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Cheat Sheet: Contactless payments
Touch me...

By Dan Ilett

Published: Tuesday 11 October 2005

Contactless payments (CP) – what's that, then?
Rather than hand over cash, sign your name or even do the chip and PIN thing when you buy something, the wondrous gift of technology has made it possible to make a purchase by tapping a teller's till with your wallet or mobile phone. The computer inside the till will take your tap as confirmation of payment and subtract the right amount from your account.

What's the point of having it?
In theory, as with all these things, it should speed up the process of buying stuff giving you more time, thus improving your quality of life - ahem. It has been used around the world for ticketing, toll roads and in fast-food chains, to get human traffic moving faster.

What are the dangers?
There are a couple of dangers, although any company developing this refuses to admit so. Handbag thieves will probably have the easiest time of it but could be caught short by two safety mechanisms – first, the maximum purchase limit can be capped ($25 in the US), and second, the type of transactions can be limited. For example, you can specify whether you want to use it for buying hamburgers or newspapers.

There have also been concerns about privacy, as tags such as those based on RFID can be physically tracked and transactions recorded. Quite what people's data will be used for is still unclear.

How does it work?
Smart cards can use radio frequency identifiers (RFID), while mobile phones can use Near Field Communication – a similar technology that works on shorter ranges. London Underground's Oyster Card uses Philips' Mifare technology and there are still other variations out there.

Who's using it?
America and Asia are well ahead of most other regions, although Scandinavia is up there on the leader board too.

The US arm of HSBC is distributing one million of MasterCard's PayPass contactless cards to its customers, who can now use them in McDonalds, 7-Eleven stores, motorway toll booths and cinemas. Visa is also making waves in this area but traditional payments companies are being challenged by mobile phone companies.

So what else?
None of this is very new. People in Hong Kong have been using their Octopus card since 1997. This was used for paying for public transport but has become an electronic cash system.

The Taiwanese are running a similar system, while Transport for London is beginning trials for a similar service with the Oyster Card.

Are mobile phone firms a threat to payments firms?
Some experts believe so, citing the fact that the software and hardware capabilities already exist in something most people carry around with them. Mobile firms already bill people at the end of the month, so the question is, what is stopping them acting like MasterCard and Visa? There are some complications around EU directives but apparently they are set to be amended in the next year or so.