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United Kingdom-based Barclays PLC's decision to issue contactless Visa debit cards as the standard beginning in March indicates an aggressive move to bring the technology to critical mass in the region, observers say.But a number of obstacles, including consumer and retailer incentives to use and accept contactless payments, may further slow the progress of the technology in the UK. Similar obstacles exist in the U.S., observers say.

Barclaycard has a U.S. office in Wilmington, Del., but it does not plan to issue contactless cards here, say company executives.

Though Barclays projects more than 3 million customers will have the contactless debit cards in the UK by the end of the year, some misunderstanding by consumers and retailers exists regarding when to use the technology and how it benefits both parties.

"It's pretty clear what needs to happen," Megan Bramlette, managing associate with Westbury, N.Y.-based Auriemma Consulting Group, tells ATM&Debit News. "[There needs to be incentives], and the problem is no one wants to step up and do it."

A sticking point for retailers may be a lack of a merchant value proposition for accepting contactless payments, contends Nick Holland, senior analyst at Boston-based research firm Aite Group LLC. Because merchants need to invest in new hardware and train staff on how to use contactless point-of-sale terminals, a discount on interchange may entice a higher adoption rate, Holland says.
"It's going to be up to the card networks to set up a contactless-specific interchange rate, and that's where I would really like to see somebody do something," he says.

Barclays believes such an incentive is unnecessary. The bank says the move to issue contactless debit cards should indicate its commitment to the technology and encourage more retailers to install contactless readers. More than 8,000 big and small UK retailers accept contactless payments, and Barclays expects to add readers by the end of the year.

"We have people on the road every day trying to sign up as many retailers as possible to accept contactless payments," says Elizabeth Holloway, a Barclays spokesperson. "We think this is the future for debit cards."

Barclays is matching European consumer behavior by focusing on the debit card, Bramlette says. Customers, who can use the contactless feature for purchases of 10 UK pounds (US$14.90) or less, usually will not have to enter their PINs for such transactions, though Barclays says the chips in the cards "periodically" will prompt customers to enter PINs to verify their identities.

European consumers tend to charge small purchases on debit cards, while Americans use both credit or debit cards for small-ticket purchases, Bramlette says.
Double rewards for consumers using contactless cards also would help boost activity, some observers agree. "You have to encourage people to change their behavior," Bramlette says.

But industry research indicates UK consumers need more education about the technology before their behaviors can be changed.

An Auriemma survey conducted in April found that 97% of 508 UK consumers polled were not familiar with contactless technology. The survey results came seven months after Barclays launched a contactless credit card.

But once respondents were provided with more information about contactless, 44% said they wanted to use the card. "Educating the consumer is a critical driver to increase contactless card usage," the survey report concludes. Consumers like contactless technology and are more than willing to use contactless debit cards for smaller purchases, Barclays says its research found. In September, a survey of 558 cardholders Barclays conducted revealed 98% of respondents said the technology was easy to use, and 88% said it helped them to cut down the amount of time they  usually would take to buy smaller items such as coffee.

"If I'm a consumer and I'm going to use my card, why is it encouraging me to use a contactless transaction as opposed to chip-and-PIN? The answer has to be speed," Bramlette says.

Or the answer may be lack of choice.

The Ricoh Arena soccer venue in Coventry will become the first cashless stadium in the UK next season. Cardholders can top up payment cards with cash at kiosks to purchase food and drink at concourses throughout the stadium, according to the Coventry City Sky Blues Web site.

UK soccer stadiums are converting to cashless systems to save money on security measures, Bramlette says. "Contactless is an extension of moving to an all-card environment," she says. "Other partnerships will materialize of the heels of the cashless stadium."

Contactless card issuing and consumer adoption in the United States is growing, but not at a rate that would spur a Barclays-like contactless-debit rollout, some industry analysts say. Most industry studies suggest contactless will account for only 10% of the U.S. payments space by 2010.

A large contactless debit rollout is still "five to six years away," according to Tim Sloane, group director of prepaid and debit advisory services for Maynard, Mass.-based Mercator Advisory Group. "There is nothing that is making banks say it's working in the UK, so let's try it over here," he says. In April, Washington Mutual Inc. expected to issue 12 million to 15 million MasterCard PayPass-enabled debit cards by the end of 2008. That changed in September when JPMorgan Chase and Co. acquired WaMu's retail banking business for $1.9 billion after the Federal Deposit Insurance Corp. shut down WaMu. Chase did not respond to requests for comment, regarding whether  the issuer will proceed with WaMu's contactless plans.

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