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23 May 2011

Mobile telephone vs banking card or who will win in Russia?

Either mobile telephone or banking card will win in contactless payments? Cellular operators had offered  micropayments comparatively  not long ago, but the number of users, who  at least once used this service is already calculated by millions. Mass implementation of contactless payment chips into mobile telephones  is expected in the  foreseeable future. This should make mobile payments  fast, convenient  and accessible.

Will banks and international payment systems  VISA and MasterCard apathetically  look at  loosing their positions on the market of  mass  payments?

At the top of  crisis in 2008 Russian «daughter» of Barclays Bank announced  about common with international card payment system MasterCard project  on the base of   PayPass technology. However, due to crisis the project was postponed for 2 years.

In the fall of 2010  Moscow Industrial Bank  announced about a pilot project  envisaging  issue of  15 000 banking cards to the students of  Financial University attached to the  Government of  Russian Federation. Cards will serve not only as a  purse  when paying at  a students’ canteen, but also as students’ ID and  record-books.

In March  2011 Raiffeisen Bank announced about the issue of  the World MasterCard Black Edition card. These cards  support settlements  through PayPass system and have both an ordinary magnetic stripe and microchip. The  Bank has already announced  about  its plans concerning issuing  credit cards with similar technology.

In the press information has recently  appeared  that  PetroCommerce Bank  is preparing  for  introduction of  a contactless cards project. 

How are new banking cards  arranged? An ordinary bank magnetic stripe card is additionally equipped with the special chip and built-in aerial. To  pay for goods and/or services one needs to  bring his card  closer to the special terminal, check the amount of transaction and wait  for  a beep, after which the needed amount will be debited from the cardholder’s card account.  It is not required to enter any codes manually and card authorization is not executed. Due to this  the payment process  lasts some seconds only. It is very convenient when paying for transport services, fuel as well as for  small purchases in shops  and  café bills.

The maximum amount of contactless  payment abroad is limited  for $25-50, and in Russia - one thousand roubles. In case of large amounts  it is required to enter one’s PIN.  

Such method of payment  prevents cards  from deterioration and  allows them to serve longer. You do not pass your card  for authorization in the hands of  serving  personnel, that   reduces the risk of  fraud. You  can make  purchases for large amounts,  withdraw cash  at any ATM as well as  make payments  at  about 30 million points of reception of payments all over the world. Such universality can’t  be offered yet by  payments from  mobile telephone’s account.

Similar technology has as well another  international payment system – VISA (it is named payWave), but  there is no any information concerning projects of its introduction in Russia.

Readers may object  - what about  contactless payment cards for payments in Subway,   which are used by millions of Muscovites?  What a pity, but such cards are incompatible with international payment systems  and  despite of their convenience could be  considered only as an intermediate project.

So, what contactless payments will win in the result - from mobile telephone’s account or with the use of banking cards?

On the side of banking cards is universality, and in favor of mobile telephones can play that circumstance, that they already lie in a pocket  of everybody.

In spite of presence of compromise solutions (for example,  VISA PayWave MicroSD cards, which are inserted  into smartphones), banking  cards  are lagging behind yet - both according to  temp of  introduction and  its driving force. In fact,  many even large private banks  announced not once, that the market of micropayments is not interested for them. However, pressure from the side of state banks on the markets of ordinary services can  force them to change the opinion.

So far,  infrastructure of contactless settlements outside the Moscow Subway  is  practically absent.


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