Anyone who has ever visited a newsagents or coffee shop knows how annoying it is to rummage through a pocket or purse in an attempt to find the right change. But this experience could soon be a thing of the past if ambitious plans to create Europe’s first "tap and go" payment system in the capital get the go-ahead.
Transport for London, the public sector body in charge of the capital’s tube and bus network, is in advanced negotiations with two short-listed companies to expand its Oyster smart-card ticketing system.
TfL wants the card to become an "e-purse" alternative to cash for low-value goods and services. If it presses ahead with the scheme, currently only under consideration for London, it could roll it out nationwde.
The idea is that newsagents, shops, cafes, pubs, car parks and fast food restaurants adopt technology that would allow customers to make purchases with the tap of a card, much like commuters do at present when passing through the gates on London Underground.
Users will be able to link the upgraded card to a bank account for regular, authorised top ups or use it anonymously by crediting it with cash at any one of the hundreds of payment stations. Registered cards that are lost or stolen can be disabled as soon as they are reported missing.
TfL is hoping that revenue from the scheme, which will be raised through a small commission charged to merchants on each transaction, will fund further investment in the capital’s public transport infrastructure.
Advocates of the scheme say consumers would benefit from the convenience of using the card because transactions will be quicker with no need to fumble with or wait for change. They argue that retailers would also benefit from shorter queues, reduced cash handling costs, improved security and the added insight the cards would offer into customer purchasing behaviour.
The size of the returns depends on the success of the scheme but the potential market is enormous. According to APACS, the UK payments association, people use notes and coins for 75 per cent of all transactions by volume while research by consulting firm Deloitte found that 63 per cent of these are for less than £5 – exactly the market TfL is hoping to exploit.
Charles Monheim, the American director of Oyster card at TfL who is overseeing the plans, says there are 54 billion cash transactions in London every year – that is about two a day for every person living in London.
"Even if only a fraction of these transactions were made using our card we would still be talking about hundreds of millions, if not billions of pounds and a small percentage of that is an attractive amount," he says.
TfL started negotiations with seven financial and technology consortia to run the scheme, including Barclays, EDS/JPMorgan, PayPal and Royal Bank of Scotland. It has short-listed just two for final contract talks, but declined to name those involved.
Mr Monheim says that the project is a "very low risk" investment , but admits the scheme is "somewhat more speculative than one would normally find in the public sector".
"The intention is that the project will cost us nothing," he says. "We will not go ahead with the scheme unless there is a high degree of certainty that it is a profit making venture.
"We are selling to our partner the brand of Oyster and the Oyster capability, which is already used and trusted by 2.6 million of people in London."
Analysts have noted, however, that it will be extremely difficult to get enough retailers to embrace the expensive "tap and go" payment systems. A recent analysis of the contactless smart card market by Deloitte concluded that large-scale adoption is critical to success.
"Consumers and merchants need reassurance that any scheme is secure, inexpensive, widely accepted and simple to use…Large-scale adoption is a critical component of the business case," according to Deloitte.
The consultant adds that merchants who are first to market in their sector could "realise significant benefits".
Mr Monheim concedes there is a problem. "We have proven that getting the card into people’s hands is not a problem but getting merchants to accept them is harder.
"And that is why our eventual partner must have a credible strategy to achieve this or we won’t go ahead with the project. We want a partner that has the commitment to see the project through."
Although there are no similar schemes in Europe there are precedents. The best known is the Octopus travel card in Hong Kong, which is used for more than HK$50 million or £4 million of non-transit purchases every day. Singapore also has a similar scheme and, in Japan, DoCoMo is putting "tap and go" technology into its mobile phones.
If the final contract negotiations are a success - and Mr Monheim is "optimistic" they will be - Londoners can expect to be able to start using the scheme by the autumn of next year. And the scheme could eventually be expanded nationwide.
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