UK consumers have millions of contactless payment cards, so why haven’t they changed the way retail transactions are made?

In some ways it’s surprising contactless payment is not yet the norm in the UK - we all hear plenty of talk about how consumer behaviour is constantly evolving and how keen shoppers are to embrace all manner of new technology.

About 20 million cards in the UK are contactless and the ability to make contactless payments for transactions under £20 is offered by retailers such as Marks & Spencer. Boots, The Co-operative and Waitrose are rolling the option out, and it is offered in food chains McDonald’s and Eat.

The awareness level of contactless cards is around 80%, according to research carried out for Retail Week by ICM Research in January, and yet two-thirds of the respondents have never made a contactless payment. “Consumers know the ability is there,” says Richard Moller, a researcher from ICM’s retail team. “But it has been a slow burner for retailers.”

While, perhaps predictably, younger consumers are already embracing it, with almost one third of 18 to 34 year olds with a contactless card making at least one contactless payment a week, Moller believes that widespread take-up is being held back by a lack of information about how to use contactless technology.

He says: “The relevant sectors - retail and financial - aren’t pushing it enough. Responsibility needs to be taken by all of them. The banks need to include the technology in their cards and explain to customers that it is there. The retailers need to push it at point of sale. We were shocked to find that 10% of respondents didn’t even know they had it in their cards.”

Lack of staff knowledge about how to use contactless and its benefits are also an issue because, in the main, customers want to be shown what to do. Moller says anecdotally that during a ‘mystery shopper’ visit to a sandwich shop chain, when a customer asked to use contactless to pay, a member of staff dismissed it as “rubbish”.

Reticence from retailers to invest in the necessary technology, as some wait to see which becomes the predominant form and others hold off until customer awareness levels have risen, has also created a chicken and egg situation. “There is consumer appetite for contactless but at present the option just isn’t there,” says Moller. “The retailers are biding their time.”

Changing behaviour

But there are signs this is starting to change. Boots, working with Visa, intends to roll out contactless across its UK stores following a successful launch in more than 600 of its largest shops, while Waitrose will offer contactless in all of its stores by the summer. Natasha Toothill, head of retailer engagement at Visa Europe, believes the tipping point will be reached in 2013.

“Visa contactless card numbers will reach 34 million in the UK this year,” she explains. “In the past, it has been limited to low value transactions, predominantly in the quick service industry. But now retailers see it as a way of offering something more - the wow factor. They see the operational benefits.”

Such benefits include a lower cost to retailers for handling contactless payments of less than £20, cutting queues, increasing service efficiency and avoiding staff handling cash. She explains: “I know at McDonalds, one of the largest users, they don’t want staff handling cash and food at the same time.”

At Waitrose, project manager for retail development Andy Fraser says a 12-store trial has convinced the grocer of the benefits of contactless in its convenience shops. He says: “It has been particularly popular with customers in convenience branches or those who have a smaller basket size.”

It is being rolled out as part of Waitrose’s commitment to offer shoppers more payment choices and, crucially, Fraser says that it intends to educate customers about contactless payments. “We will help them through their first transaction, so that they are more likely to use it in the future,” he maintains.

Communicating to staff about why the technology is being used is the key to bringing in contactless, agrees Toothill. “The retailers that have successfully adopted it have had excellent staff training. You need the staff on the ground to explain it to customers because, once they have used it, they want do it all the time.”

The move to mobile

Not everyone is convinced about the benefits of contactless card payments, however. A spokesman for PayPal UK does not believe that lack of awareness is the only reason why contactless payments have yet to catch on. “In our general experience, people don’t change the way they pay unless there is a better way,” he says.

“They are happy with debit and credit cards and cash so it needs to be better than that. We don’t think they want a whole stack of different ways to pay.”

Many businesses believe mobile payments will take over

Many businesses believe mobile payments will take over

Contactless card payments are expected to continue growing steadily and few expect plastic to disappear any time soon, but many see it as a stepping stone to the real game-changer: contactless payments via mobile. Whether that is using phones with near field communication chips, retailer payment apps or digital wallets, many consider contactless on mobile to be the future.

“It is the natural evolution of things,” says Joel Leonoff, chief executive and founder of online payments company Optimal Payments. “All of the innovation is very much around mobile-oriented, retailer-oriented technology. The major processors and retailers are going to adopt it in the next nine to 18 months.”

Coffee shop Starbucks introduced its first mobile payment option in its 650 UK stores in January 2012. It allows customers to pay using the Mystarbuck­rewards one-touch mobile app and is available on iPhone and Android. Starbucks does not break out UK figures but a spokeswoman says the scheme has seven million users globally.

“Noticing that more customers were choosing to buy their cup of coffee using card payment over cash, Starbucks created the bespoke alternative and speedy payment method to make it even easier,” adds the spokeswoman. “The introduction of one-touch mobile pay has cut transaction time, which is good news for app users, but also for those customers waiting in the queue.”

Mobile contactless payment also offers the opportunity for retailers to collect and store significant amounts of data about their customers, allowing them to deliver a more personalised experience when shoppers return and to tailor promotions and loyalty deals.

“The value is that geo-location software can identify a customer as soon as they enter a store, allowing staff to see what their last purchases were, what categories they buy in and how much they spend,” explains Leonoff. “It will allow retailers to learn more about their customers and how to motivate them.”

Perhaps understandably, the ICM research shows that younger consumers are most likely to be interested in using mobile payments, as are smartphone users. However, 83% of respondents said they had never made a payment in store using a mobile.

Flexible and secure

Security concerns about handing over personal card details are still seen as a barrier for many consumers using either retailer apps or wallets. But with finance brands getting in on the act - PayPal, Mastercard and Visa are all active in this area - consumer trust should gradually grow.

Flexibility will be key to ensuring retailers can keep up with consumer demands, says the PayPal spokesman. “The wallet of the future needs to be more flexible. Any retailer investing in technology needs to make allowances for that.”

And Toothill points out few retailers were thinking about the impact of tablets two years ago, now some retailers are installing iPads as portable cash desks. Such rapid evolution of technology is making it a difficult environment in which to make an investment decision - the best strategy for those who don’t want to act now is to stay well informed and be ready to move fast.