Bank trials 'no contact' cards

A payment system to be tested in Britain could completely replace cash, according to a new report.

The system allows people to make small value payments by passing a card across a sensor without the need to enter a pin or sign.

The report's author, Kieran Hines, a financial analyst at Datamonitor, said the new technology was "aimed entirely at replacing cash".

About 1,000 staff at Royal Bank of Scotland will take part in a trial of the scheme that starts next week at the bank's head office near Edinburgh.

Working with Mastercard, the bank will give staff specially adapted chip and pin cards that they can use to pay for goods in the eight retail outlets in its head office complex, including a Tesco Express store.

The so-called "contactless" payments will be capped at £10, and for any transaction over that amount card users will be asked to enter their Pin. The cards will also ask for a pin at random to check the user is the card holder.

Mr Hines said that the scheme would mean "consumers benefit from far speedier service, while also benefiting from the convenience of not having to carry as much cash".

The report said the scheme was particularly suited to payment in pubs and bars, nightclubs, fast food outlets, petrol stations, convenience stores and vending machines.

Contactless payments have already proved popular in the US and parts of Asia, where trials began in 2002 and full launches took place last year.

The US is the biggest market for contactless payments with some 10 million devices, including plastic cards, key fobs and miniature cards, in circulation. They are accepted at more than 30,000 outlets.

Europe has been slower to launch trials, partly because of the focus placed on chip and pin technology, but Datamonitor said that developments were "just around the corner".

However, Sandra Quinn of the card payment trade association Apacs, said: "We have only just got through the roll out of chip and pin. We are not expecting that all low value transactions will be made using contactless cards within the next three to four years."

Last month it was reported that Transport for London had scrapped plans to allow commuters to use Oyster cards to pay for goods and services because setting up a link with a financial partner or bank to develop the service had proved too expensive and complex.

TfL had hoped that commuters could put credit on to the card to buy low-cost items such as newspapers and sandwiches. It is estimated that Londoners spend £100 million a day on such goods.