Magazines Archives - 2007 May

While contactless smart-card technology has taken off in a big way in Singapore’s public-transport sector, the challenge is on to get more retailers to come on board. RETAIL ASIA reports on the current situation and some of the misconceptions that need to be overcome.

Nearly every Singaporean owns an ez-link card — a contactless stored-value card used primarily for public transit. EZ-Link NPte Ltd, a subsidiary of the Land Transport Authority of Singapore, was formed in early 2002 with a mission to sell, distribute and manage such cards as well as clear and settle transactions using the ez-link system in transit and non-transit applications — the latter being retail and other services.

The size of a normal credit card, the ez-link smart card is the most widely used of its kind in the country, with nearly eight million issued to date. A smart card is pocket-sized with embedded integrated circuits that can process information. It provides a means of conducting business transactions in a flexible, secure manner but with minimal human intervention.

EZ-Link claims to have more wallet share in Singapore than any other payment device. Proof of this is in the more than four million financial transactions, which the company boasts are processed throughout the system on a daily basis. And the figure keeps rising with the growing use of this form of payment outside the transit arena.

At McDonald’s outlets, for example, customers can opt to wave their ez-link cards at the card reader at every checkout station to pay for their meals. These contactless cards can also be used to pay for movie tickets at Cathay Cineleisure Orchard, EZ-Link says. They are intended to serve the younger population, it points out, especially those without supplementary credit cards or debit cards, yet do not want to carry around large amounts of cash to enjoy greater convenience and safety when shopping.

The company believes that parents, too, will breathe a little easier knowing their children are not on the streets with large sums of money on them.

Norma Sit, CEO of QB Pte Ltd, the consumer payments company and exclusive business partner of EZ-Link for non-transit payment and loyalty applications, says: “The ez-link card, based on the contactless smart-card technology, is a versatile transactional device which we want to move beyond its current transit purposes.

“In the near future, we aim to bring the card to Singaporeans as a mode of payment at shops, restaurants and entertainment outlets. We want to familiarise [those] who are used to paying through other modes, with using the ez-link method. We see this initiative with Cathay Cineleisure as a good way to do so, as many Singaporeans are avid movie fans,” she explains.

The concept is not just convenient, but also heightens user security. The user merely has to wave the card approximately 4cm from the reader to make a purchase. This way, no consumer information — be it credit-card details or personal data — is transmitted over possibly insecure network lines, the way it does for magnetic-stripe cards which are vulnerable to skimming by technically capable fraudsters.

In turn, retailers adopting the contactless approach are likely to earn the trust of customers, who are assured of a more secure system.

In spite of the benefits to both the customer and retailer, market adoption of contactless technology remains low.

Says Peter Manners, Visa International Asia-Pacific’s regional head-contactless: “The success of any technology depends to a large extent on its adoption by users. This in turn relates to how useful a technology is to its target user.

“For payment technologies to become truly successful, Visa’s experience has been to ensure global standards are set and applied by the industry.”

Leading card providers concur that the best longterm solution against fraud is for the industry to migrate to the global standard for smartchip-based debit and credit transactions known as the EMV (Europay, MasterCard, Visa) smart-chip technology. Pushing for migration to the global standard is just one of the initiatives Visa is continually pursuing.

According to Manners, economies of scale will arise from having more players enter the contactless market, continually bringing down the prices of contactless cards and readers.

He is confident that ensuring global standards and extending this benefit to other markets will see the payment system become “as well accepted as traditional credit and debit cards”.

Currently, Visa has commercially rolled out Visa Contactless programmes in Malaysia, South Korea and Taiwan. The first commercial implementation of a contactless smart-card scheme built on the global EMV standard took place in Malaysia in February 2005. Called the Visa Wave, it was later rolled out in Taiwan in March of the same year, followed by South Korea in February 2006.

“Visa is also working with transit operators in Singapore, South Korea and Taiwan to enable [its] payment cards to be used in transit,” Manners says.

The company last year announced an agreement with QB and EZ-Link for exclusive rights to embed ezlink functionality in the Visa credit, debit and prepaid cards in Singapore, the city-state’s first commercial implementation that combines global payment capabilities with ez-link cards. The partnership followed the previous year’s agreement between Visa and EZ-Link to allow commuters to automatically top up their ez-link cards at transit gates and on public buses by linking the cards to users’ designated Visa credit- or debit-card accounts.

In a press statement, QB general manager Chua Siew Ling expressed optimism that local banks would rally behind the new card. “Singaporeans are busy and always looking for ways to simplify their lives,” she says. “This is the ultimate all-in-one payment product— it combines the universal acceptance of the Visa card with the convenience of the ez-link card, which is used not only on trains and buses in Singapore but also at the growing number of QB’s EZLink-enabled retail partners outside the transit system.”

During the launch, EZ-Link, QB and Visa said they were in discussion about future technology options for the products, including incorporating the combined Visa/ez-link functionality into mobile phones.

More recently, Visa announced global payment brand JCB’s acceptance of Visa Asia-Pacific’s contactless specification, paving the way for the acceptance of JCB’s own programme via J/Speedy at retail locations outside Japan.

“The basis for international commerce is cross-border interoperability and global standards that assure governments and individuals that payment can take place securely and efficiently, regardless of geography or technology,” Manners explains.

“This is why JCB’s adoption of Visa’s contactless specification is such an important agreement as it moves the whole payment industry closer to a single interoperable platform that works for all [payment] brands.”

The cooperation will allow retailers accepting both brands of contactless cards to minimise their investment in terminals, thus helping to lower vendors’ production costs, speed up the machines’ time to market, accelerating the pace at which the industry can implement interoperable contactless payment programmes.

“Ultimately, the intention is for consumers and merchants to benefit from faster and more convenient payment,” Manners rationalises.

He discloses that some of the other activities Visa is conducting to assist greater adoption of contactless technology are directly engaging with retailers and payment-industry partners on a regular basis, providing technical support, keeping the industry briefed on the latest developments in the contactless-payment space, setting up domestic frameworks, being flexible with local business rules and investing in promotional campaigns with partners.

Manners reasons that conversing with retailers and understanding their local business rules ensures Visa’s products meet global standards and still fit in with domestic frameworks. “This can help minimise investments that retailers need to make in differing technologies,” he says.

Manners cites retailers’ misconceptions about investment costs as one of the challenges that Visa faces in its push for greater adoption of contactless payment by retailers.

However, he thinks this can be addressed “by highlighting the benefits that retailers can enjoy from the implementation of this technology”.

Based on a Visa-commissioned Deloitte research study in 2006 involving 36 executives from various banks, merchants and vendors in Taiwan and Malaysia which participated in the deployment of Visa Wave programmes, “retailers can enjoy varied benefits, including faster transaction times, potential higher spends by cardholders ... not limited by the cash in their pockets, reduction in operating costs, increased customer satisfaction and quite importantly, being seen as a first mover”, says Manners.