Contactless payments have the potential to transform the payments business and may provide a true substitute for cash, said Chris Skinner, founder and chief executive of U.K.-based consulting firms Balatro Ltd. and Shaping Tomorrow.

During a presentation Wednesday at the BAI TransPay Conference & Expo in Las Vegas, Skinner said bankers have made the mistake of viewing the latest contactless advances “in isolation and not as a whole.”

Skinner predicted that this evolving technology has the potential of eliminating the use of cash and credit cards faster than banks expect. “In fact, it will soon become a real substitute for cash,” Skinner said.

Skinner noted that most wireless-based payments currently are for items under $10 while contactless systems typically involve payments for items under $100. In London, for example, the prepaid, rechargeable Oyster card is used by 2 million rail and subway users daily, he said. The card is now also being used to pay for parking meters, newspapers, hamburgers and chewing gum, he added.

“The thing that prevents these systems from offering payments for high value items is that there is no authentication of the payment,” Skinner said. That authentication could come from biometrics, Skinner added, referring to fingerprints, face recognition and iris scans.

With more rapid and effective authentication, contactless payments could spread more quickly, Skinner said. As an example of the kind of growth possible, he pointed to credit and debit cards, which reduced the use of cash in U.S. payments from 60% to 31% over the past eight years. During the same period, cards cut check usage from 30% to 15%, he added.

In the future, Skinner said, customers may be able to wave a watch given to them by their bank and make payments for major purchases with biometric authentication tied to retail front-end systems linked to banks’ back-end systems. He noted that the JCB Credit Card Casio Watch in Japan already uses RFID technology to enable customers to make some payments. He said such watches or other wearable devices will be capable of higher-price purchases, such as clothing and jewelry.

Some of the larger banks in the U.S.—such as Citigroup Inc., Bank of America Corp., Wells Fargo & Co. and JPMorgan Chase & Co.—are looking into this technology, Skinner said. “The winners will be the ones who have a vision of the long-term,” he added. “The losers will be those who think these innovations are meaningless.”

(For Skinner’s presentation at the BAI Retail Delivery Conference & Expo last November, see “Wal-Mart, Microsoft, Verizon—Aliens Attack?” in the November 15, 2005 issue of BAI Banking Strategies Retail Delivery Insights. For more on contactless cards, see “Contactless: The New Wave in Payments” in the November/December 2005 issue of BAI Banking Strategies.)

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