The U.S. may be undergoing a sea change in attitudes to contactless cards.
The trifecta of stratospheric adoption rates overseas, commoditized card costs and the rapidly expiring shelf life of first-wave EMV cards is encouraging issuers and networks to take tentative steps toward dual-interface cards.
While there have been a handful of issuers dabbling with dual-interface EMV cards, these have tended to be products for more affluent and itinerant customers. However, the tide may be changing, with notable and vocal support for contactless by Visa.
Is 2018 finally the tipping point for contactless cards in the U.S.?
In the cards
Visa’s active promotion of contactless cards began with a high profile TV campaign with Starbucks for the 2017 holiday season demonstrating contactless technology at the checkout. The commercials mark a more dedicated promotion of the technology than has been seen in recent years.
Visa is not alone in sudden promotion of contactless cards — Capital One has also run a dedicated marketing campaign based on the speed and convenience of contactless and Costco has introduced its own contactless Citi card (Costco declined to comment).
One aspect that may be tipping the balance in favor of contactless cards is that a number of countries have seen successful uptake of contactless cards. Visanet published some impressive adoption statistics in September 2017 —
- In just five years, contactless payments grew from 7% to represent 92% of all POS transactions in Australia.
- In the U.K., contactless payments now represent over 50% of all POS transactions, and in Canada contactless has grown to 45% of all POS transactions.
PaymentsUK.org anticipates that contactless debit transactions will surpass cash transaction volume for the first time ever this year.
Not their first rodeo
The precedent set in these other markets may help address fears from U.S. issuers that invested heavily in contactless cards over a decade ago, only to find tepid merchant and consumer uptake along with a use case largely negated by the waiver of the signature requirement.
Visa also highlights that contactless technology infrastructure is increasingly pervasive in the U.S., with approximately 40% of Visa transactions occurring at contactless-enabled merchant locations today.
- Seven of the top 10, 14 of the top 25, and 54 of the top 100 U.S. merchants by transactions accept contactless payments today.
- In addition, 95% of all new terminals shipping in the U.S. are contactless-capable.
- By the end of 2018, Visa expects merchants to be able to allow U.S. consumers to tap to pay at 50% of where face-to-face transactions take place.
"Consumers globally are embracing contactless payments as a natural next step to EMV ... Visa is committed to working with our clients and partners to bring contactless cards to consumers in the U.S.," Visa said in a prepared statement.
Besides expediting the checkout process, There are other benefits to merchants that adopt contactless payments.
“One factor adding to its appeal among issuers is that NFC contactless capability opens up avenues for one-to-one customer marketing for merchants,” says Barry Mosteller, director of technical engineering for CPI Card Group. “Issuer/merchant partnerships can extend and benefit from innovative marketing initiatives through contactless technology that can be added to the card or payment object, such as purchase tracking and offers for tailored promotions, which makes for another incentive for issuers to encourage contactless infrastructure.”
The modern era of contactless payments
With the infrastructure in place, one may wonder what is holding back issuers from what could be an appealing card feature. Traditionally the cost of dual-interface cards has been a point of contention, but apparently this is no longer the case.
“Costs for dual-interface have dropped precipitously, which is making contactless more appealing to issuers compared to years past,” said Jordan McKee, principal analyst at 451 Research. “It’s not unreasonable for a top-10 issuer to expect to pay in the ballpark of $0.75 for a fully personalized dual-interface card. That same card would have cost them $2 to $2.50 not that long ago.”
Further, issuer concerns over excess contact EMV card stock are also not as problematic as they were 12 months ago, with many EMV cards needing replacement ahead of their expected five-year lifespan. The time is ripe for the second wave of chip card issuance.
Transit is another catalyst. With cities such as Boston and New York upgrading their subway ticketing platforms, issuers are considering the precedent set by widely used dual-interface cards in other contactless transit systems like Transport for London (TfL).
In fact, the genesis of contactless cards can be traced to the Octopus Card in Hong Kong, launched back in 1997 as the first contactless mass transit card to demonstrate the use case in the wild.
“Sometime about a year-plus from now we'll see the ultimate in everyday high-frequency acceptance happening in the Northeast,” said Melanie Gluck, vice president of solution sales and tokenization at Mastercard.
However, the reason for the current contactless card activity may be all about consumer readiness.
There is a more universal appeal and trust in cards, while mobile payments struggle with mass adoption — it’s simply the right time for contactless cards.
“You are seeing an uptick in contactless cards. There has been a lull, especially as more focus went on to mobile,” said Gluck. “Those cards are really easy to use; they work for people that don't have mobile phones. So they're filling a spot where the user might not be a tech person. They might be comfortable with their cards, and that step of tapping a card is perhaps more intuitive to them than using a phone.”