Visa: Why The US Is Finally Ready For Contactless

Contactless cards have been a big hit around the world. In the U.K., the European Union (EU) and Canada, contactless payments account for two out of five face-to-face Visa transactions, according to newly released data. And that penetration happened fairly fast — many markets saw contactless usage go from single digits to over 50 percent use within a short 18 to 24 months.

In the U.S., the situation is quite different. Contactless cards are a comparative rarity — most issuers don’t usually offer them and so, not surprisingly, most consumers don’t often use them.

However, that situation seems to be on the verge of changing stateside, according to Visa Vice President, Consumer Products and Head of Global Contactless Payments Daniel Sanford.

“We will soon start seeing the same contactless adoption trends emerging [in the U.S.] that we have seen in the rest of the world,” Sanford told Karen Webster. “But there need to be cards in the market to drive adoption.”

Issuers, until now, have been hesitant. In the early days of EMV (originally named for Europay, Mastercard and Visa) and the physical point of sale (POS), he noted, the vast majority of issuers decided to push a contact-only chip cards strategy. Their contactless efforts were focused on igniting an experience using near-field communication (NFC) mobile wallets like Apple Pay.

But the reality, three years into EMV adoption, is that “mobile adoption is still in its rather nascent phase in the U.S.,” Sanford said — a statement back up by the PYMNTS/InfoScout adoption surveys.

That’s not the case with contactless cards that have gained traction globally very rapidly when they launch in markets in which merchants have contactless terminals. Sanford said there is strong consumer demand for them, particularly for small ticket transactions, while the price of issuing those cards has also come down.

The Payments Swiss Army Knife

We’ve all been there: in line behind the person at the local QSR who has a mobile phone in one hand and is using a plastic card to pay for their soup and sandwich with the other. Customers are used to using a card, Sanford said, but more than being used to the card itself, they are used to the idea that the card is always going to work.

Uncertainty drives consumers. A consumer who waves a phone over a POS terminal that is not contactless-enabled has to then dig around for a card. If a consumer waves a contactless card over a POS terminal and finds that it is not contactless-enabled, he or she can dip or swipe instead without really missing a beat.

This is why, despite the potential mobile wallets have for consumers and merchants, a contactless card has a better chance of actually flipping the U.S. to being a contactless market than do mobile devices, because a card most closely aligns with consumer preferences.

Consumer like using a card because they know how to use it and they know it will work every time that they try.

“The best thing the payments ecosystem can do is to give the consumer access to a variety of form factors and then give them the choice between cards and mobile.,” Sanford said. “Some will choose mobile but we think that most people will gravitate toward the card experience.”

Contactless mobile payments at the physical point of sale will take off, he added, because of value-added services that are much more feasible to add inside of a $1,000 smartphone than to a $1 card.

An Already Upgraded Environment

Most merchants are also ready.

Because of the great EMV upgrade of the last three years, Sanford noted, on the merchant end, the upgrades necessary to take contactless cards have already been done. Nearly all — 95 percent — of new payments terminals shipping come contactless-capable, meaning they have all the hardware they need for contactless payments, though the software to enable them must be activated. Moreover, according to Visa’s data, half of all Visa’s face-to-face transactions in the U.S. take place at contactless-enabled merchants — meaning the seller has both the hardware and software necessary to accept a contactless payment.

Moreover, Sanford noted, worldwide contactless payments tend to cluster around specific, small-dollar, habitual-use cases — strong at high-transaction-volume merchants with low average ticket sizes where checkout speed and convenience matter most, such as food and grocery, quick-service restaurants and pharmacies. In the U.S., 79 percent of QSRs have contactless-enabled terminals, as do 77 percent of pharmacies and 61 percent of grocery stores.

But the big-use case that has driven contactless around the world, and what Sanford said will also be a cornerstone for getting contactless off the ground in the U.S., is transit. It’s a use case that he said will be ready in any number of major urban metros in the next six to 12 months.

Sanford that that transit as a contactless use case in the U.S. has been discussed for many years, and transit agencies are taking great leaps forward in announcing partnerships and projects built around payments. Sanford sees a “big opportunity” in starting with transit and contactless cards to drive everyday consumer spending and build habituation for consumers.

What’s Next

For as much progress as has been made in other countries, as ready as merchants are for contactless transactions and as suitable a use case as transit is for getting contactless off the ground, Sanford said it all comes down to the issuers.

They need to issue the cards.

“What we have seen around the world,” Sanford said, “is that issuance leads to usage.”

As for merchants, and those that aren’t contactless-ready today, Sanford said it will be interesting to watch. Very large players are very likely to be in for contactless in some form, and smaller players are often working with POS payments technology providers that provide contactless access with any and all of their product offerings.

The middle tier of merchants, Sanford said, is where it will likely get complicated. There are large segments of the middle-tier merchants that are still not yet fully shifted away from mag stripe, he noted.

But the trend in the U.S., Sanford says, will be toward contactless, because it gives customers all the security promises of EMV with more consistent payments experience.

“Chip can be great at one place, not as great at another, depending on the merchant configuration,” Sanford explained. “The difference between EMV and contactless cards long-term is a consumer can walk in, tap and know the payment experience will be as simple as tap and go everywhere they go.”