Payment card issuers are waging war on cash by introducing contactless cards for low-value transactions.

Purchases are made using a contactless card by placing it within a few centimetres of a card reader, which uses Radio Frequency Identification (RFID) technology to extract data.

Since a signature or personal identity number is not required for most small purchases, transactions can be carried out rapidly – without necessarily removing the card from a wallet.

Consumers in the UK make about 27bn cash transactions a year, worth £250bn, and about 80 per cent of these are for purchases of less than £10, according to Visa International estimates.

“Card issuers are aggressively trying to increase the size of their market, and the enemy is cash,” says Christophe Uzureau, a banking analyst at research house Gartner.

“They want to replace as many cash transactions as possible with card transactions, so they can earn fees.”

Contactless payment cards have already been successfully implemented in transport systems, notably the Octopus card in Hong Kong and the Oyster card in London, and both Mastercard’s PayPass and Visa’s Contactless systems have been piloted in the US.

JP Morgan Chase has also issued more than 6m credit and debit cards which include contactless technology under the name “blink”.

The blink system uses the existing Visa and Mastercard infrastructure to authorise payments, and at many retailers a signature is not required for transactions of less than $25. American Express has also introduced its ExpressPay contactless system on some Blue American Express cards.

Although card companies are driving the adoption of contactless technology, it offers significant benefits to retailers, such as fast food outlets and convenience stores, where typical transaction values are low. These include higher transaction speeds, increased transaction values, and lower cash handling costs.

“We’ve found that transactions carried out using blink are three to five seconds faster than credit card transactions, and seven to nine seconds faster than cash transactions,” says Rob Williams, controller at The Bailey Co, parent company of Arby’s, a fast food restaurant chain based in the US.

He adds: “This means each Arby’s employee can get more customers through per hour, so we get higher productivity.”

Mr Williams has found that customers spend about 50 per cent more when they use a contactless card than when they pay for their food with cash: “I think it is psychological: because customers are not pulling cash out of their wallet, they spend more.” Arby’s has also made productivity gains with less time being spent on counting money and taking it to the bank, Mr Williams says.

Another benefit to retailers is that cards allow them to capture data about their customers from small transactions.

“If contactless cards offer merchants better information on their customers, that could prove to be valuable,” says Mr Uzureau.

So far, Europe has lagged behind the US in the introduction of contactless payment cards, although Royal Bank of Scotland plans to run limited trials of MasterCard’s PayPass system in the UK this summer. Visa also plans a trial of its Visa Contactless later in the year.

In the US, each transaction is authorised online just like a credit or debit card transaction, but in the UK transactions under £10 will usually be “offline” – the card will interact with the card reader, but the authorisation process will be skipped – making them even faster. To provide security, shoppers must enter a Pin after a set number of offline transactions.

Mr Uzureau warns that although lowering the security requirements for contactless transactions may make them faster, this risks scaring off security-conscious users. But with a Pin-free transaction limit of just £10 they are unlikely to be big targets for criminals.

Debit cards accounted for more retail spending than cash last year for the first time in the UK, according to payments association Apacs.

If contactless cards prove successful, paying cash may soon be a thing of the past.

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