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Visa Europe today predicted the number of Visa-branded contactless cards on issue in the United Kingdom will reach 12 million by the end of the year, about 2 million more than previously projected.

Visa’s press release did not offer a breakdown by issuing bank for the revised projection or for the 8 million Visa-branded contactless cards that have already been issued in the UK. But as NFC Times reported last month, the vast majority of the 12 million cards expected to be issued in the UK carrying Visa's contactless application, payWave, this year will come from one bank–Barclays and its credit card arm, Barclaycard. 

The bank has carried the UK’s contactless rollout on its shoulders since the launch of contactless bank-card payment in September 2007 in London. James McDonald, head of strategic innovation programs for Barclaycard, speaking at last month’s Contactless Cards and Payments conference in London, predicted the bank will have issued 12 million debit and credit cards in the UK by the end of this year. It had issued a combined 7 million debit and credit cards as of last month.

But he expects such other British banks as Royal Bank of Scotland, HSBC and Lloyds TSB to become more active in the rollout by next year, for a total 30 million British contactless bank cards issued by the end of 2011. The UK’s contactless rollout will reach a “tipping point” next year, with many more merchants accepting contactless payment and “many millions” of contactless transactions, he predicted.

UPDATE: Mark Austin, head of contactless at Visa Europe, later told NFC Times that besides Barclays, RBS, Lloyds and Citibank issue Visa-branded contactless cards in the UK, though did not offer figures for each. "We expect additional banks to start new issuance before the end of this year and with increased issuance from existing issuers in 2011," he said. He did not reveal the names of the new issuers or the banks that would step up the rollout. END UPDATE.

Besides the buy-in by only one bank, the UK’s contactless-payment rollout has also been characterized by the lack of large retail chains so far embracing the technology. Visa estimates that more than 26,000 merchants accept contactless nationwide, though nearly all are small to medium-size establishments. They include mainly fast-food or coffee chains, such as Subway, Pret A Manger, EAT and Caffè Nero, along with selected outlets of big retail pharmacy chain Boots and supermarket chain Spar.

Austin, who was unavailable for comment on the day of the release, said in a statement in the release that in the past six months, contactless volumes had doubled, “and we expect several more high street retailers to confirm plans to launch contactless in their shops during the rest of 2010.” UPDATE: Austin later said in a statement to NFC Times that among the new retailers adopting contactless during the second half of the year would be "more well-known merchants."  

"Many of these launches will coincide with the natural replacement cycle for merchant POS equipment with contactless being part of already planned software and hardware upgrades," he told NFC Times. END UPDATE.

He did not release transaction figures or name any retailers expected to join the rollout, however. Barclaycard’s McDonald said he expected contactless transactions to run into the millions this year, up from some hundreds of thousands last year.

The British Retail Consortium, a merchant trade group, last month called on the British government to lower merchant fees, concerned that “banks plan to make the higher debit card charging regime the norm for emerging contactless and mobile phone payment.” The implication is that unless banks and the card schemes lower fees, merchants would be reluctant to accept contactless as a cash replacement.

Visa already offers a lower interchange rate, on which merchant fees are based, for UK debit contactless transactions of less than £10 (US$15.13) and on charge cards, though not for credit or deferred debit. UPDATE: As of February 2010, the rate for contactless debit has been 1 pence (US 1.5 cents) for transactions of £2 and less and 4 pence for purchases between £2 and £10. That compares with 8 pence for a conventional EMV transaction with PIN. There is no break on interchange for contactless transactions between £10 and £15. END UPDATE.

Visa said the average contactless transaction value in the UK is £4.30 (US$6.51). Barclaycard’s McDonald had placed the average at roughly the same amount, £4.50, and said that compared with £2.50 to £3 average cash transactions, indicating consumers spend more with contactless cards.

Visa is attributing at least part of the projected growth in contactless card issuance to the raising of the contactless purchase limit from £10 to £15 earlier this year. That is the amount consumers can spend just by tapping their cards without having to enter their PIN codes.

But the Barclays-driven rollout appears to be fueled in large part by the bank’s commitment to innovation and the benefits it sees from first-mover status. Besides the millions of pounds it is spending on dual-interface EMV cards and likely subsidies it is paying to merchants to accept contactless, it is laying out millions more on peak-time television commercials to promote contactless. It also hopes to be the first bank to launch NFC-based mobile payment in the country this year, with partner Orange UK.

The UK is the premier contactless hotspot in Europe, but banks are also rolling out Visa- and MasterCard-branded contactless cards in Turkey and Poland, with issuance in some other countries.