Oyster: opening up to retail payments

4th March 2005

By IB Staff Writer

London's contactless pre-pay ticketing system is to be rolled out to cover other retail payments.

Transport for London (TfL) has announced that it is to extend the use of Oyster, its pre-pay contactless ticketing card, to some retail outlets and TfL car parks. The move follows the successful migration of similar programs in Hong Kong and Singapore. However, while there is great potential for contactless payments to succeed, it is unlikely that they will do so overnight.

The extension of contactless ticketing cards to payments outside of a transport network is something of a first in the UK, but follows in the footsteps of highly successful schemes in the Far East. Both Octopus in Hong Kong, and ez-Link in Singapore have made the leap from public transport ticketing to low value consumer payments and have proved highly popular among both retailers and cardholders.

Transport systems are seen as an ideal platform from which to launch these technologies, due to the high volume of regular users and large number of retail outlets to be found in the vicinity of transport facilities. Indeed, the success of the two programs highlighted above has been due to the gradual extension of payments from allowing access to public transport facilities and into the retail and food outlets around stations.

There is every reason to assume that this move will be successful for TfL - with 2.2 million cardholders, there is a critical mass of potential users, while TfL also has the technological infrastructure capable of handling the additional capacity of transactions.

Contactless payments have long been seen as one of the technologies set to shape the future of the card payments market. Indeed American Express [AXP], MasterCard and Visa have all developed and trialed their own contactless solutions. With issuers in many markets experiencing tough competitive conditions, the potential to convert low value cash transactions into card payments is a lucrative proposition. In addition to the benefits to card issuers, contactless payments have been shown to offer consumers greater card functionality, security and speedier payments, while retailers are able to reduce their operational costs and grow customer throughput at the point of sale.

However, it is unlikely that contactless payments will be an overnight success. In all cases growth will be slow, as retailers and consumers need to be convinced of the benefits. Contactless payments will not spell the end of cash, but may certainly reduce its importance in the future.