As issuers mail out contactless credit and debit cards by the millions, it is not clear how often they are being used.
ISOs stand to lose out on revenue opportunities to upgrade merchants’ terminals to contactless-enabled models should apathy over the technology take hold among consumers and merchants.
Consumer interest in the technology is falling off, and the banks’ and card networks’ apathy may be to blame, say some payments executives. Even the format’s biggest backers concede they have sacrificed broad-based marketing, preferring to promote contactless cards in the cities and industries where they are most likely to be successful.
This approach is relegating the technology to the periphery, Observers say.
“Even if you do have a PayPass and/or a blink card, it’s very unlikely that you know what it means,” says Nick Holland, a senior analyst at Aite Group LLC, a Boston-based research firm. “They’ve just done a totally crappy job of pitching this. … Merchants have told no one about it. Card networks have told no one about it. The issuers haven’t really told anyone about it.”
From the numbers, it would appear that contactless is booming.
At the end of September last year, MasterCard Worldwide said more than 66 million of its contactless PayPass cards had been issued worldwide, up 50% from a year earlier. JPMorgan Chase & Co., primarily a Visa Inc. issuer, has sent out 30 million of its blink-branded contactless cards to date, triple the number in 2007. The company began issuing blink cards in 2005, and it also is adding contactless capabilities to cards it is reissuing to customers it took on from Washington Mutual Inc. in 2008.
But while the companies boast about issuance, they are mum on contactless transaction volume, and their marketing push is nowhere close to the level of several years ago, when they began promoting the cards in earnest.
The lack of communication has hurt adoption, says Stuart Taylor, vice president of global marketing for the terminal maker Hypercom Corp.
“There is little-to-no marketing by the issuers in most parts of the country, and as a result, there is little usage—and retailers question whether they want to make the investment” in his company’s contactless readers, Taylor says.
If not for the fact that he works in the payments industry, he would not have known that his bank had sent him a contactless card, Taylor says. “I noticed that it had a PayPass logo on it—on the back, not the front,” he says. Aside from some extra-fine print in his cardholder agreement, “that’s 100% of the marketing that I’ve seen from my bank.”
Card Brands’ Defense
The card brands defend their quieter approach.
MasterCard’s nationwide marketing push has tapered off, but this is because the format is taking off, and there is now less need to educate consumers about how it works, says Cathleen Conforti, MasterCard senior vice president for global PayPass solutions.
“Are we doing as much television? Not as much,” she says. “We did that around an initial rollout, and we don’t feel we need that level of support at this stage.”
Visa is trying to build a “concentrated acceptance space” because a nationwide push is impractical, says Stephanie Ericksen, Visa head of cross-product services.
“We’re trying to be more targeted,” she says. “When we’re rolling out a new technology, we do try to focus on a concentration of cards and terminals and merchants all being in the same area.”
Contactless payments always have faced a conundrum: Merchants have little incentive to deploy terminals for a format that is not yet universally embraced by consumers, but consumer demand is unlikely to take off if people can’t make contactless payments.
Terminal makers are trying to jump-start demand by making it easier for merchants to support the technology, Ericksen says.
“It started out in the early days where they were a peripheral attachment to an existing terminal … It just was not as seamless an experience for the merchant clerk or for the consumer,” she says.
Since a contactless reader adds $100 to $150 to the cost of each terminal, “it’s quite a big incremental cost,” particularly to larger merchants with many terminals to upgrade, she says.
To address this, “we’re working closely with the terminal vendors to see how we can get it more integrated and get the incremental cost to go down,” Ericksen says.
Ingenico SA is trying to reduce the cost of upgrades by making the hardware plug-and-play, says Chris Justice, president of the French terminal maker’s North American unit.
“All of the new devices have the contactless antenna actually baked in,” Justice says, but they lack the hardware necessary to activate it.
Merchants now have two choices if they want to accept contactless payments with an Ingenico terminal: add the module when they install the reader, or add it later. The hardware cost is the same in both cases—about $100—but labor costs go up sharply when adding the tech later because a technician must visit the store.
To address the cost hurdle, Ingenico is making the upgrade a do-it-yourself endeavor. Later this year, Ingenico terminals will ship with a cavity that allows merchants to add contactless capabilities simply by plugging in a module.
Rival terminal makers VeriFone Holdings Inc. and Hypercom similarly are tweaking their hardware.
Despite concerns over the industry’s lack of marketing efforts, U.S. retailers are still eager to deploy the technology, Hypercom’s Taylor says.
“Interest is just as high here in the U.S. as it is in other parts of the world … preparedness to pay, I would say, is much lower here in the U.S.,” Taylor says.
And for guidance on preparing consumers for contactless payment, VeriFone and Hypercom both point north, to Canada.
In Canada up to 40% of new terminals deployed in the past 12 months have had contactless technology in them; in the U.S. it was less than 10%, says Scott Henry, VeriFone director of product management for North America.
The difference is the attitude of the card brands and the issuers, he says “They have every card issuer in Canada pushing aggressively to get this out,” Henry says.
In the United States, “the campaign was strong early on but then it waned,” says Henry Today “most people that actually have a contactless card in their wallet don’t really realize that they have one,” he says.
The contactless “usage rate is very low and the interest is very low” among consumers, says Beth Robertson, director of payments research for Javelin Strategy and Research, a Pleasanton, Calif.-based research firm. She attributes this to a “lack of knowledge or lack of education around contactless.”
Robertson praised the terminal makers for making their hardware easier to upgrade. “It’s a good transition step in lieu of replacing the equipment,” she says.
Despite some of the issues that have slowed contactless adoption, the industry is making progress, Ingenico’s Justice says.
“Some of this is along the line of the chicken and the egg, but I think the two of those are coming together very quickly,” he says.
Daniel Wolfe is a reporter with ISO&Agent Weekly sister publication American Banker.