The U.S. payments industry has invested heavily over the past few years in Near Field Communication contactless technology, which will require a fundamental change in merchant and consumer behavior at the point of sale. The United Kingdom introduced similarly behavior-changing technology, chip-and-PIN smart cards, with great success.
Given the parallels between the two systems, including the emphasis on security and transaction speed, what can we learn from the success of chip-and-PIN that is applicable for contactless cards?
The 2004 introduction of chip-and-PIN cards in the UK allowed the payments industry to authenticate card purchases with consumer-entered PINs. The payments industry coupled the launch with a wide-reaching, unified education campaign that encouraged consumers to use chip-and-PIN cards to help prevent fraud and speed up transaction times.
By the end of 2006, APACS, the UK payments association, reported that 92% of the cards in the UK market supported the chip-and-PIN function and were responsible for more than 160 transactions per second. Perhaps most notably, with the introduction of chip-and-PIN technology, the liability for fraudulent purchases with signature-authorized transactions shifted from card issuers to merchants, providing a financial incentive for merchants to quickly adopt and encourage the new technology.
In 2005, the U.S. payments industry introduced consumers to contactless cards through products featuring MasterCard's PayPass, American Express' ExpressPay and Visa's then-unnamed contactless technology (now branded payWave). The marketing supporting contactless cards promised that using the new cards would speed transactions and make cash less of a necessity, even for small-ticket purchases.
Supporters touted transaction security as a compelling benefit because cardholders do not bear the burden of paying for fraudulent purchases made with the cards. The industry viewed the adoption of this technology as a way to increase card-based sales, particularly in micropayments.
Research published in Cardbeat, a syndicated market-research study published by Auriemma Consulting Group, showed that just 4% of consumers held a credit card with contactless technology in 2005. In the past two years, players in the U.S. card industry have invested heavily to heighten consumer awareness of this technology through integrated advertising campaigns and cardholder communications. Additionally, merchant acceptance has continued to increase, with such companies as McDonald's Corp. and AMC Theaters now featuring contactless payment terminals at their points of sale.
When Cardbeat recently re-examined consumer use of contactless cards, it found that, though consumer awareness and understanding of the technology has increased greatly over the past two years, use of the technology remains limited to a small percentage of the population. Certainly, card companies have invested heavily in contactless technology, but have these efforts gone for naught?
In the case of contactless card payments, numerous players have taken on the U.S. payments industry's education efforts, each providing its own spin on why these types of cards should be used. This has resulted in a disjointed message to consumers. Moreover, merchants, particularly small businesses, have resisted converting their existing terminals to contactless-enabled ones.
Widespread U.S. adoption of contactless technology will be seen only if and when the payments industry follows the UK's example and delivers a unified consumer message coupled with merchant incentives to encourage use of this technology at the point of sale.
Megan Bramlette is managing associate in Auriemma Consulting Group's London office where she focuses on UK business development and leads the firm's global research efforts. She can be reached at megan.bramlette
(c) 2007 Cards&Payments and SourceMedia, Inc. All Rights Reserved.
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