Contactless payments failed to gain momentum in the United States when they first appeared more than a decade ago. Executed through smart magnetic stripe cards, waving a card was only marginally faster than traditional swiping. Coupled with the extra cost of contactless card production, the business case was weak among stakeholders and adoption stalled.
The introduction of EMV in the United States may be changing that, however. EMV’s expanded point-of-sale (POS) transaction times cause frustration for customers, while longer checkout lines upset merchants. To improve the customer experience, merchants are readying their terminals to accept contactless and EMV-compliant payments through dual-interface cards.
For card issuers, it’s time to get ready, get set.
Merchants Laying the Groundwork in the United States
Although issuers led the migration to EMV, merchants – specifically, high-throughput retailers – are laying the groundwork for facilitating contactless payments. More than half (54 percent) of the top 100 merchants are already contactless enabled, according to the Secure Technology Alliance.
Fortunately, almost all the new POS terminals required for EMV payments are contactless capable. However, their contactless functionality must be activated through certification and software updates. Merchants for whom long lines result in customer dissatisfaction and an uptick in cart abandonment are leading the way. For example, fast food restaurants, grocery stores, convenience stores, drugstores and high-volume mass merchants such as Walmart and Costco, are among the greatest proponents.
The business case for merchants to adopt contactless payments is clearly focused on improving the face-to-face customer experience. After all, the majority of consumers (59 percent) believe that their chip cards are slower than mag stripe, according to Visa Global Market Research on EMV. In contrast, consumers view contactless card payments as fast and easy. Merchants also benefit from contactless by reducing the expense of handling cash.
One softer benefit for both merchants and issuers is the added security of contactless cards with dual interface – contactless and EMV. If the terminal fails to read the contactless transaction, EMV remains a secure way to accept payments.
Speeding Ahead in Mass Transit
Already, several mass transit systems in the United States – Chicago Transit Authority, Utah Transit Authority and bus systems in New York, Philadelphia and Boston – have converted or are in the process of converting from their closed-loop systems to open loop that facilitates contactless payments.
Both consumers and transit merchants benefit from conversions: consumers can pay with their own payment devices – card, mobile or wearable – at points of entry in any city that has converted to open loop; transit merchants eliminate expenses associated with dispensing their own payment forms.
If you recall the Visa commercials during the 2018 Winter Olympics, you’re aware that the company is priming the pump for issuing contactless cards in the United States. Although others haven’t launched a campaign for contactless cards to the American public, MasterCard, PayPal and Capital One have included contactless cards in their current strategies.
Juniper Research projects that contactless card transactions will reach $1.3 trillion globally by 2019 and cards will be the dominant form factor, accounting for 80 percent of total contactless transactions.
The business case for issuers is less about improving the consumer experience, albeit important, and more about the ROI of converting cash to card-based transactions. Melanie Gluck of MasterCard points out that many face-to-face payments in high-volume locations are small tickets (average under $23). After introducing Visa Contactless in Europe, Visa issuers realized 18 percent more transactions during the 2014-2015 period – likely a result, at least in part, of converting cash to card.
From an expense perspective, the cost of dual-interface cards has declined significantly, making issuance more affordable. The spread between dual-interface and EMV-only was once about a dollar. Now, it’s much less.
Issuers committed to launching dual-interface cards are employing one or more of three different execution approaches, none of which represents a mass reissuance as seen with EMV:
- Issue cards based on the expiration dates of existing EMV cards.
- Offer dual interface as a product line for new card issuance.
- Confine issuance initially to a subset of programs. Already, several banks and credit unions – TCF Bank, Capital One, Wells Fargo and Oklahoma BancFirst – have added dual-interface cards to their card portfolios. American Express recently reissued about one million Hilton cards as dual interface when it took over Citi's program with Hilton.
Market Strategy for Issuers
This year, more merchants will activate their contactless POS capabilities. In 2018, issuers need to learn about how dual-interface can benefit them - including participating in pilot programs and planning for execution. Plan now to ensure that your company is enabled so that when your bank is ready to act, it will be prepared to execute quickly.