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RFID set to revolutionise retail payments

Computer Weekly | March 16 2005

Contactless payments and radio frequency identification technology will transform the way people pay for goods, shop from home and identify themselves at work

Radio frequency identification tags and contactless payment cards will transform the UK payments market, according to Dave Birch, director of ITconsultancy Consult Hyperion.

A growing number of retailers and manufacturers have rolled out RFID tags across their supply chains, but Birch predicted that RFID chips would be embedded or attached to debit cards, mobile phones or key rings and used to make payments.

Banks and retailers have also introduced chip and Pin cards in a £1.1bn initiative to cut card fraud by 60%.

"It would be wrong to see the development of chip and Pin as the retail e-payment technology development of the year. RFID is absolutely the next evolution of retail payments," said Birch.

Card providers, including Mastercard, Visa and American Express, are developing contactless payment cards that incorporate an RFID chip and authorise payments when the card is waved near a terminal. The payment is cleared in the same way as a normal transaction.

MasterCard's RFIDchip card is similar to the Oyster smartcard used on the London Underground. The card has embedded RFID technology that interacts with a terminal to allow customers to pay for journeys.

"Consumers like contactless payment cards such as Oyster because they are convenient. Merchants like them because they are quick," said Birch.

He added that smartcards such as Oyster can be used for low-value payments other than train journeys, such as buying a coffee or paying for car parking.

However, companies would generally use RFID chips and smartcards to prove employees' identity rather than making payments, said Birch.

"An employee's mobile phone might have an RFID interface, which they could hold up to an RFID reader at the company entrance to be let in," he said.

Another trend in the payments market is the introduction of smartcard slots in TV set-top boxes. For instance, satellite broadcaster BSkyB has announced plans to launch a credit card in partnership with Barclaycard. The card will be inserted into a slot in Sky's digital set-top boxes to enable users to make purchases from their TV.

"The technology opens up a wealth of opportunities and is sure to make banks, retailers and broadcasters sit up and pay attention," said Birch.

Electronic purses have also made a comeback, despite the failure of Mondex, a pre-pay scheme trailed in Swindon in the 1990s.

Visa USA has estimated that the market for pre-paid cards, which are topped-up by the card-holder, is worth about £1tn, said Birch. The market spans gift cards, coffee shop cards and government benefit cards.

Hong Kong's pioneering smartcard

In Hong Kong, millions of transactions are made every day on the trailblazing Octopus smartcard. Of these transactions, which are worth about £4m a day, 15% by value are made at retail locations, according to recent figures.

The Octopus smartcard, launched in 1997, is widely viewed as one of the most successful commercial uses of smartcard technology. Introduced as a fare collection device for the city's transport systems, there are now about seven to nine million cards in circulation. In addition to the subway, the cards can be used as an alternative to cash in phone booths, vending machines and snack bars.

Travellers can load cash onto the cards at convenience stores or in stations. Cardholders under 18 years of age can choose to have their Octopus card in the form of a watch.

The Octopus mass transit smartcard has spawned imitations at underground systems around the world, including the London Oyster card.

The Octopus smartcard uses RFID technology to allow customers to hold their cards near card readers, rather than inserting the card. Because the Octopus system was developed in 1997 - long before any standards for RFID - it uses a proprietary form of RFID.

Stations use local area networks to pass transactions from Octopus terminals and related systems.

The type of wireless technology pioneered by the Octopus scheme is being developed by mobile operators including Motorola, Nokia and Samsung Electronics. The companies are adding "near field technology" to their phones to make payments, identify the owner or download digital files from a PC.

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