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An article relating to this blog post on Finextra:

Visa and MasterCard to cut ties binding banks and telcos via Host Card Emulation

Visa and MasterCard have announced support for Host Card Emulation, a cloud-based mechanism for hosting NFC applications outside the Secure Element that effectively removes the need for bank reliance...

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Do frictionless payments make you spend more?

With PayPal and others pushing the "it's time for wearable payments line", more handset payment developments and Visa and MasterCard trumpeting the increasing penetration of their respective contactless payment schemes for low-value purchases at retail points of sale, I decided to spend some 
time looking at two things:

- the actual current penetration numbers for contactless

- the possible impact on consumer behaviour

To start with, I've been trying to get a sense of what proportion of all POS transactions are now conducted using contactless, looking at Australia as an example.

It's not easy to be exact, but it would seem that between 20 per cent and 30 per cent of all POS terminal transactions in the country are now contactless. And the number is growing rapidly.

This might seem high to those observing payments trends in Europe and the US. Mid-last year, Finextra members were doing calculations showing contactless accounted for around 0.5% to 1% of all card-based transactions in Europe. 

Australia's payments industry body APCA claims that in 2013 the country had the highest open-loop contactless transactions per capita of any country, with more than 120,000 contactless terminals and 10 million contactless cards on issue. (More recent figures from MasterCard say there are 175,000 terminals).

To get a true sense of contactless usage, for your comparison base rate you would need to take out ATM and card-not-present (CNP) card transactions from your all-cards figure.

In 2013 there were an average of 279.6 million debit card purchase transactions and 162.6 million credit card transactions per month. And card-not-present online transactions accounted for 18 per cent of all non-cash transactions. 

So this makes an estimated 362 million card-present purchases per month.

This month, Visa's country manager for Australia claimed that there were now more than 28 million Visa payWave transactions a month, with most of the growth in contactless debit cards. 

In October, MasterCard Australia said that three out of 10 MasterCard terminal payments were now contactless (without giving total transactions).

And the trend is even higher at the large retail chains. Coles, one of the two biggest retail groups in the country, has said that contacless usage has hit 60 per cent at its supermarkets.

What's interesting to me about the rise of contactless payments is the way it is displacing cash. A personal anecdote -- until I visited some weekend markets recently, I had not had any cash in my wallet for a month.

The schemes are happy to push the cash displacement message, and also benefits to retailers, claiming that people are making more purchases more often and they are using contactless where they used to use cash. For example Visa says it is hearing from some merchants, like those in food courts, that their customers have a tendency to buy more when they use contactless cards.

There is well-known research dating back years that shows people are more willing to spend more when using plastic (particularly credit) than when parting with cash, due to a dissociation from the physical act of parting with money, particularly larget bills.  

But I was wondering if this effect is strengthened by speeding-up the transaction? For example what would we see when comparing spending patterns for using a card and entering a PIN, compared to contactless usage of an equivalent card? 

And would this be further strengthened with further dissociation from the traditional bank instrument - the card - towards phones or even wearable devices as the physical initiator of the transaction?


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