Electronic money transactions as carried out by debit, credit, and prepaid cards are easy to do, and they reduce cash handling overheads such as totting up, collecting, and securely transporting cash to and from banks. Expenditure on these cards is easy to track and audit with online statements, and a card is easier and safer to carry than a wad of cash when shopping or going out.

One disadvantage of debit and credit cards is the growing problem of fraud that is associated with them. This has led to the introduction of chip and PIN cards, and additional authentication requirements for online purchases. However, all cards can be blocked if lost or stolen, which is more than can be done with plain old cash.

Contactless payments are the next step along the road to digital money. These use near field communications (NFC), which makes card transactions faster. A contactless payment made at an offline terminal will take no more than 500 milliseconds to be verified, compared to several seconds for a standard card transaction, making them ideal for low-value trade, to cut queuing times at, for example, fast food outlets.

Apacs predicts that, by the end of 2008, five million contactless cards will be in circulation in the UK, and will be accepted by at least a million merchants. Contactless smartcard technology can be used for account-based payments as done by debit cards, traditional credit card transactions and prepaid payments.

There are a number of prepaid card schemes in operation around the world. The idea first came to prominence with the hype that was generated around smartcards a decade or so ago, but the hype failed to turn into reality until now. Prepaid cards can be purchased over the counter from many newsagents and corner shops without the need for a bank account. They are, literally, equivalent to carrying cash except that they take up less space and can be used to pay for goods and services securely over the phone and online. Some prepaid cards can be topped up from the cardholder’s account at ATMs, or by simply adding more money to a card over the counter.

There is also much talk of mobile payments; that is using mobile phones instead of cards to pay for goods and services electronically. The growth of this area remains to be proven.

Contactless and prepaid cards provide many new opportunities for businesses. Firstly, they enable customers who do not have bank accounts to pay by card, thereby opening up new market opportunities to merchants. They offer flexible options for branding and loyalty schemes. They can be used as a new way of paying manual or occasional workers, and can also provide an auditable means of making purchases on petty cash, or money advances for business travel.

The cards can be used for mixed applications, for example access authentication to computers, laptops, and computer rooms, and entry/exit to office car parks and buildings, vending machines, and payments in staff restaurants. From an IT perspective, deployment of prepaid cards would not be challenging. Basically, card readers would need to be connected to a network and other appropriate devices such as point of sale. Furthermore, card application processing and management processes would have to be defined and agreed with the card service provider. As with any other project, good planning is essential and a proof of concept highly recommended.

Source: OpinionWire by Butler Group (www.butlergroup.com)