Tapping Into the Speed and Ease of Contactless Payments

Jan  30 
Jamie Topolski  Director, Payment Card Product Strategy, Fiserv 

Tap-to-pay shows promise, but barriers remain

No one likes spending time in the checkout lane. Seconds matter in the race to get in and out as quickly as possible.

That's why tap-to-pay, or contactless, options are catching on with speed-hungry consumers bent on a faster, easier way to pay. One in five banking consumers (21 percent) have used a contactless payment method (card or mobile), according to Expectations & Experiences: Household Finances, the most recent consumer trends survey from Fiserv conducted by The Harris Poll.

How does tap-to-pay work? Instead of inserting a card, customers pay by holding a contactless-enabled card, smartphone or wearable an inch or so from a point-of-sale terminal. Information is securely shared with the terminal using near-field communication (NFC) technology. A green light and a beep signal the payment is complete. In most cases, no PIN is required.

Use of contactless payments in the U.S. lags other parts of the world. However, the market may be reaching a tipping point as issuers ramp up production of contactless-enabled cards, merchant acceptance grows, and consumers become more aware of the tap-to-pay option.

Already, most major issuers, including Chase, American Express and Wells Fargo, are migrating their portfolios to contactless-enabled cards. And more than 60 percent of Visa's face-to-face transactions take place at contactless-enabled merchants, including Target, Costco, CVS and many other major retailers and fast-food restaurants.

But there's still work to do. Fiserv found just more than a third of consumers say they have a card with tap-to-pay capabilities.

Speed and Convenience Matter

A significant majority of consumers (68 percent) say speed and efficiency are important in determining how they pay, according to the Fiserv survey. That's good news for contactless payments, which work well for everyday transactions – fast food, transit, discount stores – where speed is especially valued.

For example, New York is part of a growing number of cities using tap-to-pay technology for mass transit systems. Instead of loading and swiping a traditional transit card, riders simply tap their contactless card, mobile device or wearable at a turnstile or as they board a bus.

When it takes less time to pay, vendors and merchants also benefit. Say a big-box retailer saves five seconds per transaction. Now multiply that by the thousands of transactions completed at the store each week. Faster transaction times could mean fewer cashiers and hours of saved payroll.

Addressing Market Readiness

Contactless payments are a fast, easy and secure way to pay. So why isn't everyone tapping?

First, merchant readiness for contactless payments is good but not yet great. The welcome news is that point-of-sale terminals installed in the past five years to support EMV can also support contactless payments.

The higher hurdles to cross before merchants begin accepting contactless payments are testing and changes to software and certification. Merchants must be ready to accept all brands and cards, including those from foreign countries, and that can be difficult without a financial services provider's guidance and expertise.

For issuers, there are added costs and technical considerations. Contactless-enabled cards are more complex than their predecessors and therefore more expensive to manufacture. There are also back-end changes issuers must make to support tap-to-pay.

But there also are costs of not rolling out contactless cards. The technology will likely increase card use and decrease dependence on cash. Issuers that delay migrating to contactless cards also risk losing transaction volume to another card in the wallet.

Are consumers ready? Awareness of contactless payments among consumers is high at 79 percent. But even when they're aware of the technology, only 42 percent express interest in it. Among general banking consumers, only 38 percent express interest.

Most expect an uptick in interest and use as contactless-enabled cards become widely available and merchant readiness expands. In 2018, Costco launched contactless payments across its warehouses, relying only on point-of-sale signs and cashiers to help members recognize and adopt tap-to-pay. Just six weeks later, 60 percent of purchases made with Costco's co-branded Visa card – and 22 percent of all electronic debit or credit card transactions – were tap-to-pay.  

Tap-to-pay is not just changing how people pay; it's transforming the customer experience by adding speed and ease. 

Evolving Payment Preferences

With tap-to-pay, cards are more preferred (60 percent) than smartphones (20 percent).

There may be a confidence factor at play. When mobile wallet payment methods rolled out, they weren't universally accepted. If consumers have a problem with a mobile wallet payment once or twice at the point of sale, they're likely reluctant to try a third time.

And it's easy to try a contactless payment with a card. If for some reason tapping a card doesn't work, just insert the chip instead.

Those factors may lead to a perceived preference, at least at first, for contactless-enabled cards.

But among those who have used contactless payments, the survey showed 74 percent have used mobile wallets, such as ApplePay, GooglePay or MasterPass, and 61 percent have used contactless-enabled credit or debit cards.

People will continue to have preferences for how they pay, and those preferences will continue to evolve. The industry will need to be ready to support those changes. For example, as contactless payments grew in the U.K., use of cash fell. That, in turn, led to a drop in the number of ATMs, especially free-to-use, nonbranch ATMs.  

Security Concerns Remain

More than three-quarters of consumers say they're concerned about the security of contactless payments, which suggests a need for education.

Tap-to-pay offers the same security as EMV chip cards. But instead of reading information by inserting a chip, information, including a secure code, is shared with a cashier's terminal through a wireless connection. The information is transmitted only when the card or mobile device is an inch or so from the terminal, and the transaction doesn't include cardholders' identifying information, such as name, security code or billing data. And because the card stays in the consumers' possession, there's little chance they'll forget it at the terminal.

Although contactless payments have taken hold globally, fraud remains rare. In the U.K., for example, contactless payments account for more than a third of card transactions but just 2.9 percent of all card fraud losses.

As with any new payment method, there will be some level of apprehension when using contactless for the first time. Merchant and issuers must be ready to answer questions and dispel unfounded fears.  

Changing the Customer Experience

Our industry has been here before. The rollout of EMV just a few years ago required an all-hands-on-deck approach from financial institutions, merchants and issuers. And consumers were asking the same questions about EMV that they're asking about tap-to-pay: How does it work? Is it safe? Will it work with my card?

Yet the benefits were worth the challenges.

Contactless payments are, too. Tap-to-pay is not just changing how people pay; it's transforming the customer experience by adding speed and ease. As we are with many innovations, we'll soon wonder how we lived without it.