Google launched its new Wallet application, which allows consumers to shop by simply tapping their smartphone at a PayPass checkout, in September. The app uses a relatively new technology (in terms of its applications to personal finance and payment methods) called near field communication (NFC) to send payment information to the reader and carry out the transaction, eliminating the need for carrying cash and credit cards.

The Google Wallet app stores information from the user’s credit card, gift cards and loyalty cards on the Android smartphone. Currently, the app’s availability is very limited because it can only be used in the US with a Nexus S on the Sprint network and only supports Citi MasterCards and Google Prepaid cards. However, more cards, including Visa and American Express, are expected to be supported at some point in the future.

So, how will the introduction of something as radical as Google Wallet affect the use of credit cards?

Although the intention is to completely eliminate credit cards in the future, the actual credit product will still exist, just in a different form i.e. as a digital file rather than as a plastic card. The ease of use of Google Wallet could encourage more people to use credit cards for small purchases such as coffee or lunch.

At the moment there will be few users of the Google Wallet due to the lack of availability so it will be difficult to tell how it is impacting upon credit cards. However, once the Google Wallet app rolls out to UK Android-powered smartphones we could really start to notice a difference.

Android became the top-selling smartphone operating system in the UK this year, with the last six months seeing Android devices account for 44% of all smartphone purchases. While the market is incredibly tight, David Gosen, managing director at Nielsen, said that “the momentum is with Android at the moment”.

Advantages of Google Wallet

There are so many advantages to using mobile wallets, such as Google Wallet. One example is the convenience and speed at which consumers can make small purchases.

One thing of particular interest is that Google Wallet can store multiple credit cards and the loyalty programs attached to them, meaning that consumers never miss out on their discounts.

According to the Google Wallet FAQs page: “It [Google Wallet] stores virtual versions of your existing plastic cards on your phone, along with your coupons, and eventually, loyalty and gift cards. Our intention is that Google Wallet will be an open mobile wallet holding all the cards and coupons you keep in your leather wallet today.”

The Google Wallet service is completely free to both merchants and consumers, perhaps making it worthwhile for small businesses in the UK.

Disadvantages of Google Wallet

The app stores personal credit card information inside the phone, and so, as expected, there have been plenty of consumers with security concerns.

Google has tried to eradicate these fears by saying (on the Wallet FAQs page): “Your payment credentials are stored in a chip called the Secure Element contained within your Nexus S 4G. The Secure Element is isolated from your phone’s main operating system and hardware. Only authorized programs like Google Wallet can access the Secure Element to initiate a transaction. Additionally, because Google Wallet enforces a PIN, the only way to transmit payment credentials is if you first enter the PIN.”

Google Wallet is not the only mobile wallets system heading to retail outlets because PayPal, the worldwide leading electronic payments giant, is also joining the battle soon. Also, let’s not forget Square (created by Twitter founder Jack Dorsey), which uses different technology to NFC and is funded in part by Visa.

Possible impacts of Google Wallet launch in UK on credit card use

1. The introduction of Google Wallet could have significant impact upon the number of people using credit cards and prepaid cards to pay for smaller items because the new technology is specifically designed for point of sale in personal transactions and would be used mainly in restaurants and shops.
2. It is thought that Google Wallet could impact upon the number of hotel and ticket bookings made online as users are currently frustrated with repeatedly entering credit card details into websites only to find that the tickets have been re-released due to a ‘time out’ period. Managing director of advertising and marketing for Google, Rob Torres, has said that 53% of business travellers would be willing to book on a mobile device. This information from a Google survey reflects numbers found from TravelClick which is currently experiencing year-on-year mobile bookings growth of 1355%.
3. The number of credit cards issued could increase because users are able to load digital ‘copies’ of multiple credit and prepaid cards on to Google Wallet and will not have to carry them around in a bulging wallet.
4. While Google Wallet may increase the use of credit, it could also have the opposite effect with more and more consumers turning to prepaid cards as a suitable alternative.

Obtaining credit in the UK

Consumers who are interested in obtaining new credit or prepaid cards to use in association with Google Wallet when it launches here in the UK need to ensure that they choose the right one. It is essential that individuals compare credit cards and prepaid cards to get a card that best suits them. Online comparison websites allow consumers to access tools and tables enabling them to compare credit card interest rates, charges, credit limits and eligibility with ease.

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The world is changing and developing around us at a lightening pace – only a few years back we had to sign to make payments via credit or debit card; then Chip & PIN came along, and now you’re telling me we just have to wave our cards or mobile phones in front of a reader to make purchases? It sounds crazy but this technology has been designed to make payment transactions faster and more convenient for consumers.

Contactless technology has really progressed in the last 12 months. The first card on offer was from Barclaycard (it first launched one in 2007 that could also be used as an Oyster card, which also relies on Contactless Technology) – you probably remember the advert of Stephen Mangan on the flume around London which hit our screens last year. However, there is now a wide variety available on the market from different card issuers, including American Express, JP Morgan Chase, and HSBC.

The market has grown significantly – in the last three months of 2010 alone, more than 3 million credit cards with contactless technology were issued. The total number of contactless credit and debit cards by the end of 2010 was 12.9 million, with 52,700 contactless terminals present throughout the country. These figures are only expected to increase with analysts suggesting that 1 in 5 Britons will have a contactless credit or debit card by the end of 2012.

As of February 2010, the maximum payment for contactless credit cards is £15 in the UK. This limit is there as a security measure because when making a transaction with your card as you don’t have to enter a PIN or sign anything. This has likely resulted in the perception of a security issue, leaving many consumers concerned about the safety of using contactless technology.

Here we are going to look into the common issues that the British public have surrounding contactless technology and credit card fraud.

Lost and stolen cards

Many people are concerned that if someone else managed to get their hands on their contactless credit or debit card that they could simply empty their account by making multiple transactions of up to £15. While this is technically (and physically) possible, you can prevent loss by contacting your card provider as soon as possible after realising you have lost your card or it has been stolen – many providers even have 24 hour emergency lines in place to ensure that you can inform them of the loss/theft of your card as soon as possible.

As soon as you have notified the card provider they can cancel the card just as they would with any credit or debit card.

Jemma Smith of the UK Payments Administration, a service offering expertise in the UK payments industry, points out that “as with any fraudulent card transaction – if a fraudster were to use your contactless card – unlike cash you would not find yourself out of pocket.”

Credit card security

As there is no obvious security associated with contactless credit cards there is a lot of concern around credit card fraud. However, Smith informs us that “the security of contactless on UK cards is built on the same secure technology as chip and PIN – which uses the tried and tested global EMV protocol.”

We have heard so much about the increase of credit card fraud in the media over the last year or two so it is reasonable that people might think that contactless technology is the perfect way to commit fraud. However, the numbers seem to speak for themselves as Jemma Smith tells us that “contactless cards in the UK are still in relatively small numbers and fraud to date has been negligible”.

Smith also said: “As the technology becomes increasingly available, and should fraud become an issue, existing industry processes are in place to address any issues.”

New ways to steal

Surely the introduction of contactless technology has brought about new ways for fraudsters and criminals to swindle people out of their money? The most obvious way surely being for someone to get their hands on a contactless reader and simply walk around with it, deducting £15 from everyone’s cards in their wallets or pockets.

Once again Jemma Smith, of the UK Payments Administration, explains to us why this is not something that consumers should be worried about:

“There are a number of reasons why it’s very unlikely a fraudster would attempt to use a contactless reader to capture card details. Firstly, there is the hurdle of the risk management systems within the chip that minimise the usability of any data obtained by reading the card, but secondly even if the fraudster was successful in capturing card data they would still need a genuine business banking relationship, to process the contactless transaction (of £15 or less).

“This would obviously create a clear audit trail straight back to them, making it a high risk strategy for a small return. On top of this there is the practical challenge of getting a terminal reader close enough to the cardholder’s card – the reader equipment needed to work beyond a 10 cm range would be very large and hard to conceal.”

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Could mobile phones soon replace credit and debit cards as the preferred payment method for millions of Brits? Mobile wallets are set to grow in popularity after the first service that allows consumers to pay for goods using a mobile phone was launched in the UK in May.

How do mobile wallets work?

Mobile wallets work thanks to new technology called ‘near field communication’ (NFC) – a system of short range wireless technology. Users wanting to pay for goods using their mobile phone will need a Barclaycard and Orange account as well as an enabled handset, such as the Samsung Tocco Lite.

Users can preload their mobile phone with cash (typically up to £100) and then use a contactless payment system (nicknamed Quick Tap) to pay for goods and services up to the value of around £15.  Several retailers have already signed up to the system including Subway, Wilkinson, McDonalds, Boots, Prêt a Manger, Little Chef, Eat and the National Trust.

David Chan, chief executive of Barclaycard Consumer, said: “Having a wallet on my phone has made it much more convenient to make purchases on the move and I like that it allows me to keep track of what I’m spending as I go.”

Pippa Dunn, vice president of Orange agrees that the technology will have huge benefits.  She said: “It is going to start a revolution in the way we pay for things on the high street.”

Exclusive deals on credit cards and mobile wallets

One of the big advantages for mobile phone companies and handset providers of the mobile wallets system is that it allows them to target consumers with ‘local offers’.

When customers use their GPS-enabled mobile phones to pay for goods and services using the Quick Tap system, companies can easily target them with special offer vouchers and coupons. The system allows very careful targeting of individuals with offers based on where they shop or where they eat.

Alternatives to mobile wallets

If you’re not keen to pay for goods and services using your mobile phone, or your handset is not enabled for the Quick Tap system, there are other simple payment options that you can consider.

There are plenty of easy to get debit and credit cards available in the market currently, many of which don’t even involve a credit score. Prepaid debit and credit cards are particularly popular as they offer many of the benefits of traditional credit cards without the interest charges or credit checks. You load cash on to your prepaid card and you then use it to pay for goods or services, or to withdraw cash from an ATM.

Other easy to get credit cards include Visa and MasterCard products for applicants with a less than perfect credit history. While these cards might charge a higher interest rate than other credit cards, they will allow you to make simple purchases online or on the High Street.

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Although some prepaid cards have already gone “contactless”, the rollout is expected to continue apace in 2011.

This variation of the prepaid card has long been used in settings like universities and hospitals, letting users access newsagents, parking, and vending machines without having to hunt for coins. Today the payment method is rapidly going mainstream, with many banks issuing contactless debit cards and starting to include contactless prepaid cards in the mix.

As everyday prepaid cards go, the contactless feature adds an extra layer of convenience, allowing users to merely wave their card within a few inches of a receiver to complete a transaction. This type of card uses a microchip with a tiny radio antenna that transmits the card data to a reader without having to make physical contact. Because no PIN is required for such transactions, they are limited to £15 each, so that someone making off with your contactless card can’t do as much damage. Plus, you will be sporadically prompted to enter your PIN for a purchase to ensure you are the rightful owner of the card before a purchase can take place and you are protected against unauthorised use altogether as long as you notify your card issuer as soon as you know your card has gone missing.

Retailers that accept contactless cards include stores like Krispy Kreme and Pret a Manger. You should see a ripple symbol on the store’s credit card signs (usually right on the entrance door) if the store accepts this form of payment. You’ll find more retailers in London accepting contactless payments than elsewhere, though it is catching on throughout the UK.

Contactless prepaid cards are now available from Visa Contactless, American Express ExpressPay, and MasterCard PayPass, with Altair Financial being one of the UK’s leading issuers of the MasterCard branded contactless cards. Your personal spending patterns should help determine whether the best prepaid cards for you are the contactless variety. If you have to flit into the newsagent’s on the way to work every day and want to get your coffee and paper that much faster, then it may be a good choice for you.

Whether you choose a contactless prepaid card or one of the “old fashioned” ones, compare prepaid cards to find one with a fee structure that minimises the amount you’ll have to pay to obtain and use the card. For example, if you’re getting a prepaid card as a one-off thing, look for one with the lowest set-up fee. If you plan to keep it long term and reload it repeatedly, look for one with the lowest reload fees. If you plan to use an ATM regularly, look for one with the lowest ATM withdrawal fees.

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Are the new best credit cards in the UK the ones that don’t have to be swiped? Barclays, Royal Bank of Scotland, Lloyds, and Citibank think they might be, and they’re hoping more consumers will realise the benefits of these credit cards that work with only a quick wave in front of a scanner.

Powered by a radio frequency ID (RFID) chip, Visa’s PayWave credit cards are growing in popularity, with more than 8 million issued by mid-2010. Visa expects the number to top 12 million by the end of the year. While the majority of the distribution of contactless credit cards has been through replacement of existing credit cards, increasing merchant acceptance of the technology and increasing user interest may push the sector toward a “tipping point” by the end of 2010, leading to millions of contact-free transactions.

Merchant acceptance and consumer usage of contactless credit cards is mostly confined to the London area, and represents less than 3% of the total million-plus point of sale terminals installed. But since this type of card is best suited to places where purchase speed is critical, the technology doesn’t have to dominate to be successful. Though a Datamonitor survey from June 2010 showed that only 3.5% of consumers have and use a contactless card, 37.5% of consumers state that they do not have one but are interested in acquiring one.

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You can now pay for goods costing up to £15 if you have a debit or credit card with contactless technology, an increase of £5 from the previous £10 limit.

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