The Voyage from Coin to Contactless (and NFC)

Earlier this year, the Bank of Canada stopped distributing its one-cent coin, and apparently cash transactions are now rounded to the nearest 5 cents (while non-cash transactions continue to be rounded to the nearest cent). A fundamental reason for this of course is that increasingly small denomination coins cost more to make than they are actually worth. Clearly Canada is not the first to do this and a number of countries have made similar moves over the past few years or so, including Brazil and Sweden. New Zealand removed its smallest coins from circulation more than 20 years ago, and its smallest denomination coin is now worth ten cents. And speculation continues in many other countries also over the discontinuation of their respective lowest denomination coins, such as the cent in the US or penny in the UK among others.

Increasingly I find myself using a bankcard for some really quite low value purchases, almost by default. However, I understand this is not the universal position. In Germany for example, it seems that people are really rather keen to retain their one- and two-Eurocent coins, and often try to pay the exact cost in hard cash down to the last cent. But on the whole, I believe it is not unreasonable to say that people are looking for easier ways of making payments, and especially in a fast shrinking world that is becoming increasingly within reach to all us. Our wallets are already packed with credit cards and loyalty cards, in addition to notes and coins in how many different currencies for the traveller (even assuming the Euro is to survive in the long term). In addition, travellers face issues over the acceptance of cards. For example, in Europe, most credit card transactions require the use of a ‘chipped’ card, not just swiping a magnetic strip (as is usual in the US).

One major application of e-payment that is growing fast is in public transportation, where smart cards are increasingly being used in major cities worldwide. One example of this is in Mexico for a new contactless smart ticketing solution that delivers reliable and faster fare payment across the public transportation network. An addition benefit is increased safety, as it means that bus drivers can concentrate on controlling the vehicle rather than worrying about taking money for the fare. And there is of course a growing case for easy-to-use payment technology via mobile phones; and certainly mobile payment is increasing dramatically.almost by default.

In a market report published by Gartner in early June 2013, worldwide mobile payment transaction is predicted to reach $235.4 billion in 2013, representing a 44 per cent increase from $163.1 billion in 2012. Gartner also predicted that global mobile transaction volume and value would average 35 per cent annual growth between 2012 and 2017 to become a market worth $721 billion with more than 450 million users. However, to date, it is money transfers that have accounted for the dominant share. According to Gartner, because the buying experience on mobile devices has yet to be optimized, people are not yet using their smartphones for as many merchandise purchases as they might.

Near Field Communication, or NFC, is being touted as the key technology in the mobile-phone-based contactless payment field. NFC enables a number of ‘things’ to happen in the ‘Internet of Things’, such as tapping a ‘smart poster’ to view a movie trailer on your smart phone or possibly even gaining entry to your home via your NFC-enabled front door, but it is perhaps wireless payment with a high level of security that is fast becoming synonymous with NFC.

Gartner forecasted that NFC would account for approximately 2 per cent of total transaction value in 2013 and growth is expected with the increase in the penetration of NFC mobile phones and contactless readers. However, any new technology in the relatively early stages of being introduced into consumer markets that asks us to adopt slightly different habits will likely experience a few teething troubles: unintentional card payments, for example when contactless banking cards are being brought into near proximity of a payment reader, were recently reported by the BBC. Clearly stories of this nature are unlikely to hasten a public groundswell for adoption of contactless technology despite its significant advantages and general ease of use, although the story also demonstrates that adoption is ongoing at major retail outlets. Also, for example, NXP recently announced a cooperation that will enable the large-scale adoption of NFC technology within the retail industry.

In addition to NFC, other e-payment developments are ongoing. Google has recently made announcements in the area of online purchasing, so whether using a smartphone or a desktop or laptop computer, and bolstering its Google Wallet technology, which also uses NFC technology. New abilities include making transactions via email, plus the issuing of APIs (application programming interfaces) for developers to use to access Google Wallet, enabling an easier purchasing process for consumers via the web or within Android-based apps.

There may come a day when electronic purchasing via smartphones will become commonplace. But it always makes sense to keep a coin or two handy, whatever the ubiquity of NFC or any other contactless or online payment technology. Smartphones, whatever app they are running, are probably not the best solution for uncapping a beer bottle…

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