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Although it is trailing far behind rival Visa in terms of numbers of contactless cards carrying its brand in the United Kingdom, MasterCard Worldwide has calculated that the contactless game is just beginning in Britain and is willing to spend millions to boost its brand.

One way to do that, believes MasterCard, is to connect it’s brand to the popular contactless card that is used many more times a day in the United Kingdom than either Visa- or MasterCard-branded contactless payment–the Oyster transit card.

MasterCard yesterday announced a "multimillion-pound" deal with Oyster’s owner, Transport for London, to exclusively put its logo on plastic card covers the transit authority will give away this year with every new Oyster card it issues. MasterCard is counting on riders to keep the Oyster cards in the holders when they tap to pay fares on London buses, trams and underground trains. When they do, they will see the MasterCard, and later, PayPass logos while actually paying the fares with the popular closed-loop Oyster electronic purse.

"It’s building customer awareness of everyday payment with PayPass and starting to create a link in the customer’s mind of tapping something that has a MasterCard brand with gaining access to public transport," Mike Cowan, MasterCard’s head of transit in Europe, told NFC Times.

MasterCard as well as Visa Europe are supporting a move by Transport for London to actually accept bank cards directly to pay fares. Plans call for 8,000 London buses to be equipped to accept open-loop payment by early next year. The London Underground will follow.

Before that happens, MasterCard predicts Transport for London will distribute 6 million of the little plastic Oyster wallets bearing its logo during 2011. Last year, the wallets bore the mark of furniture retailer IKEA. The MasterCard-Transport for London deal also apparently includes some MasterCard branding at London Underground ticket barriers around the time of events MasterCard is sponsoring, including the European football league championships in May.

It’s little wonder that MasterCard is hitching PayPass to Oyster’s rails. The payment-card scheme noted in its branding announcement yesterday that riders tap Oyster cards more than 13 million times a day.

By comparison, Barclays and its credit card arm, Barclaycard, which have issued the vast majority of contactless bank cards in the United Kingdom, announced in late 2010 that contactless-payment transactions at the point of sale would only surpass 1 million–for the entire year. For journeys on the London Underground, riders have to tap twice per transaction, when they enter and exit gates.

Partnership Goes Beyond Plastic Wallets?
The partnership between MasterCard and Transport for London likely extends beyond small plastic card wallets and ticket-barrier placards bearing the MasterCard logo, but neither MasterCard nor the transit authority would say more.

Representatives from the payment-card scheme and the transit authority gave a joint presentation at the Cartes and IDentification conference last month in Paris. But they did not mention their partnership, only opportunities for open-loop payment of fares.

The Transport for London representative, Will Judge, head of future ticketing, mentioned PayPass several times during his portion of the talk, but did not utter the name of Visa’s contactless application, payWave, which would also be accepted for fares on London buses next year and which is currently featured on most of the 12 million-plus contactless bank cards rolled out in the United Kingdom during the past three years.

But when asked by NFC Times during the presentation, Judge said the authority did not have any agreement with MasterCard for a period of exclusivity in accepting PayPass for fares and not cards from other open-loop schemes.

Some transit authorities in North America planning to accept open-loop payment might offer this type of exclusivity in exchange for help in building their contactless-payment infrastructure.

Overall, MasterCard has been more aggressive than either Visa Inc. or its European affiliate, Visa Europe, in promoting the move to collect transit fares with open-loop credit, debit and prepaid cards. It was the first to develop a backend processing system–still a work in progress–designed to quickly handle millions of daily fare micropayments.

MasterCard also helped fund a trial of open-loop payment launched on a New York City subway line in 2006 and a second phase, which expanded the pilot to two suburban transit authorities and two other modes of transit. The card brand also launched a trial in 2009 of PayPass payment of fares on 200 buses in the UK city of Liverpool. It earlier rolled out semi-open-loop payment of transit fares in the Taiwanese city of Kaohsiung.

Retail Knock-on Effect?
The revenue opportunity and chance to displace cash is huge, say backers of the drive for open-loop fare collection. According to Transport for London’s Judge, UK transit operators collect £3.5 billion (US$5.4 billion) in revenue a year, not including season passes, about half of it in London. Much of that is in closed-loop transit schemes, such as Oyster. Urban transit in Europe is worth €11 billion to €15 billion per year (US$14.2 billion to $19.4 billion), he said, much of it still in cash. In addition, collecting fares with PayPass, payWave or other open-loop cards would make ticketing interoperable within national boundaries and across borders.

Moreover, banks and card schemes hope enabling riders to pay fares with their contactless bank cards will also encourage more consumers to tap the cards to make purchases in stores. Contactless payment has yet to take off in the United Kingdom since being launched in London in September 2007, in part because of the relative scarcity of acceptance points, but also because of the challenges of introducing a new payment technology, said Cowen.

"One of the key things is behavioral change among cardholders and consumers, and that’s generally a slow process," Cowen told NFC Times. "We believe it (open-loop fare payment) can accelerate this behavioral change."

MasterCard does not release PayPass card numbers for individual markets, but Visa Europe told NFC Times there were 11.6 million Visa payWave cards on issue at the end of 2010 in the United Kingdom. That is much more than for PayPass. A Barclays spokeswoman said the bank had issued nearly 11 million debit and (Barclaycard) credit cards.

While most of the Barclays- and Barclaycard-issued cards are branded Visa, some Barclaycard credit cards carry PayPass. In addition, MBNA Europe, part of U.S.-based Bank of America, announced it plans to roll out 5 million credit cards in the United Kingdom by the end of 2011. Some of these will carry PayPass, as well. And contactless Virgin Money cards also will support PayPass. Other issuers are expected to join the contactless rollout, issuing cards carrying either payWave or PayPass.

A Transport for London spokeswoman said she didn’t think the MasterCard branding on the plastic Oyster card covers this year would confuse commuters when the transit authority later opens its bus readers to both MasterCard and Visa-branded contactless bank cards.

"We’re still over a year away from that coming out, and we’ll be doing more publicity," she said.

The transit authority also is experimenting with putting its Oyster application on NFC phones and with accepting PayPass and payWave directly at its subway gates from phones. But transaction times, especially with higher-security Oyster applications loaded onto NFC-enabled SIM cards, have been too slow in internal tests to date.