I went down to Bunnings (Australia’s largest hardware store) the other day to buy some wire for the line trimmer, and when I went to pay I whipped out my android smartphone to make the payment. When I did this the girl at the register was amazed and said “I’ve never seen that before”, and given how many people she must serve at Bunnings this was ringing alarm bells for me.
Am I an early adopter of technology (not especially so, in my opinion anyway), or do people just not care about contactless payments via their phones? Or do people just see it as a gimmick that will never catch on? I don’t know which one of these is correct, but since this is a personal finance blog and I’m interested in the topic, I feel like I owe the readers a brief overview of the concept.
What are contactless payments?
Most mid to high level android smartphones have come with inbuilt Near Field Communications (NFC) capabilities for a number of years, and it is these chips that allow a mobile phone / cell phone to make contactless payments just like a credit card (think Visa’s Paywave, MasterCard’s PayPass or American Express’s ExpressPay).
If your smartphone has an inbuilt NFC chip and the appropriate app from your bank then that’s pretty much all you need. To make the transaction happen you just unlock your phone and then hover it over the payment terminal until it beeps. And that’s it.
It only works for transactions under $100 (just like the normal card-based tap ‘n’ go transactions), but given that these are the types of transactions that many people would normally use cash for, mobile payments really are a good step in further reducing the use of cash in our society. As an accountant who likes to be able to track his finances, I couldn’t be happier that cash use is declining. Cash transactions are the opposite of automation when it comes to accounting records.
Before you ask, the security stuff has already been thought of, and is essentially equivalent to what you would get from a normal credit card. They have thought of all the things about remote scanning/duplication of cards using the NFC system, so I’m not going to bother going over it here. Suffice it to say though that the security thing is sorted – it’s as good as or better than what you would get with a standard chip and pin credit card.
Who actually offers contactless payments?
Until recently, contactless payments have been a thing for Android phones only, and even then it was mainly the higher end models. In Australia this meant Samsung Galaxy S#, and only with two banks, these being Westpac Bank and Commonwealth Bank. As I understand it though, Australia has been a bit of an anomaly in this area, as the UK had this functionality for all Samsung Galaxy S3 phones based not on the bank, but on the VISA card instead. In the UK, VISA is the dominant payment method for debit and credit cards, and so the technology was therefore available to a much wider segment of the population.
Barclaycard in the UK also announced in September that they would enable contactless payments for any NFC-enabled android phone, so it is no longer exclusive to the Samsung Galaxy S# series. Which is a good thing, since all of the handsets clearly had the capability, it was just that people (usually banks) weren’t prepared to invest in the software.
Apple Pay – late to the party, but still laughing all the way to the bank
Apple recently announced that its entry into the mobile payments arena via their Apple Pay system (I’m surprised they didn’t call it iPay, but perhaps that would be a good description for every Apple user).
Now even though the android options have existed for over two years, I was intrigued as to why Apple hadn’t entered the market. Supposedly they didn’t like NFC technology, and were at one stage looking at bluetooth or other technology to make mobile payments possible. In the end they obviously decided to go with NFC, but with a big difference, in that they would have a deal with the credit card issuers to take a cut of the merchant fees.
It didn’t surprise me that Apple would only enter this field when they could totally gouge the market (see my earlier post on why it doesn’t make financial sense to own Apple products), but it does make you wonder whether Apple Pay can actually launch in other countries. I wonder if it was really only the US’s bizarrely backwards financial arrangements (like only recently introducing chip and pin technology and still using cheques like they were a new invention) that allows this to happen, as I just can’t see other countries putting up with that sort of price gouging when viable alternatives already exist (and have existed for many years).
Just so you know, Apple are taking 0.15% of the transaction as their fee for the US and the UK. I couldn’t even guess what the total value of transactions on the system would be, but I’m sure that will be a whole lot more cash going into the Apple coffers. Investing in Apple shares still seems like a good prospect at this stage.
To round out the Australian perspective for Apple Pay, interchange fees (which are not the same as merchant fees) for transactions are capped at 0.33% of the transaction, so I can’t see anyone being prepared to give up 45% of their interchange fee so that Apple can siphon it off to the US (or Ireland or wherever it is that they’re domiciled!). If you’re an Apple fan, I wouldn’t be holding your breath for contactless payments in Australia.
Android Pay – even later to the market, not price gouging though
As often happens with Android/Google, when they see that Apple are onto something they quickly replicate it (and if they aren’t replicating it, they look like they are), and this seems to be what has happened with Android Pay. While Google had Google Wallet for some time, I don’t think that it ever worked outside of the US, so Australia never got to use the product. Hopefully Android Pay actually makes it across the Pacific though!
Now while the old Google Wallet could do a stack of things and was arguably a bit too complicated for simpletons to use, Android Pay is meant to just be the simple tap to pay feature that always existed in Google Wallet, but minus the harder to use/understand bits. This is supppsoed to make for a much simpler user experience, but we will have to wait and see.
A big plus for Android Pay is that there are no fees for transactions, which makes it an easy sell to introduce to the Australian market (or any other market for that matter). If this no fee structure is successful in non-US markets, then it could be a serious challenger to the Apple Pay product over time. Having said that though, if Apple gets a strong foothold though (as it probably will), I can see how this momentum could be difficult to challenge, especially given the significant number of Apple faithful.
Are you using mobile payments?
So now that you have an overview of mobile payments, is this something that you are actually considering?
Or are you already using mobile payments, and if so, what do you think about them?