Canada has a head start on the U.S. in adopting contactless payments. And as tap-and-pay technology spreads, the use of cash for routine transactions is on track to decline sharply within five years, a new study contends.

A mandate by payment networks in Canada to adopt chip-and-PIN cards that went into effect last year helped propel many merchants to install contactless readers, says Christie Christelis, president of Technology Strategies International, a Toronto-based payment industry analysis firm.

The cost to add contactless-payment capability was "not much more" for certain merchants upgrading payment terminals to EMV-chip readiness, he tells PaymentsSource.

As a result, Canada counted some 140,000 contactless readers deployed nationwide at the end of 2011, Christelis reports in his firm’s Canadian Payments Forecast 2012. By comparision, in the much-larger U.S., just 2% of 7 million card-accepting merchantshave installed contactless-ready point-of-sale terminals, Gemalto NV in January reported.

Ironically, many Canadians are unaware that EMV chip cards their banks issued them within the 24 months to protect against counterfeit card fraud also are capable of initiating contactless payments, Christelis says.

"In anecdotal research and general on-the-street interviews, I find that a lot of consumers have no idea the card in their wallet can be used for tap-and-pay," he says. "Banks still need to do a lot of education on that."

Total contactless-compatible payment terminals likely will reach 350,000 by 2016, with more than $12 billion spent annually within Canada through contactless cards or Near Field Communication-equipped handsets that support contactless payment, Christelis predicts.

The growing network of contactless-ready payment terminals is building a powerful on-ramp for mobile payments in Canada, Christelis believes.

By 2016, consumers routinely will use NFC-equipped phones to initiate about 15% of all mobile contactless transactions, according to Christelis' projections.

"Contactless payment is definitely taking hold in Canada," Christelis says. "As it continues to expand, consumer awareness will grow too and that is going to help push mobile payments into everyday use."

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