billion 51
Petrol station retailing offers the greatest opportunity, but convenience stores also hold significant potential 52
Japan, China, and Australia are the largest potential markets for contactless 53
There are huge differences in the size of the contactless opportunity across the region 54
The petrol retail and convenience store sectors in Japan are particularly attractive 55
The convenience store market provides the greatest potential in China 56
In line with the rest of the region, the biggest opportunities in Australia are in petrol retailing and convenience stores 57
Europe: the UK and Germany present the greatest opportunities 58
Across the region, the total contactless payment opportunity is US$291 billion 58
Petrol retailing and convenience stores are the two sectors offering greatest potential 59
The UK, Germany, and Italy are the largest potential markets in Europe 60
The distribution of this opportunity is more even than in other regions 61
Petrol retailing and pubs and bars present are the largest sectors in the UK 62
The largest opportunities in Germany are in petrol retailing and convenience stores 63
The contactless payment opportunity in Italy is concentrated in the petrol retailing and convenience store sectors 63
Summary 64
THE FUTURE DECODED 66
Introduction 66
The future looks bright for contactless payments 66
The success of the rollouts suggests that the technology and the business model works for all parties 66
However, the costs of merchant acceptance are a potential problem area 66
A number of potential problems have been either solved or mitigated 67
A lack of interoperability is an obvious concern, but co-operation between the schemes should prevent this 67
Security remains a concern, but the potential losses can be limited 68
The costs of launching contactless were seen as a potential problem 68
However, contactless is still unlikely to be an overnight success 69
Generating momentum is the key 69
Issuers considering contactless should learn from the US rollout 70
Working with merchants is key to a successful launch 70
Targeting the right merchants is important in rapidly building acceptance 70
Making the necessary investment in physical and human capital to ensure a smooth operation 71
Looking ahead, growth in the US and Asia-Pacific looks set to continue, while there will soon be activity in Europe 71
Americas - success of Chase will inspire others to roll out contactless 71
Outside of the US, the future is less clear 71
Asia-Pacific - interest is strong in several markets, and this will drive future growth 72
Further trials hold the key to growth 72
Europe - current interest suggests strong growth in the future 72
EMV migration is the important factor in European development 72
Legacy ePurse systems also present an opportunity 73
The UK is seen to be the biggest prospect for contactless in Europe, but several other markets offer strong potential 73
APPENDIX 75
Supplementary data 76
Definitions 76
Card scheme 76
Chip card 76
Credit card 77
Debit card (pay now) 77
EMV 77
General purpose 77
Interchange 77
Macropayment 78
Micropayment 78
Merchant acquiring 78
Merchant Service Charge (MSC) 78
mPayment (mobile payment) 78
POS terminal 79
Smart card 79
SMS 79
Research methodology 79
Secondary sources 79
Primary sources 79
Future readings 80
Relevant links 80
Our custom research capabilities 81
Cards and Payments Team contact details 83
How to contact experts in your industry
List of Tables
Table 1: US contactless devices in circulation and merchant acceptance by card scheme, 2005 22
Table 2: Timeline of US contactless payment launches, 2005-2006 26
Table 3: Geographic coverage in our Contactless Payments Market Opportunity Model, 2006 36
Table 4: Payment value ranges in our Contactless Payments Market Opportunity Model, 2006 39
Table 5: Combined household expenditure of France, Germany, Italy, Spain, UK, and USA split by payment method, 1999-2003 76
Table 6: Current relevant publications, 2006 80
Table 7: Future relevant publications, 2006
List of Figures
Figure 1: The share of cash within the value of all household expenditure in France, Germany, Italy, Spain, UK, and USA is falling, 1999-2003 15
Figure 2: MasterCard is the leading contactless card scheme in the US, 2005 22
Figure 3: Key facts about Chase Banks contactless offering, 2006 23
Figure 4: Screenshots from Chase Banks US contactless card commercial, 2005 24
Figure 5: The global market opportunity for contactless payments in the selected sectors was US$724.2 billion, 2004 41
Figure 6: Petrol station retailing accounts for more than half the value of cash payments below $25, 2004 43
Figure 7: Europe represents the largest contactless payment opportunity at the regional level, 2004 44
Figure 8: The market opportunity for contactless payments in the Americas was US$284.8 billion in 2004 45
Figure 9: Petrol retailing and fast food are a US$207.5 billion contactless payment opportunity in the Americas, 2004 46
Figure 10: The US, Mexico, and Canada present the largest potential opportunity for contactless payments, 2004 47
Figure 11: Petrol retailing and fast food present the largest opportunities in the US, 2004 48
Figure 12: Petrol retailing and convenience stores offer the greatest opportunities in Mexico, 2004 49
Figure 13: Petrol retailing and fast food are the most important sectors in Canada in terms of the contactless payment opportunity, 2004 50
Figure 14: The market opportunity for contactless payments in the Asia-Pacific region is US$148.5 billion, 2004 52
Figure 15: Petrol station and convenience store retailing are a US$109.9 billion opportunity in Asia-Pacific, 2004 53
Figure 16: Japan and China present the largest opportunity for contactless payments, 2004 54
Figure 17: Petrol retailing and convenience stores present the greatest opportunities in Japan, 2004 55
Figure 18: Convenience stores are the sector presenting the greatest contactless payment opportunity in China, 2004 56
Figure 19: Petrol retailing offers the largest opportunity in Australia, 2004 57
Figure 20: The potential market for contactless payments in Europe is US$290.9 billion, 2004 59
Figure 21: Petrol retailing and convenience stores are a US$231 billion opportunity in Europe, 2004 60
Figure 22: The UK, Germany, and Italy present the largest opportunity for contactless payments in Europe, 2004 61
Figure 23: Petrol retailing and pubs and bars present the greatest opportunities in the UK, 2004 62
Figure 24: Petrol retailing and convenience stores present the greatest opportunities in Germany, 2004 63
Figure 25: Petrol retailing and convenience stores present the greatest opportunities in Italy, 2004 64
Figure 26: Our Core Consulting Capabilities 82
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