Contactless Payments: Replacing Cash with Convenience

Contactless payments, specifically RFID, are presenting banks with an opportunity to capture a significant portion of a traditionally cash-based market.

Contactless payments are increasingly seen as a solution to many of the problems that cash and payment cards present to industries where transaction times are crucial to business. Contactless payments can be fast and convenient, and they offer consumers tremendous flexibility in making purchases. Of the contactless payment technologies, radio frequency ID (RFID) is becoming the favorite in the payments world.

RFID presents several benefits to each party to a transaction. It gives merchants the ability to accept electronic payments without compromising transaction time. It gives customers the flexibility of making purchases quickly and without the hassle of carrying cash. It gives banks the opportunity to capture a piece of a cash-concentrated market through interchange fees.

"For payment providers, RFID is appearing at a time when spending is weak and competition is tight among issuers who are trying desperately to distinguish their cards from the multitude on the market today," says Ariana-Michele Moore, author of the report. "Large associations like American Express, MasterCard and Visa, as well as banks, are launching pilot programs in hopes in realizing a new opportunity."

Because the benefits of RFID are so enticing, Celent expects the technology to play an increasingly prominent role in payments. Considering that three of the top target retail outlets for RFID payments are quick service restaurants (QSRs), movie theaters, and movie and video game rental stores, RFID represents a significant revenue opportunity. In aggregate, 2002 US sales in all three were over US$160 billion. In 2007, we expect RFID payments to capture at least 8 percent of the revenue obtained by these three outlets.

The report offers readers a discussion of RFID and an overview of RFID payment programs on the market today.