Standalone contactless payment cards may be headed for extinction in the United States.
The tap-and-pay card technology that began to emerge here in 2005 never caught fire, as relatively few merchants adapted their payment terminals to accommodate it.
And now as issuers face 2015 card-network deadlines to switch to more-secure EMV chip cards from magnetic stripe cards or risk taking on fraud liability–plus the simultaneous prospect of supporting emerging Near Field Communication-based mobile contactless payment–the fate of standalone contactless cards is in even greater jeopardy.
“Issuers are at a crossroads, as they need to decide what technology approach to take with cards, and the need to look at both EMV and NFC is complicating the question,” George Peabody, director of emerging technologies for Waltham, Mass.-based Mercator Advisory Group Inc., tells ISO&Agent Weekly.
Many issuers probably will choose the lowest-cost route, rolling out contact-only EMV cards as early as next year, Peabody predicts.
“Contact-only EMV cards will be the cheapest way for banks to get into the EMV game, and it is tough to say whether they will also see a need to support contactless cards, which generally lack a value proposition,” he says.
U.S. May See EMV/Mag Stripe Cards
Some issuers also may issue dual-interface cards supporting both contact EMV and contactless payment, which could provide additional incentives for merchants looking to make payment terminals NFC-ready, Peabody says.
But such cards are more expensive, experts agree.
“Rolling out EMV cards will be costly to issuers, but so will supporting the card-payment function inside NFC phones, when they arrive in about three years,” Peabody says.
Issuers are weighing these costs and waiting as along as possible before making decisions, he suggests.
Indeed, much of the incentive for equipping consumers with contactless cards–to increase convenience and speed up checkout lines–evaporated as card networks in the past few years dropped the signature requirement for credit and debit card purchases under $25 at many locations.
Visa Inc. contributed to fueling that trend with its announcement in May that, beginning in October, it would increase the limit to $50 from $25 for credit card purchases that do not require signatures at discount stores and supermarkets. The card brand also indicated it has plans to expand the policy to other merchant categories over time.
“The no-signature rule has really undermined any value proposition contactless offered because it isn’t much faster now than a regular card-swipe,” Peabody says.
It is tough even to gauge the current status of contactless cards in the U.S., according to several sources.
In recent years, large issuers, including Citigroup Inc., Wells Fargo & Co. and U.S. Bancorp, touted contactless card tests, with JPMorgan Chase & Co. developing its own contactless brand dubbed Blink.
Chase quietly dropped its Blink brand name last year, choosing instead to consolidate its contactless efforts under those of Visa’s payWave and MasterCard’s PayPass contactless brands.
Visa and MasterCard Worldwide did not respond to queries about how many standalone contactless cards they each support. But estimates range from 35 million to 75 million, and the totals could rise higher based on reported shipments, experts say.
“The truth is that there is no official answer to this question,” Randy Vanderhoof, executive director of the Smart Card Alliance, tells ISO&Agent Weekly. “Our suppliers of cards tell us they have shipped perhaps 100 million (contactless cards), but I can’t verify that these were actually shipped in the U.S. or that these were commitments or orders that are sitting in inventory.”
While standalone contactless cards fizzled in the United States, in Canada contactless card technology has achieved broader acceptance.
Nearly all MasterCard-branded cards there are equipped for both contact EMV and contactless, Peabody says.
“But Canada is a much smaller and more consolidated market,” he says, adds that the relative simplicity north of the border eased the transition to EMV chip cards.
Canada’s card networks began the move to EMV in 2005, and liability shifts went into effect last year so that issuers and merchants are liable for counterfeit card fraud that EMV technology could have blocked if they haven’t updated their systems.
Some U.S. issuers may follow the example of Canada’s issuers and equip consumers with dual-interface cards as EMV-liability deadlines near, but it seems less certain that standalone contactless cards will have a role in the marketplace, Peabody says.
“I can’t say (standalone) contactless cards are going to be extinct,” he maintains. “But there is no certainty as to their future.”
U.S. Transit Agencies And Contactless
Meanwhile, transit agencies are moving to establish policies to allow consumers to use contactless cards their banks issue them to board buses and trains.
Perhaps such moves will prove ill-timed, and riders might find they will need to continue to rely on proprietary contactless cards the agencies issue if banks drop their contactless cards.
And that’s not likely to appease the agencies, which industry observers say would prefer to get out of the payments business.