We are only just gradually getting used to Near Field Communications (NFC) technology for making mobile payments and already a new generation of contactless payment vehicles is just around the corner. Very shortly we will all be able to make small purchases without a bank card or even a smartphone.
Contactless payments are at along last taking off in Europe! Led by the UK and the Scandinavian countries, consumers and merchants are now increasingly using an NFC-equipped bank card or smartphone to settle up everyday transactions. A recent study showed that there were 3.7 billion contactless payments in 2015, a growth of usage up to threefold done in only a year. But the industry is already looking to the next phase, which means doing away with the bank card and smartphone altogether for small purchases.
Embedding payment functionality in all types of wearables
Samsung unveiled its Contactless Companion Platform (CCP) technology at the Mobile World Congress held in Barcelona on 27 February - 2 March. Samsung Electronics is offering the CPP independently of the Samsung Pay system and it could potentially be made available by any bank or telecoms operator. The South Korean electronic components manufacturer has just developed a chip which enables wireless payment capability to be incorporated into any connected object, including wearable electronics. Connected watches, activity wristbands, key-rings, connected clothing and perhaps one day even surgical implants could all be fitted with a chip just a few millimeters thick which consumes no energy, being powered by its antenna at the moment of the transaction. Explained Thomas Arentz, Director of Marketing Communications /Strategic Business Development at Samsung Semiconductor Europe: "We wanted to offer a different system that is moving in the direction of what’s called the ‘Cashless Society’ – a system created for people who don’t own a smartphone, plus also those who don’t have a bank account or access to traditional payment cards."
Just a tap with the CCP wearable on a payment terminal is all that’s needed to make a payment. It is this simplicity that differentiates Samsung’s solution from other electronic wallets
The CCP use cases most often cited are loading money on to your fitness wristband before going off to play your sport or on to your child’s key fob for a period of a few hours. "This is a highly convenient way of giving your child a little money to go to the cinema with his/her friends,” pointed out Thomas Arentz. "When s/he uses the money, you get a confirmation on your mobile phone for each purchase and, after six hours, say, the money s/he hasn’t spent is returned to your e-wallet. We’re even thinking about including information on the kind of products and services a child might buy, which means you could then stop him or her from using the money loaded on to the wearable to buy cigarettes, for instance.”
In order to develop the project, Samsung teamed up with French firm Ingenico, which builds the payments terminals, and Swiss startup SmartLink. "We joined this Samsung Semiconductor-led venture in order to be able to accept alternative payment methods on our terminals,” Ingenico Retail Marketing Manager Olivier Steinfels told the Mobile World Congress, pointing out: “Our core business is still the EMV – Europay Mastercard Visa – payments universe, i.e. using traditional bank cards, but in addition new payment methods of the ‘closed loop wallet’ type are now emerging. The new Samsung chip will empower any object to store a token which we can accept at our terminals.”
Steinfels does not see the new technology creating direct competition with EMV cards, but rather as filling a gap. "This technology complements what is available with contactless payments and can underpin people’s new habits, standing alongside the EMV world. For us it’s totally transparent as we’re offering an open HTML5-compatible platform so as to be able to offer new payment services such as Samsung’s CCP, plus taxi bookings, and also consumer surveys, etc."
All merchants have to do to be able to accept a CCP payment is to update the software on their Ingenico terminal. Initial pilot testing will be launched in an East European country this summer. The local telecoms operator is keen to roll out a new service for transferring funds abroad, secured by using wristbands embedded with the CCP chip. Expatriates will be able to use the service to send funds home, incurring far lower transaction charges than the fees charged by traditional money transfer services. The financial transactions will not pass through existing financial networks but will go via SmartLink servers. Some 15,000 wristbands are to be manufactured for this first rollout, which could well serve as a useful testing exercise for a number of different parties, including governments, many of which are nowadays thinking about reducing the role of cash transactions in their local economies.
Towards a cashless society
In addition to the ‘underground’ economy – which means any business activity that is unreported or under-reported for tax purposes – not to mention the various types of illegal trafficking that cash makes possible, the process of minting coins and creating forgery-proof banknotes has become increasingly expensive for central banks and many of them are keen to find a viable means of replacing petty cash by electronic tokens.
The most advanced country in this respect is South Korea, where an initiative called ‘Cashless Society’ has just launched. The Bank of Korea (Central Bank) has set a clear deadline: in 2020 it will stop minting physical coins altogether. In order to meet the challenge, the government is encouraging citizens to deposit loose change on to Korea's widely-used ‘T Money’ cards – electronic travel passes that can be used to pay for metro fares, taxi rides and even purchases at some 30,000 convenience stores. However, Samsung is hoping to sell its own CCP technology to the Central Bank. Quite apart from this rather extreme example in South Korea, many other countries are now working on this issue and starting to come up with solutions.
The latest figures from the World Bank, which provide the estimated worldwide value of transactions from micro, small and medium retailers, show electronic payments totaling an annual $15 trillion, with cash and cheque payments amounting to $19 trillion. This latter figure will probably be difficult to reduce. In 2015, the Euro Retail Payments Board (ERPB), a group chaired by the European Central Bank, announced its intention to see an ‘Instant Payments’ system up and running all across the EU by November 2017. In parallel, the European Commission has begun work on a mooted EU initiative to reduce the use of cash, which remains high in some in some member states, including Germany, across the Union. Meanwhile Sweden is leading the way towards the ‘cashless society’.
With CCP, Samsung is the first company to offer a technical solution which would potentially enable the move to the cashless model. However, there are still issues around the Samsung initiative that remain to be solved, not least its business model. No-one know who – users, merchants or banks – will meet the cost of the system.
Jean-Luc Garnier, the founder of French company Knowbile Consulting, who is also a member of EESTEL, the Association of European Experts in E-Transactions Systems, believes that even though people are now starting to use contactless payments systems there is no guarantee that CCP will prove to be a success. He points out: “It’s quite certain that this solution will give others ideas. For example, we’re waiting for Apple to deploy its own payments system using the data it already has available via iTunes. The problem for all these systems will be to secure widespread acceptance at points of sale. It’s a problem for the consumer if s/he has to check the brand of payment terminal at every retail outlet to be sure it’s compatible with his/her wearable. Today only EMV has this universal scope, but the system is just too heavy to be compatible with the search for a cash substitute,” he told the Barcelona audience.
If CCP breaks into the market, this might encourage EMVco, the organisation that oversees specifications for bank card chips worldwide, to take action and perhaps also to get involved in drawing up lighter specifications for wearables. “Might Samsung, Ingenico and perhaps other players who would support CCP pool their influence so as to develop an international standard?”, Garnier asked rhetorically, concluding that “we’re not yet at that stage.”
So are contactless payments and CCP destined to take off? The Samsung venture might encourage a raft of similar initiatives worldwide with the aim of emptying our pockets of small change. It will however undoubtedly take some time yet before we have a universal system that will replace the use of cash on this earth for good.