Contactless card payments are building a fan base in the United Kingdom, where their use has spiked in the past year, but the product is still a long way from replacing magnetic-stripe cards.
Visa Europe reports that there are more than 32 million contactless cards in circulation in the United Kingdom, as of the end of 2013. The value of contactless transactions increased more than three-fold during the year, jumping to £574.6 million spent with Visa contactless cards as of September. Similarly, MasterCard reports a 220% growth in the number of its contactless transactions throughout Europe, including the U.K.
Issuers have long faced the problem of consumers ignoring the contactless payment capabilities of the cards in their wallet. Just over 12% of all U.K. consumers used a contactless payment card in 2013, double the number who used one in 2012, according to Theresa Jameson, analyst for consumer payments with Datamonitor International.
The United Kingdom is witnessing a similar rate of contactless card growth as the United States. The number of contactless cards grew nearly 19% year-over-year in the U.K., compared to about 18% in the States, Jameson says. However, the United Kingdom will reach a saturation point with contactless much quicker than the larger U.S., according to estimates by Datamonitor. By 2016, only 53% of all debit and credit cards in circulation in the States will be contactless-enabled, and almost three-quarters of all debit and credit cards in the United Kingdom that will be contactless-enabled, Datamonitor predicts.
"Looking at contactless usage trends, consumers are becoming increasingly confident about paying using their contactless card," says Pat Brolly, senior manager for contactless at Visa Europe, "and we only expect transaction numbers and spend to increase moving forwards."
Deals with major retailers are giving contactless cards higher visibility and offering consumers more opportunity to use the tap-and-go payment option. More than 300,000 terminals in the United Kingdom are contactless-enabled at McDonald's, Starbucks, Lidl, Co-op, Costa, Marks & Spencer, Boots, and the post offices, according to Brolly.
"U.K. consumers are becoming increasingly aware of the uses of contactless technology, and are more knowledgeable about where they can make payments with their contactless cards," says Jameson. The number of U.K. consumers who have not heard about contactless payments halved between 2012 and 2013, and the number of contactless cardholders who did not know where they could use their card to make payments more than halved between 2011 and 2013, according to Datamonitor research.
Going forward, Jameson sees growth driven by the issuance of contactless debit and credit cards for transportation under Transport for London, which is ceasing acceptance of cash payments for city buses. Other catalysts for contactless payments include mobile wallet offerings like Zapp (for which HSBC, First Direct, Nationwide, Metro and Santander have all signed on) and Weve, a telco mobile commerce venture that recently signed MasterCard as a participant.
The 2012 London Olympics played a key role in the uptake of contactless payments in the United Kingdom, Brolly says. Visa deployed contactless terminals at Olympic venues to showcase the technology, working with partners Samsung and Lloyds TSB and sponsoring of athletes such as Usain Bolt to attract mainstream attention.
"Since then we've had several milestone moments, such as [Transport for London's] launch of contactless payments on London's buses in December 2012, [from] which have seen more than 9 million contactless transactions to date, with the rest of Transport for London's network to accept contactless later this year," says Brolly. Visa also hopes to raise awareness with its recent Flow Faster brand campaign, designed to educate consumers on the benefits of mobile and contactless payments.
However, contactless payment acceptance still faces hurdles related to infrastructure and consumer acceptance.
"Creating a new ecosystem involves rolling out cards, installing terminals in retailers and educating consumers; it is a long, slow process," says Brolly. "Retailers looking to deploy contactless technology need to be convinced that there is consumer demand, while consumer demand will be driven by banks putting contactless cards in consumers' hands and being able to use it in the shops they visit most."
Jameson points out that despite the growing number of people who do use contactless cards, there is still a healthy share of British consumers who simply refuse to change their payment habits. There proportion of U.K. consumers who have a contactless card and do not use it nearly doubled between 2012 and 2013, growing to 21% in 2013 from 13% in 2012, according to Datamonitor.
"The speed and convenience that contactless offers do not appear to be a sufficient enough value proposition for U.K. consumers," she says, adding that Datamonitor research found that a sizeable portion of contactless cardholders (19.5%) do not find contactless cards better than what they had before. "This finding is surprising considering that contactless technology's unique selling point is based on the premise that it is a faster and more convenient mode of payment."
Contactless payments will remain a niche practice as long as they remain subject to spending limits, she adds.