Fuel retailer Orlen has begun rolling out contactless payment terminals at its service stations in Germany, while in France, Carrefour has announced that it will be deploying readers throughout its entire network. Contactless payments offer benefits such as reduced transaction times and higher convenience, which should give these players a significant competitive edge in the long term.
Orlen Germany, a subsidiary of PKN Orlen, is set to roll out contactless payment systems across its 511 Star-branded service stations in Germany. In partnership with Scheidt & Bachmann, Orlen has already deployed contactless PayPass terminals at approximately 120 sites, and plans to equip its entire network with the technology by the end of 2010. The system allows MasterCard PayPass contactless card holders to make payments of up to E25 by simply placing their card on a PayPass terminal. Concurrently, in a deal that is being cited as one of the world's largest in terms of the deployment of EMV contactless readers, Carrefour has signed an agreement with Hypercom to deploy readers at all of its 210 hypermarkets and 1,200 service stations in France.
Contactless card payments work by using a radio frequency identification (RFID) chip embedded into a payment card. The card, once held within five centimeters of a contactless point-of-sale (POS) reader, can be used for payments, eliminating the need to enter a PIN or provide a signature, thus speeding up the transaction process. Contactless card payments take 500 milliseconds to be verified, easily faster than both cash and other card transactions. This is especially useful for service stations that have a high throughput, such as those located on motorways, and should help reduce customer waiting times and increase site efficiency. Contactless payments at the pump could also increase the number of vehicles that can be refueled every hour, as they would reduce the time that a vehicle is parked at the pump.
In addition, contactless payments are believed to encourage impulse purchases. According to American Express, customers using contactless cards spend an average of 20-30% more compared to customers using cash or traditional cards. As shown by Datamonitor research, the average non-fuel spend per motorist at German service stations is currently E3.96; however, the introduction of contactless payments at forecourt shops could well increase this figure.
Thus far, the low transaction limit for contactless payments has dissuaded fuel retailers from investing in the technology. In countries where fuel is particularly expensive, most transactions are high value, thereby rendering contactless functionality somewhat redundant. However, Orlen's limit of E25 offers motorists a reasonable transaction range. A recent Datamonitor study of German motorists found that almost half spend equal to or less than E25 on fuel per week. Therefore, Orlen should be able to derive a significant competitive advantage by extending contactless payment benefits to its customers.
Contactless payment technology is witnessing continuous innovation, and is being tested across various platforms, such as mobile phones and contactless key fobs. In North America, big retailers such as McDonald's, 7-Eleven and BP have already adopted the technology. Russian fuel retailer Lukoil is also upgrading all of its 5,200 service stations in Europe to accept contactless payments. While the penetration of contactless cards is quite low at present, investing in contactless infrastructure will surely offer first-mover advantage to retailers going forward. As Europe's service station network continues to shrink, sites will become busier and the number of transactions below the contactless threshold will increase, thereby improving the chances for a positive return on investment in the long term. Therefore, the recent moves made by Orlen and Carrefour are steps in the right direction, and signal imminent changes in fuel payment systems going forward.