McDonald’s UK Embraces Contactless, Adding Momentum to UK Rollout

Jan 21 2011

McDonald’s has announced it will accept contactless payment at its 1,200 restaurants throughout the United Kingdom, one of the first tier-one merchants to embrace the technology in the country.

McDonald’s UK said it will be ready to start accepting contactless payment cards by summer, after it finishes a general overhaul of its point-of-sale terminal system, implemented by IBM.

The move will offer needed momentum to the country’s rollout of contactless payment, launched in September 2007. The rollout is mainly progressing thanks to just one bank, Barclays and its credit card unit Barclaycard, which have funded most of the cards and terminals rolled out to date. Barclaycard is both an issuer and acquirer.

McDonald's was one of the first merchants to adopt contactless payment in the United States, agreeing more than five years ago to begin to roll it out nationwide. It received help from such card schemes as MasterCard Worldwide, which subsidized terminals.

McDonald’s UK works with another major acquirer in the United Kingdom, WorldPay. And the fast-food chain said it will launch contactless payment in the United Kingdom with the help of Visa Europe.

A McDonald’s UK spokesman told NFC Times the assistance from Visa will mainly come in the form of promotional support. He said the fact that Visa cut interchange rates for contactless debit transactions early last year was not the reason the chain is adopting contactless.

"It was about convenience and speed of service and bringing enough payment options," the spokesman told NFC Times. He noted the McDonald's locations are nationwide, not just in London, where contactless acceptance points are concentrated. McDonald's UK was the first major fast-food chain in the country to accept conventional payment cards, in 2007, he added.

There are just under 45,000 contactless point-of-sale terminals in place in the United Kingdom, according to Barclays. Most are in small merchant chains or single shops.

Last year, however, some larger merchants announced they would at least trial contactless payment, including Co-operative Food, which will launch a pilot this year at 100 of its grocery stores or supermarkets, leading to a possible rollout to the majority of its more than 2,500 stores nationwide in time for the 2012 Olympics in London.

A sister chain, the Co-operative Pharmacy, the UK’s third largest retail drugstore chain, said it would run a pilot early this year at 50 stores with hopes of expanding to more than 500 stores by March of 2011, then possibly the rest of the chain’s 800 stores. Update: Two much larger merchants, retail drugstore chain Boots and mega-supermarket chain Tesco have also expressed interest in contactless and are trialing the technology. Both are likely to roll it out. End update.

And Spar, the largest convenience store chain in the United Kingdom with 2,600 stores under its banner, began rolling out readers throughout the chain last summer. Spar’s merchant acquirer is also The Royal Bank of Scotland.

Roy Ford, retail IT controller and head of card strategy for Spar UK, earlier told NFC Times that lower interchange, on which merchant transaction fees are based, was the top reason Spar is rolling out contactless. The lower interchange will cut debit card fees by 40% when contactless is fully rolled out in the chain, Ford said.

Fees for accepting contactless or any open-loop payment cards is a major reason British merchants have given for holding back from accepting contactless.

But while Visa and MasterCard have both quietly lowered interchange, a rush by merchants to embrace contactless did not follow.

Visa nearly a year ago slashed its rate by half for contactless debit purchases between £2 (US$3.12) and £10, to a flat 4 pence (US 6.2 cents) per transaction. That is compared with a conventional EMV debit transaction with PIN of 8 pence. The Visa payWave debit rate is even less for transactions of £2 and below, though there is no break on interchange for contactless transactions between £10 and £15. MasterCard’s rate for Maestro debit is slightly lower than 4 pence. Rates for similar Debit MasterCard transactions are structured differently, but also are lower than conventional chip-and-PIN transactions.

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