Which Way, Contactless? Navigating the Direction of Tap-and-Go Technology in the United States

Don’t call it a comeback. U.S. contactless payments have been around for years—since the mid 2000s, in fact. But renewed conversations initiated by security upgrades, innovative form factors, and high-profile marketing efforts have the payments space wondering if the tap-and-go technology will finally take hold.

“When compared to countries like the U.K. and Australia, the United States is still in the early stages of adoption, but we definitely see the potential for merchants to be ready and willing,” says Liz Ryan, executive vice president, Wells Fargo Merchant Services, and chair of ETA’s Contactless Task Force, who cites the number of NFC-enabled POS devices deployed and “complimentary inroads” via mobile wallets and wearables as momentum. In addition, with the growth of NFC-enabled ATMs, “we see consumers leveraging contactless activity more broadly in their everyday lives, and this activity will bring more familiarity and, consequently, adoption,” she says.

Indeed, contactless is now based on EMV standards, and most new POS devices are able to conduct contactless transactions, according to the Secure Technology Alliance, which says that more than 95 percent of new terminals shipped are contactless capable.

Other industry data and analysis also point to a ripe environment: One of the most recent studies comes from global management consulting firm A.T. Kearney, which asserts 70 percent of U.S. merchant terminals have the necessary hardware for contactless, and 48 percent of face-to-face transactions are happening at contactless-enabled locations. (For its part, Visa announced earlier this year that it expects 50 percent of U.S. in-person transactions will occur “at contactless-enabled merchant locations” by the end of 2018. Meanwhile, the U.S. Payment Forum reports data from Mastercard indicating nearly 800,000 U.S. merchant locations were already contactless-enabled as of the fourth quarter of 2017.)

While he won’t call it a “boom,” Paul Kobos, senior vice president of banking and payments for Gemalto in North America, says issuers are starting to “show genuine interest” in contactless, too. “Initially, we’re seeing reissuance cycles of cards that are contactless-enabled based on segmentation of customers.”

Specific portfolios, such as high-volume transacting customers and frequent travelers, will be the first to receive contactless cards, according to Kobos. He predicts that issuance and consumer adoption rates will take off after users are able to experience the technology for themselves. “It’s tough to say exactly how quickly that will transpire, but we feel strongly that it will happen over the next couple of years,” he says.

Although issuers such as Capital One and American Express have already begun introducing the new cards, only 5 percent of cards today are contactless, according to the Secure Technology Alliance. Ryan says Wells Fargo is “evaluating the marketplace to identify when to offer dual-interface on other card products.” It currently offers dual-interface credit cards upon request to Signature and Platinum customers.

Accelerating Movement

Despite the positive indicators, sources say a lot of work is needed before contactless will become popular in the United States. Blame it on the complex and ever-evolving payments infrastructure, lack of consumer and merchant awareness and incentive, software and hardware certification, and more, but the massive growth that’s occurring in other countries may not become a reality stateside.

Comparing contactless to the recent EMV chip implementation isn’t an equivalent comparison, says Kevin Morrison, senior analyst on Aite’s retail banking and payments team, who is conducting preliminary research on the topic. Consumer protection was the “linchpin” that drove implementation and acceptance of EMV, he says. “We haven’t seen something of that magnitude drive the need for [contactless] technology to be implemented from a public opinion standpoint or from a political standpoint.”

Speed and ease of payment are two incentives for contactless adoption, according to Matt Donnelly, vice president of solutions and finance at FreedomPay. His company works in niche verticals such as contract food service in sports stadiums, where merchants have not yet adopted EMV due to transaction lag time. “Even two seconds … is too slow for them,” he says. With transaction amounts typically less than $25, there’s little reason to make the switch from a liability standpoint, so contactless is “the only way they want to move forward.”

The public transit sector offers another “proving ground for the consumer use case that could give contactless the boost it needs to take off en masse,” says Kobos. Because the majority of people who use public transportation typically use the same payment method on a daily basis, behavior can quickly become habit and encourage tap-and-go use for other transactions. “Contactless public transit payment systems [are] already implemented or being designed in major metro areas including Manhattan, Chicago, Toronto, Vancouver, and even midsize markets like Portland and Salt Lake City,” he says.

Anytime Visa puts marketing dollars behind an initiative, consumers take notice, Donnelly adds, citing the card brand’s Super Bowl ad spots in February. Still, he says it’s incumbent on payments professionals to come together to educate merchants and consumers alike on the technology and to create a consistent experience at the point of sale. Otherwise, adoption will founder.

Morrison agrees: “Human beings are creatures of habit. I think they’re willing to try something new, whether they do it out of initiative or out of force,” he says. But “if it’s not a consistent experience, they will go back to what they know is consistent”—dipping or swiping a credit card. Regardless of the networks’ marketing pushes, Morrison doesn’t expect adoption rates to move until the majority of POS locations offer a uniform and seamless contactless experience.

Habit likely will play a role in which method of contactless payment consumers ultimately use, too. Ryan says consumer choice is paramount, and merchants should be prepared to accept contactless payments via all three—cards, mobile wallets, and wearables.

Kobos and Donnelly, however, foresee contactless cards paving the way. “That’s likely because cards are the more familiar, future-proofed form factor for consumers, while mobile payments still face technological limitations like device battery life,” says Kobos.

Using a card is “a lot less complicated than figuring out how to use an Apple Pay,” says Donnelly.

That’s moot, of course, without more contactless cards in consumers’ hands. One possibility that could help financial institutions deal with the expense of issuances on the heels of EMV—and increase relevancy of mobile wallets—is instant digital card issuance. The ability to “apply for the card, but then also provision it into a mobile wallet … so that [consumers are] able to start using it wherever they want right away” has been a topic of conversation with FIs, processors, and other payments players, says Morrison.

Regardless of which form factor comes out on top, contactless is another step on the road to a growing omnichannel environment that’s often talked about but not frequently executed, says Donnelly. “I think it’s more than just saying, ‘Okay, we can speed up the transaction, we can make it a little easier for customers to pay,’” he says. It’s moving the industry toward a consumer-focused payment experience.  TT

Josephine Rossi is editor of Transaction Trends. Reach her at [email protected].

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