Will the jangle of loose change really be a thing of the past? Ruth Mortimer looks at how Visa's new contactless payment system could make the humble wallet history for everyday transactions

 

Olympic swimmer Michael Phelps walks jauntily down a street with his dog. Chatting to his mother on the phone, he transfers some money into her account, buys a sandwich by waving his phone at the cash register of a store and uses a retail coupon texted to his phone. But this is not actually a casual moment in Phelps' life; it's the plot of a Visa advert.

 

The Phelps video is a concept reel for use inside the company to show off what the payments brand can now do with technology. Known for 30 years as a credit card company, Visa is now moving into areas such as 'contactless payments', mobile phones and biometrics. Ideas that sound like science fiction are becoming the brand's reality. John Elkins, executive vice president of global brand marketing at Visa, reveals: "It's more than a concept; it's close to being a reality. We wouldn't be doing this sort of stuff if we couldn't demonstrate it works. It's already underway."

 

The change in Visa's business has come about as consumers grow more accustomed to the idea that the traditional methods of exchanging money - cash, cheques and credit cards - are no longer necessary. In the early period of the internet, people were worried about virtual transactions of money; these days, $1.29bn (#535m) is spent happily every year on auction website eBay alone. Now Visa is angling to remove physical cash from the world altogether with its innovations in mobile payments and contactless cards. Despite its history in credit cards, debit payments now account for more than half of its sales volumes. Cash payments in the UK have already declined by 14% in the last five years, according to card association Apacs.

 

Visa wants even the smallest sums of money to travel through its systems and its competitors, such as MasterCard, are following the same strategy. But can the famous credit-card brand convince global consumers to put down their wallets and pick up on its latest innovations?

 

Technological advances
Visa's Elkins believes so. He argues that the brand's emotional connection with consumers is important enough that they will learn how to use it in its new forms. He comments: "We have an enormous reputation to keep up as we guarantee payments and that should be able to transcend any technology."

 

Stuart Whitwell, managing director of valuation consultancy Intangible Business, agrees. He says that Visa has the brand strength necessary to convince customers to stop using cash and start trusting technology.

 

"Visa is seen as safe, secure and reliable which enables consumers to feel comfortable using new technology. I was living in Hong Kong when the Octopus card [for travel and small payments] was introduced. That was a society where everyone was doing cash deals but people took it up very quickly and now it's used for everything," he argues.

 

New wave payment
The contactless card element of Visa's battle against cash is already underway. In Europe, Visa's contactless cards are already being rolled out to retailers and customers. For purchases of #10 or less in the UK, consumers wave their contactless cards in front of a special reader - which also works with MasterCard's PayPass contactless cards - and the money will be automatically debited from their account. PayWave schemes are also underway in other countries, such as France, Spain, Switzerland and Turkey.

 

In the UK, the payWave adverts are a departure from the usual Visa marketing campaign - 'Love Every Day' - which aims to get consumers to feel an emotional connection with the brand because it enables them to live life as they choose. The payWave ads are far more functional in their approach. Joe Clift, Visa Europe's senior vice president of brand management, explains that this is because the primary aim of the new campaign was to raise the profile of the new payWave system and push the message of consumer convenience. Elkins adds: "It just makes sense. It gets you through faster and when you 'electronify' a payment, it happens in a tenth of a second."

 

The payWave system is also being integrated into the Oyster Card contactless travelcard for use on London's transport system. The combined Oyster, Barclaycard and Visa payWave card will be called OnePulse and consumers can pay for both their transport use and buy items below #10 on it. With more than 10 million Oysters in circulation, there is a large potential for the combined card.

 

Gary Twelvetree, director of brand and advertising at Barclays, explains the rationale behind the scheme: "The credit-card market is pretty commoditised and it sets us apart from the rest of the players offering 0% everywhere. It also makes sense for consumers; it's about Oyster transport functionality with a card that you can use for paying elsewhere as well." "I think Visa has pulled off a real coup by getting involved with Oyster," remarks Intangible Business' Whitwell, who has worked for Oyster in the past. "It is simply so convenient for people to have one card for transport and small purchases."

 

Whitwell points again to the example of the Octopus card in Hong Kong, which started out as a travel payment system and has evolved into a small payments system with numerous retailers along the lines of OnePulse. There are now more than 14 million of the cards in circulation, twice the area's population, and it is believed that 95% of the population aged 16 to 65 uses them. They are even used as office security cards. "In a city such as London, an Oyster card is the only way to get around at an affordable price. It's absolutely compulsory. I can't see other brands competing with Visa as long as it has this tie-up as well as its own services. Certainly in the capital, why would you bother using two cards if you could just use one?" argues Whitwell.

 

Unlocking potential
In the US, Visa is introducing contactless technology in the form of key fobs. The small, customisable accessory allows consumers to spend up to $25 (#13) signature-free in a similar manner to the European cards. These were officially launched in September 2007 at a game in the San Francisco Giants' stadium where 1,000 tags pre-loaded with $15 (#7) were handed out to fans. Elsewhere in the US, national retailers such as McDonald's, CVS Pharmacy, Taco Bell and BP are already accepting payWave cards and other large stores are likely to come on board throughout 2008. A TV ad campaign showing people swiping cards for coffee and doughnuts - a man paying with cash gets a harsh look from the shopkeeper - aims to introduce more Americans to the concept.

 

Asia is already advanced in its adoption of payWave, with card issuers in Taiwan, South Korea, Malaysia and Singapore signing up to the programme. Visa also has a deal with hypermarket Carrefour in Taiwan to create a special branded contactless card for the retailer. Meanwhile, customers of the Singaporean United Overseas Bank can sign up for a rewards scheme with cash rebates for using contactless cards.

 

At one retailer, Watsons: Your Personal Store, in Taiwan, the storekeepers reported a 77% drop in queuing time for customers where contactless technology was available. Elkins admits: "The consumer in Asia is very open to using new technology. There's a greater level of receptiveness which means we can do a lot of pilots out there that are later incorporated into other Visa programmes worldwide." Oliver Steeley, head of strategy and business planning, developed markets region at MasterCard Europe, says that his brand has been using contactless technology in the US since 2002 when a trial with 30,000 cards in Florida established both consumer and retailer interest in the scheme. It is particularly suited to retailers such as McDonald's, where longer payment times slow down service levels. "With drive-thrus, the speed at which customers go through the first window where they order and pay to the window where they collect the food is vital," he explains. "If you're driving down the street deciding where to have lunch, you'll make that decision based on how big the queue looks from the road. That extra five seconds of time for getting each car round to the next window - especially at peak times - has a huge impact on business."

 

One global system
The importance of rolling out all new innovations globally is always a concern for Visa. Visa is an unusual organisation because rather than being a bank itself, it represents the payment services of around 21,000 financial institutions around the world. Visa's Elkins explains that while it unites different countries under one payment system, it also has to try to fit local customs too. Its role as a brand involves striking a balance between local preferences and its commitment to allow people from one place to pay anywhere else. "You might have a contactless card issued by your bank in the UK and then you go to Australia tomorrow and you want to use it there," he explains. "So we have to create standards suitable for the whole world."

 

There are 1.59 billion Visa cards in circulation in around 170 countries. More than $4.8tn (#2.4tn) in revenues passes through the brand each year as part of nearly 60 billion transactions. It announced its intention to become Visa Inc, a public company, at the end of last year but this process is still underway. The brand originally emerged from the Bank of America credit card programme, set up in 1958. A bank branch manager started off trying to centralise bill payments within California and this was eventually licensed across the US. The trend spread and in 1970, Bank of America gave up control of its programme. Instead, a number of banks clubbed together and created an organisation to develop the system on their behalf.

 

As this expanded, it became clear that there were a number of similar ventures operating on behalf of different banks in a variety of countries. It was agreed that this should be consolidated into one global system under a single name. Some areas were not entirely keen to take on the Bank of America branding for the credit system, even if this was nominal. In 1977, the Visa marque was adopted to unite the disparate groups.

 

Now the organisation has two groups to please with its brand. The first is consumers, who must feel secure in using Visa to pay for their goods or services. The second is any member banks, who must feel that the brand's systems are efficient, economical and driving their own businesses. It is for both these groups that Elkins claims that Visa has introduced its innovations. The contactless technology, however, is only the start of the brand's aim to fit seamlessly into consumer life. The move from contactless cards into facilitating payment by mobile phones is another area where the brand is very active.

 

Just like the Michael Phelps concept advert, people in some parts of the world are already able to use their phones to pay for goods through Visa or its competitors. In Taiwan, a trial is underway with Chungwa Telecom and Chinatrust Commercial Bank to allow people to use their mobiles to buy goods at stores with contactless payWave points. MasterCard's Steeley explains the lure: "Now we can deploy contactless technology, it doesn't have to be a piece of rectangular plastic. If you think of all the things that a phone can do that a card can't....it's got a screen, a network, a user interface, it plays tunes and you can enter data. It's potentially a really exciting complementary factor. Will it replace cards altogether? Unlikely."

 

Short-changed no more
Barclays' Twelvetrees agrees. He says that his own bank, Visa and Oyster are already thinking about the next stage of development for OnePulse. He reveals: "We're looking at the technology all the time. We're doing some small-scale tests in that area... people won't want the inconvenience of a wallet stuffed with plastic or cash. There's got to be smarter ways in the future for people to pay."

 

Visa in the US is running a programme with Wells Fargo Bank while in Germany, it is beginning a trial of mobile payments with the transit system in Frankfurt. The project has already covered mobile ticketing but is now moving onto using payWave through mobiles. Both the US and German schemes tap into near-field communication (NFC). This is the official term for the technology that transmits information wirelessly from a particular device to a mobile phone. It is the process that allows a ticket office to send a train ticket directly to a mobile phone or lets a poster send personalised marketing messages to someone's handset.

 

Visa's Elkins explains that NFC has many potential applications for Visa. He gives the example of Hong Kong airport, where visiting passengers are welcomed on their phones and informed about a range of stores' duty-free offers. The same mobile marketing techniques could be used by Visa to send consumers coupons to their phones.

 

NFC is already on the mind of David Tymm, chief executive of i-movo, co- creators of Eros, a newspaper loyalty card for the Evening Standard in London. Tymm says that while the loyalty scheme currently uses a swipe card, he expects it to translate onto mobiles very quickly. "Ultimately, the card is an interim solution," he acknowledges. The Eros scheme is just one brand's answer to how loyalty schemes will evolve in future but Tymm says that other companies will follow suit. As NFC develops, more companies will want to install schemes to use the technology.

 

Visa's Elkins does admit, however, that NFC has potential pitfalls in overwhelming people with information. He says: "Mobile marketing is clearly going to be very interesting for us; it's in early days and we've got to be careful, as with direct mail, that it doesn't just numb people to us." There is also the threat to the brand from the mobile phone operators. It is unlikely that Visa will be allowed to brand phone handsets with their logo, so is it possible that consumers could forget who is securing the payment? Could they think that they're using 'OrangePay' or 'ViaVodafone'?

 

Elkins claims that the brand has already taken this into account. He says: "We obviously recognise we're not going to have all the real estate. But when it gets to the screen making the transaction, it will say Visa. So we may not be the first screen you see, but when you're paying, we want to be sure we're on that screen." Steeley adds that this issue can also affect the phone companies. It is the MasterCard brand that has the authority for transactions to proceed, rather than the phone operators. He says: "In order for us to allow our banks to use our brand on these different devices, we need to be absolutely certain that they're a safe and secure place for our customers' information to sit...if they're not up to bank-grade security and using the brand properly when presenting it to the consumer, we won't let the payment transaction happen."

 

For your eyes only
From hosting contactless technology on mobiles, it seems a small step to imagine the payments brands taking things further into science- fiction territory. Visa's Elkins admits that he's already working with companies in Silicon Valley on potential projects involving the fingerprint or iris. MasterCard's Steeley seems a little more cynical. While he admits that fingerprints might one day become part of the authorisation process, he doesn't think it will be practical to use fingerprints alone as a payment device. He points to technical difficulties - how would online banks get their customers' fingerprints? Wouldn't all this be very expensive?

 

For now, Visa is keen to focus not on the next stage of technology but on the challenges ahead in getting the payWave technology working across the world. Once people are acquainted with the functional use of the system, the brand then needs to persuade them to spend that little bit more than they were going to with each transaction. That will come back to building human appeal round an increasingly virtual service. Elkins smiles: "I think we need to keep that emotional connection; we have an enormous reputation to keep up as we guarantee payments and that should be able to transcend any technology. It's not something easily replicated and something people value when they think about it. That trustworthiness is important; if we lost that, the brand would erode very quickly."

 

Visa facts

• The brand has more than 6,000 employees in 40 offices worldwide. Visa Inc. is headquartered in San Francisco, California.
• Visa Inc. has subsidiaries called Visa Canada, Visa USA and Visa International. Visa Europe is a permanent licensee of Visa Inc.
• Worldwide annual sales volume is more than $4.8tn (#2.4tn).
• The VisaNet proprietary transaction-processing network deals with more than 6,800 transactions per second.
• There are more than 1.59 billion Visa cards worldwide.
• Visa offers cash in local currency through ATMs in 170 countries.
• Visa's strongest growth comes from its family of debit products, which now account for more than half of the brand's global sales volume.

Contactless Payments

What is contactless technology?
Contactless payment uses wireless communication technology to exchange payment instructions between a chip hosted on a card and a terminal mounted inside a store. The card is 'waved' in front of the terminal to pay for an item.

 

Where will the cards work?
The contactless cards are set up to work on an international scale, although the rates at which each country implements the new technology in stores is likely to be different. There are currently around 41 issuers in 11 countries. Some of the brands accepting contactless technology include: McDonald's, Carrefour, Tesco and BP.

 

Why is Visa introducing these cards?
The company is keen to tap into the market for small cash payments. People tend to use their cards to pay for larger items while keeping cash for smaller purchases. The contactless cards aim to replace many cash transactions. They are likely to be used most for purchases at places where customers want to avoid queuing and speed up the process of paying - fast-food restaurants, convenience stores or on transport.

 

Who else does contactless cards?
MasterCard already runs a scheme called Paypass, which works in the same way as Visa's payWave; Visa's system is based on the Paypass technology. American Express is also said to be launching its own version, called ExpressPay. The UK bank Barclays is rolling out a scheme with Visa called OnePulse in London, which combines a contactless payment card with an Oyster travel card (also contactless) to be used on the English capital's transport system.