MasterCard unveils five-year plan for contactless payments, retailers to be on board by 2014

Credit card giant MasterCard has announced a new five-year plan designed to change how payments work in Australia and around the world, announcing that many new merchants will need to be equipped with contactless terminals by October 2012.

The move highlights the growth of contactless and mobile payments, and comes as a report published by the Wall Street Journal claims Google is also talking with MasterCard about integrating its payment system with in-built NFC technology on Android smartphones.

At the heart of MasterCard’s strategy is its PayPass technology, which allows users to make payments by simply waving their credit card over an electronic reader for purchases under $100.

The technology is already becoming widespread – there are 88 million PayPass cards in use around the world, with 5.3 million of those in Australia. Over 35,000 merchants can take PayPass payments including 7-Eleven, McDonald’s a JB Hi-Fi.

Divisional president Eddie Grobler pointed out statistics that showed between June and December 2010, the number of PayPass transactions in Australia grew by over 235%.

“The set of changes outlined in the Roadmap will change the face of the payments industry in Australia and bring a broad range of benefits across the financial sector,” he said.

By October 2012, all MasterCards will be PayPass enabled, and several new merchants in certain retail categories must be able to accept these contactless payments – these include taxis, newsagents, bookstores, convenience stores, supermarkets, service stations, fast food restaurants, cafes, bars and cinemas.

By April 2014, all existing cards must have PayPass, and all merchants in those categories must be able to accept PayPass payments.

Jost Stollman, chief executive of electronic payments start-up Tyro, says he welcomes the announcement as it gives retailers ample warning of when they will be required to offer new technology.

“We have seen deadlines moved before, but it’s good there is one there. It creates impetus for the necessary investment in new technology,” he says.

One of the bigger announcements is that by 2012, MasterCard debit holders will be able to take cash-out after purchasing goods through a retailer.

“This is a reaction to the increased competitive ambition by EFTPOS. At the moment, the EFTPOS cards have an advantage because they can be used for cash out, and are closing the gap with their own offering.”

The only question, he says, is what incentive there will be for merchants to accept cash-out transactions through debit cards. Currently cash-out through EFTPOS cards allows the merchant to receive a negative interchange fee.

“The issue is whether they can make it attractive for merchants,” he says.

MasterCard was contacted this morning for comment, but SmartCompany did not receive a reply before publication.

MasterCard reassures users that the timeline will make using PayPass more secure, by “constantly testing and strengthening the integrity of the payments system”.

By October 2011, all new and reissued MasterCard cards will be EMV enabled, and by 2013, all cards and payment terminals will need to be EMV capable. All ATMS must be EMV capable by the end of 2015.

Stollman welcomed this announcement, saying that EMV was the standard and technology benchmarks should be kept in line, especially as merchants attempt to convince shoppers they should be using contactless payment – a technology that may at first glance be less secure.

By April 2013, online merchants must provide MasterCard SecureCode authentication or the equivalent for all transactions over $200, the company announced.

“Online bookings and purchase made on sites that use MasterCard SecureCode are secured by the cardholder’s personal MasterCard SecureCode – a password known only by the holder, providing an extra security measure,” MasterCard said.

“Overall, this is good,” Stollman says. “Everyone knows what they have to do.”

Mobile and contactless payments are certainly gaining traction. In the United States, Twitter executive chairman Jack Dorsey is chief executive of Square, a mobile payments company that is processing more than $US1 million every day.

Meanwhile, the Wall Street Journal has reported Google is teaming up with MasterCard to produce a new product that will allow users with NFC-enabled Android handsets to make payments with their phones.

The program will allow Citigroup-issued card holders to pay for purchases by using contactless terminals at retailers.

The move comes alongside a general push towards NFC and contactless payments – several reports suggest Apple is preparing to implement a similar type of payments system using customers’ existing iTunes Store accounts.