Contactless cards: the pros and cons of new payment technology
Smart cards which store data will make life easier, but are they safe?
Saturday 08 May 2010
When one of our readers, Mike Watts, was sent a new contactless Barclaycard last year, he wasn't happy. "I do not use my credit card, or debit card, in shops to pay for purchases of less than £15 and so have no use for this new contactless facility," he says. "I prefer a card that must be inserted into a payment terminal and the correct PIN entered, as it is considerably more secure."
He contacted Barclaycard to complain and ask for his old card back but got no joy. The credit card company began switching all its customers' cards to the new contactless plastic last year and it is committed to the new system. In other words, there is no stopping progress and Barclaycard told Mr Watts it was the new card, or no card. He chose the latter and cancelled his Barclaycard.
"If people want contactless cards then fine, but why should we all be compelled to have them?" he asks. "What happened to customer choice – or don't the banks have to take any notice of their customers?" Mr Watts is concerned about what happens if the cards are lost? With no PIN needed a crook could simply set out on a spending spree, is his worry. "Also what is the range of the cards and could one accidentally pay for the shopping of someone else? Finally could they be forged?" The final straw came last month when his wife was sent her new – contactless – debit card by Barclays. "I've written to the bank but am waiting to hear back from them. We are hoping they will send her a new ordinary card and that we don't have to change our current account to a different bank after about 35 years with Barclays. But I won't hold my breath," says Mr Watts. He has also written to the Office of Fair Trading about what he feels is an unfair lack of choice.
He isn't the only one concerned about the new way of paying. Among a number of other readers to contact Your Money is Paul Adkins, who researched electronic payment systems when he worked for electronics' giant Philips in the early 80s. "We discovered the best security would be offered by giving people a calculator-like device where the user had control over the keypad for entering the PIN," he says. "But this was perceived to be too expensive, and we ended up with chip cards. But who knows what is happening behind the keypad and the display? We have to take it on trust that the terminal is not compromised."
Mr Adkins – along with several other readers – believes the new contactless cards are being promoted to boost banks' profits, rather than improve security. "The banks see contactless cards as an opportunity to make money; particularly from shopkeepers who are lumbered with the cost of providing merchant terminals and the cost of processing card transactions," he says. "We will never move to the cashless society while the banks use it as an opportunity to make money."
Are their fears justified? Are banks and plastic card companies really taking chances with our financial security as they chase bigger profits? No, says Mark Austin, head of contactless at Visa Europe. "Contactless cards are extremely secure," he says. "They're just normal chip cards with an antennae. They work with a card reader only and the information on the card can't be picked up by anyone else. The cards have a maximum range of 5cms, so must be held close to the reader which then sends out a radio frequency. Once that's picked up by the card's antennae, the payment is made – and all in less than half a second." He says there is no data flying around for fraudsters to steal, and no time for crooks to tap into the transaction.
"The cards are about improving convenience," says Mr Austin. "The contactless function is only used for low-value transactions and we constantly talk to the banks about them, and other changes in technology, to ensure bank customers have the best experience when using their cards."
What about the risk of cards being lost and stolen and then used in a spending spree by villains? "That can't happen," says Barclays. "All contactless transactions, on both Barclaycard's and Barclays' debit cards, are covered by our standard fraud guarantee, so as long as a customer hasn't been negligent with their card or PIN they will be fully covered against fraud. In addition, if contactless cards are used for a number of transactions in succession, the card will ask for the PIN to verify it is in the right hands."
In short, that means that the reassuring chip and PIN feature will come into play after as little as three or four contactless transactions. With the transaction limit set at £15, raised from £10 earlier this year, that means fraudsters would only be able to spend up to around £50 before they would be asked for a PIN. And with all plastic cards, the standard fraud guarantee means cardholders won't be held liable for any losses, as long as the card issuer doesn't suspect you of being party to the fraud.
Around 10 million contactless cards have been issued in the UK so far with both NatWest and Barclays launching cards in 2007 and Halifax later. But the number of retailers accepting them is still relatively small, so many may not yet have had the chance to try them out. However, more retailers are signing up all the time, particularly fast food chains such as Pret A Manger and Eat.
"The real motivation is speed," says David Black of Defaqto. "Quicker transactions increase turnover for shops and can reduce the number of staff required. For consumers, shorter queues increases convenience." Londoners have experienced the contactless Oyster cards on London's buses, tubes and trains, which, in theory, have led to cheaper fares.
There is an argument that plastic cards are safer than cash. If money is stolen, you lose it: if a card is stolen, you shouldn't be liable for fraud. The industry's next step is to introduce payment by mobile phone, but that technology is a year or two away yet. In the meantime, those worried about contactless cards should vote with their feet. HSBC, Nationwide and Santander all say they currently have no plans to introduce the cards.
Banker's view: Brian Cunnington, head of debit cards, Barclays
"Contactless technology is undoubtedly the future of payments. It simply makes life easier: it's secure, convenient and a practical alternative to cash. We know anything new and unknown can be daunting but fears about contactless security are unfounded.
As a bank, the security of money is our number one priority so if we believed there was any increased security threat with contactless cards we simply wouldn't be introducing them. The card cannot be swiped accidentally, doesn't expose personal information and will ensure the PIN is entered periodically, as well as all the normal debit and credit card protection. Countries including the USA and Canada have had contactless for a while and have seen no notable increase in fraud as a result. We are at the early adopter stage but the possibilities with contactless technology are endless – there are already plans to introduce mobile phones with contactless functionality. Payment technology is definitely coming out of our wallets and contactless cards are the first step towards that."
Consumer view: Handy, but budgeting is a worry
By Martin Hickman, Consumer Affairs Correspondent
Contactless cards are certainly handy. They obviate the need to dig around for cash and by speeding transactions – and queues – their adoption could save us all some time while picking up a sandwich.
They also do away with the need to carry large quantities of steal-able notes and heavy coins.
But I have three concerns. First, the card companies take a cut of electronic payments from traders and even though these slivers are not apparent to shoppers, inevitably they are passed on in the form of higher prices. Then there's the question of whether it's harder to keep a track of your money if you're not handing it over in hard currency or acknowledging its expenditure with a pin code. More abstractly, I quite like the vanishing quality of cash and wonder whether allowing the archiving of every last jot of personal spending gives too much information to commercial enterprises. Not so much Big Brother, perhaps, as Big Uncles?
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