Cash, plastic and even our wallets could soon be binned as cutting-edge smart-phone technology gets set to transform the way we shop. It’s already happened in Japan, so when is it going to hit Britain? Rob Brown reports
Yesterday we binned our chequebooks. Now cash is in the firing line. Tomorrow we could be waving goodbye to our wallets and paying for our shopping not with cold hard cash or plastic, but with a mobile phone.
Sounds like fantasy? Think again. M-commerce has already revolutionised the way millions shop across the Far East and now it's set to do the same here. Spar has installed contactless payment terminals to five central London stores and plans to roll them out to 19 stores in Liverpool by the end of January with a view to a full rollout by the end of September.
In March, The Co-operative Group will start introducing terminals to 100 of its stores as part of a nationwide trial ahead of a wider rollout later in the year. And the big four, though more circumspect about their plans, have big ambitions too. Tesco says it is currently trialling the technology in a London Metro and that early feedback has been "positive" and Asda confirms it will begin a trial in "a handful" of stores in the new year. Only Sainsbury's and Morrisons decline to comment.
So just how big is m-commerce set to become in the UK? What is being done to negotiate the pitfalls? And will cash really one day be deposed as king?
As with all technologies, there needs to be a tipping point. Initially, shoppers that try the new contactless terminals are expected to use cards (in much the same way as Oyster card users swipe their cards on the London Underground) but, say experts, they could use enabled mobile phones it's the chip that matters, not the device in which it is contained and it is only a matter of time before they do.
The likes of Spar and The Co-operative Group are certainly preparing for that eventuality. "It's going to be everywhere," says Spar retail IT controller, Roy Ford, of the rollout of contactless payment across the Spar estate. "We will build it into our stores irrespective of where they are or what kind of stores they are."
The rollout, part of a national drive to update the retailer's PoS infrastructure, will allow Spar to take payment on enabled mobile phones when the time comes, he adds. "That will come next," he says. "This isn't space age stuff people are already using their phones for that in Japan."
The Co-operative Group's MD of food retail, Tim Hurrell, is equally bullish. He anticipates a relatively short trial before the contactless terminals are introduced to the wider estate. "This time next year it will have been rolled out," he says. "The big driver for this will be getting it in place before the Olympic Games."
The Games are likely to be just as much of a catalyst for the other retailers, especially and somewhat paradoxically those with smaller stores, because it will be c-stores that the visitors mostly use.
However, the Games are not the only reason why Visa, which is currently trialling the technology in Spain (see boxout over), has placed Britain next on its hit list. The public appetite here for mobile payment is voracious, it says. During a pilot of contactless-enabled mobiles in London in 2007 the first of its kind in Europe 78% of people polled said they would welcome contactless services being applied to their phones in the future and 67% said they would find using their phone as an Oyster card a more convenient alternative.
There's a massive upside for retailers as well, it says. "Cash is tremendously expensive to manage in terms of moving it about," says Mary Carol Harris, head of mobile payment business development at Visa Europe. "If you can make transactions quicker from a retailer's perspective, then that really matters for them."
Phase one of the contactless roll-out has already begun. Last March, Barclays began issuing contactless cards. "This was a dramatic departure because it's not giving users a choice," says Colin Tankard, MD of data security company Digital Pathways. The Co-operative Bank has followed suit. Today there are about 10 million contactless cards in circulation in the UK. By 2011, Visa expects there to be 12 million.
The number will continue to rise as long as retailers can be convinced to adopt contactless card terminals, of which there are currently only about 27,000 across Britain. Smaller, high-footfall outlets were first to adopt the technology with Eat, Pret and Caffè Nero having installed terminals nationwide and Subway, McDonald's and WH Smith using contactless terminals in selected stores. By the end of the year, Visa expects 30,000 terminals to be in use.
The leap from contactless cards to payments on a mobile is not a big one. As long as the contactless readers are in place, they will read the chip or near field communication secure element in geek speak whether embedded in a card or a phone. Some retailers believe there is even greater scope for mobile phone technology in store than simply contactless payment. The Grocer has learned that a leading retailer is in talks with a major phone manufacturer about developing virtual store software and a mobile voucher scheme with the intention of creating an interactive environment and making the mobile phone a more integral part of the shopping experience.
But if m-commerce is to really revolutionise UK retail, the key is contactless payment. And although most believe it will take off, opinions differ as to how quickly. Mark Hale, director of food IS at the Co-operative Group, predicts it will soon become as prevalent as chip & PIN.
"We're keen to embrace technology that benefits our customers and business NFC and RFID provide opportunities in faster payments, e-vouchers and mobile payments," he says. "Our early adoption of contactless will help us be more prepared for future innovations."
There remain hurdles, however, cost being one of the big ones, especially for the big box retailers, argues Waitrose MD Mark Price. "If you go to Tokyo you will see it everywhere, but we need to understand the cost of this infrastructure," he says. "We have to ask who benefits most the banks? Or is there a genuine customer benefit? We certainly have no plans for it."
Visa's Harris concedes there is a considerable capex barrier to overcome. "Smaller players just need to bolt on a new piece of kit but if you are a big merchant looking to put that into your entire point of sale infrastructure, the scale of the investment is going to be considerable," she says. "But we see that the momentum is coming. There's going to be a big push next year by several players and London will be the first mass roll-out after Japan and South Korea."
In Britain the multiples' drive into c-stores could also play an important role. "For outlets where time is of the essence and transactions are a relatively low ticket price, contactless is a bit of a no-brainer," says Mark Smith, CEO of Southern Co-op. "We are looking at IT changes in the next 18 months and contactless is one of the things we need to do."
When you're dealing with small transactions, mobile payment is a good substitute for cash, agrees David Urbano, mobile service director at Spanish bank La Caixa, which is involved in the Sitges trial. He cites the fact that so far more than 60% of transactions have been worth 10 or less.
Security remains an issue, however. The contactless cards distributed in Britain allow for up to three transactions of up to £15 each before shoppers must confirm their identities by entering a PIN. This will not have escaped the attention of thieves.
"The contactless system is rife with danger," claims Tankard. Contactless chips are always communicating, which leaves them exposed to attacks, he explains. "It is open to be cloned or skimmed without you even knowing. If I'm walking down Oxford Street with a handheld reader and there are 20,000 people walking up and down, if just 5% of them have one of these cards that's still a hell of a lot of money I can pick up."
Nevertheless, the growth of m-commerce in Asia-Pacific seems to bode well for future growth. From 2008, the value of m-commerce transactions in the region has increased by 218%, according to ABI Research, with Japan now accounting for about two-thirds of that business.
"The vertical integration there removes one of the biggest obstacles, which is the development of a business model," says John Devlin, principal analyst smart cards and embedded security at ABI Research.
"If the companies involved come under one umbrella that is less of a problem. In South Korea also you have these very strong multi-sector companies conglomerates that have financial, banking, retail, industrial and telecoms arms, so again that's a major hurdle removed."
The commercial viability of these services in Europe needs to be assessed, adds Harris. "We're not saying there isn't a business model but we're still agreeing on what that will look like. Mobile operators aren't going to do this for free and the banks are not going to pass on all their revenue."
Of course, mobile operators could lease space in their phones to banks, which will fit chips into the handsets and transform them into contactless payment devices.
Pablo Montesano, director of new busines at Telefónica, certainly believes the obstacles will be overcome. "Mobile phones will become the remote controls of our lives," he predicts.
And that might not sound the death knell for cash, but it would send plastic packing.
The Spanish connection
Europe's m-commerce revolution has Catalan roots - the Spanish town of Sitges is the Continent's first contactless shopping destination.
Some 1,500 residents have been issued with NFC-enabled smartphones and more than 500 Sitges retailers received contactless chip readers in a joint project between Visa, the bank La Caixa and mobile operator Telefónica.
The aim of the trial running from May to November is to weigh up public appetite for m-commerce and iron out any teething troubles. Feedback has been encouraging. So far ninety per cent wish to continue to use the technology while only 3% of shoppers are not satisfied.
"That's because they can't use the phones in all the shops in town," claims David Urbano, mobile service director at La Caixa. Visa and its m-commerce partners are now drawing up plans for nothing short of a European retail revolution. And Britain is first on the hit list, says Visa.
Yesterday we binned our chequebooks. Now cash is in the firing line. Tomorrow we could be waving goodbye to our wallets and paying for our shopping not with cold hard cash or plastic, but with a mobile phone.
Sounds like fantasy? Think again. M-commerce has already revolutionised the way millions shop across the Far East and now it's set to do the same here. Spar has installed contactless payment terminals to five central London stores and plans to roll them out to 19 stores in Liverpool by the end of January with a view to a full rollout by the end of September.
In March, The Co-operative Group will start introducing terminals to 100 of its stores as part of a nationwide trial ahead of a wider rollout later in the year. And the big four, though more circumspect about their plans, have big ambitions too. Tesco says it is currently trialling the technology in a London Metro and that early feedback has been "positive" and Asda confirms it will begin a trial in "a handful" of stores in the new year. Only Sainsbury's and Morrisons decline to comment.
So just how big is m-commerce set to become in the UK? What is being done to negotiate the pitfalls? And will cash really one day be deposed as king?
As with all technologies, there needs to be a tipping point. Initially, shoppers that try the new contactless terminals are expected to use cards (in much the same way as Oyster card users swipe their cards on the London Underground) but, say experts, they could use enabled mobile phones it's the chip that matters, not the device in which it is contained and it is only a matter of time before they do.
The likes of Spar and The Co-operative Group are certainly preparing for that eventuality. "It's going to be everywhere," says Spar retail IT controller, Roy Ford, of the rollout of contactless payment across the Spar estate. "We will build it into our stores irrespective of where they are or what kind of stores they are."
The rollout, part of a national drive to update the retailer's PoS infrastructure, will allow Spar to take payment on enabled mobile phones when the time comes, he adds. "That will come next," he says. "This isn't space age stuff people are already using their phones for that in Japan."
The Co-operative Group's MD of food retail, Tim Hurrell, is equally bullish. He anticipates a relatively short trial before the contactless terminals are introduced to the wider estate. "This time next year it will have been rolled out," he says. "The big driver for this will be getting it in place before the Olympic Games."
The Games are likely to be just as much of a catalyst for the other retailers, especially and somewhat paradoxically those with smaller stores, because it will be c-stores that the visitors mostly use.
However, the Games are not the only reason why Visa, which is currently trialling the technology in Spain (see boxout over), has placed Britain next on its hit list. The public appetite here for mobile payment is voracious, it says. During a pilot of contactless-enabled mobiles in London in 2007 the first of its kind in Europe 78% of people polled said they would welcome contactless services being applied to their phones in the future and 67% said they would find using their phone as an Oyster card a more convenient alternative.
There's a massive upside for retailers as well, it says. "Cash is tremendously expensive to manage in terms of moving it about," says Mary Carol Harris, head of mobile payment business development at Visa Europe. "If you can make transactions quicker from a retailer's perspective, then that really matters for them."
Phase one of the contactless roll-out has already begun. Last March, Barclays began issuing contactless cards. "This was a dramatic departure because it's not giving users a choice," says Colin Tankard, MD of data security company Digital Pathways. The Co-operative Bank has followed suit. Today there are about 10 million contactless cards in circulation in the UK. By 2011, Visa expects there to be 12 million.
The number will continue to rise as long as retailers can be convinced to adopt contactless card terminals, of which there are currently only about 27,000 across Britain. Smaller, high-footfall outlets were first to adopt the technology with Eat, Pret and Caffè Nero having installed terminals nationwide and Subway, McDonald's and WH Smith using contactless terminals in selected stores. By the end of the year, Visa expects 30,000 terminals to be in use.
The leap from contactless cards to payments on a mobile is not a big one. As long as the contactless readers are in place, they will read the chip or near field communication secure element in geek speak whether embedded in a card or a phone. Some retailers believe there is even greater scope for mobile phone technology in store than simply contactless payment. The Grocer has learned that a leading retailer is in talks with a major phone manufacturer about developing virtual store software and a mobile voucher scheme with the intention of creating an interactive environment and making the mobile phone a more integral part of the shopping experience.
But if m-commerce is to really revolutionise UK retail, the key is contactless payment. And although most believe it will take off, opinions differ as to how quickly. Mark Hale, director of food IS at the Co-operative Group, predicts it will soon become as prevalent as chip & PIN.
"We're keen to embrace technology that benefits our customers and business NFC and RFID provide opportunities in faster payments, e-vouchers and mobile payments," he says. "Our early adoption of contactless will help us be more prepared for future innovations."
There remain hurdles, however, cost being one of the big ones, especially for the big box retailers, argues Waitrose MD Mark Price. "If you go to Tokyo you will see it everywhere, but we need to understand the cost of this infrastructure," he says. "We have to ask who benefits most the banks? Or is there a genuine customer benefit? We certainly have no plans for it."
Visa's Harris concedes there is a considerable capex barrier to overcome. "Smaller players just need to bolt on a new piece of kit but if you are a big merchant looking to put that into your entire point of sale infrastructure, the scale of the investment is going to be considerable," she says. "But we see that the momentum is coming. There's going to be a big push next year by several players and London will be the first mass roll-out after Japan and South Korea."
In Britain the multiples' drive into c-stores could also play an important role. "For outlets where time is of the essence and transactions are a relatively low ticket price, contactless is a bit of a no-brainer," says Mark Smith, CEO of Southern Co-op. "We are looking at IT changes in the next 18 months and contactless is one of the things we need to do."
When you're dealing with small transactions, mobile payment is a good substitute for cash, agrees David Urbano, mobile service director at Spanish bank La Caixa, which is involved in the Sitges trial. He cites the fact that so far more than 60% of transactions have been worth 10 or less.
Security remains an issue, however. The contactless cards distributed in Britain allow for up to three transactions of up to £15 each before shoppers must confirm their identities by entering a PIN. This will not have escaped the attention of thieves.
"The contactless system is rife with danger," claims Tankard. Contactless chips are always communicating, which leaves them exposed to attacks, he explains. "It is open to be cloned or skimmed without you even knowing. If I'm walking down Oxford Street with a handheld reader and there are 20,000 people walking up and down, if just 5% of them have one of these cards that's still a hell of a lot of money I can pick up."
Nevertheless, the growth of m-commerce in Asia-Pacific seems to bode well for future growth. From 2008, the value of m-commerce transactions in the region has increased by 218%, according to ABI Research, with Japan now accounting for about two-thirds of that business.
"The vertical integration there removes one of the biggest obstacles, which is the development of a business model," says John Devlin, principal analyst smart cards and embedded security at ABI Research.
"If the companies involved come under one umbrella that is less of a problem. In South Korea also you have these very strong multi-sector companies conglomerates that have financial, banking, retail, industrial and telecoms arms, so again that's a major hurdle removed."
The commercial viability of these services in Europe needs to be assessed, adds Harris. "We're not saying there isn't a business model but we're still agreeing on what that will look like. Mobile operators aren't going to do this for free and the banks are not going to pass on all their revenue."
Of course, mobile operators could lease space in their phones to banks, which will fit chips into the handsets and transform them into contactless payment devices.
Pablo Montesano, director of new busines at Telefónica, certainly believes the obstacles will be overcome. "Mobile phones will become the remote controls of our lives," he predicts.
And that might not sound the death knell for cash, but it would send plastic packing.
The Spanish connection
Europe's m-commerce revolution has Catalan roots - the Spanish town of Sitges is the Continent's first contactless shopping destination.
Some 1,500 residents have been issued with NFC-enabled smartphones and more than 500 Sitges retailers received contactless chip readers in a joint project between Visa, the bank La Caixa and mobile operator Telefónica.
The aim of the trial running from May to November is to weigh up public appetite for m-commerce and iron out any teething troubles. Feedback has been encouraging. So far ninety per cent wish to continue to use the technology while only 3% of shoppers are not satisfied.
"That's because they can't use the phones in all the shops in town," claims David Urbano, mobile service director at La Caixa. Visa and its m-commerce partners are now drawing up plans for nothing short of a European retail revolution. And Britain is first on the hit list, says Visa.
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