Is This The End Of Paying With Cash?

Will contactless payment cards change the way we spend forever? Here's some things you need to know...

This article was originally sent to readers as a standalone email in our 'Good, Bad and the Ugly' series. 

Contactless payment cards enable you to pay for purchases under £10 by tapping the card on a special reader at the till. You simply touch and go.

So unlike Chip and PIN debit cards, there is no fiddling about with keypads or remembering numbers.

Barclaycard's OnePulse credit card is probably the best known card to offer this service, combining contactless payment with a conventional Chip and PIN credit card and an Oyster card, which millions of Londoners already use to get around the capital via public transport.

Just last week Barclaycard announced plans to issue over one million contactless cards across the UK.

The bad news is: you can only use these cards at special 'OneTouch' terminals.

But the good news is: there are now more than 4,000 retail outlets across the UK with these terminals, and another 20,000 are set to spring up in other stores by the end of 2008.

Retailers which have signed up include EAT, Krispy Kreme and Yo! Sushi, as well as thousands of independent merchants.

The success of the Barclaycard initiative has got its competitors interested in the potential of contactless cards. For example, Halifax announced plans to roll out contactless payment through their debit cards last November. And MasterCard's similar PayPass scheme recently teamed up with MBNA and Manchester City FC, allowing fans to touch and pay at matches.

But are these cards really such a good idea?

The Good

Gimmicks aside, it is always important to look at the numbers when applying for a credit card, and the promotional perks of the OnePulse are pretty good.

The card offers a great 0% offer on balance transfers for 14 months (a 2.9% handling fee applies) together with 0% interest on purchases for 3 months from account opening.

It also has a typical APR of 14.9% -- which is pretty average when it comes to credit cards.

Alternatively, you could opt for a second deal which offers 0% interest on purchases for 6 months with no balance transfer option.

If you already have an Oyster card, it's easy to transfer it to your OnePulse card. Also, unlike cash, if you lose your OnePulse, you can cancel it and any unused funds will be frozen and safe.

The Bad

However, if you are interested in using the contactless technology, although the tempting balance transfer option may sound great, it could end up costing you more in the long run.

This is because Barclaycard uses negative payment hierarchy. This means that any payments you make towards your debit balance clears the cheapest debt first.

So, if you need to transfer a balance, all those croissant and coffee purchases could end up costing more than you bargained for.

Therefore, if you're keen to tap and go, opting for the second deal (which offers 0% interest on new purchases for six months) will make better sense. Then transfer your balance transfer debt to a separate 0% balance transfer credit card.

The (potentially) Ugly

One concern some customers have about contactless cards is the potential for fraud.

If your card is lost or stolen, a fraudster could potentially launch into a contactless spending spree although, as there is a £10 limit on contactless payments, they're more likely to defraud you of a chicken Caesar sandwich than a flat-screen television!

However, Barclaycard stresses that it offers exactly the same fraud guarantee on OnePulse as other cards, and as long as you haven't been negligent, you will always be refunded should any fraud occur.

In addition, as a fraud-busting measure, both Visa and MasterCard emphasise that after cards are used a certain number of times, holders will automatically be prompted to enter their PIN, regardless of the purchase amount.

In any case, it's important to keep track of your purchases, however small. So if you want to be sure, keep your receipts and tally them up at the end of the month to keep abreast of your spending.

Another criticism of these cards is that they are London-centric. According to Barclaycard, only half of the current 4,000 contactless payment outlets are located outside of the capital.

There are plans to roll out the scheme even further, but unfortunately the scheme is London-centred for the moment.

However, people who commute or travel into London may want to apply for a OnePulse to take advantage of the convenience of having a built-in Oyster card when they do set foot in the capital.

And Finally...

Hype aside, the real question is, has anyone actually seen one of these terminals?

I did a quick browse around a number of participating retailers and could not find a contactless payment reader.

Of course, this may change soon. Rollout is slow but steady, I am assured by the card companies.

Contactless payment cards in the UK may still be in their infancy, and whether we will morph into a plastic fantastic nation remains to be seen.

But if the media hype is to be believed, and if all goes well, contactless payment cards could soon take the term 'flexible friend' to a new level...

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