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Will Contactless Payment Cards Catch On in the United States?

Will Contactless Payment Cards Catch On in the United States?
Posted: Aug 4, 2016
Comments: 3

Contactless debit, credit and prepaid cards - payment cards that can be used by tapping a point of sale (POS) terminal or waving the card near the terminal - have been issued by major banks around the world since 2007.  Also referred to as “tap and pay” or “tap and go,” these cards feature an embedded NFC antenna and chip (different than the EMV chip) which allows the card to exchange payment credentials to an NFC enabled terminal with just a wave or a tap. They are touted for both speed and convenience mostly because no signature or PIN is needed.  In addition, transaction amounts using this capability are typically limited to $25 or $50, consistent with the waiving of the need for signature for mag stripe transactions for those amounts. 

Common in most countries around the world

Contactless cards are very common in most developed countries. In the United Kingdom, for example, 88 million contactless cards have been issued and 187.7 million transactions were made in the month of April 2016 out of 1.1 billion global transactions. Overall, the total number of contactless transactions are up 185.9% from the previous year which means consumers like using the cards for their convenient, tap and go capability.

In Australia, 66% of cardholders have a contactless card that allows them to tap and pay. Industry data reports that 53% of the Australian cardholders use their cards as tap and pay at least once a week.  In Canada, 10 percent of all domestic transactions are contactless now and said to be growing at the rate of 1% per month.

One of the biggest drivers of usage in these countries are the POS terminals – many of them come equipped with NFC. If you’ve been to a McDonalds or a Walgreens here in the U.S. and have seen the wavy line that denotes acceptance of contactless payments, or the logos from the card acceptance networks (Visa payWave, American Express ExpressPay, and MasterCard PayPass) then you are familiar with what Canadians see at virtually every place they can use their cards. Three out of four retailers accept contactless payments throughout Canada.  Back in the U.K., approximately 320,000 of the 1.7 million merchant terminals are now contactless with growth supported by a mandate to make every single POS terminal in the U.K. contactless by 2020.

Ample opportunity in the U.S.

In the U.S. there are already 2 million places you could tap your card today. Even after you subtract out the 400,000 terminals that are vending machines, that still leaves 5 times more POS terminals in the U.S. that can accept contactless cards. So why it is that no one is tapping their cards in the United States?

There are two key reasons. First, even though there is an estimated 1.6 million NFC-enabled POS terminals in the U.S., this represents a little more than 10% of the approximate 13.9 million POS terminals.  This does not include the growing number of mPOS card-acceptance-devices. Second, the U.S. is a market in which there are 1.2 billion payments cards in circulation, issued by over 12,000 financial institutions. Contactless cards, by their very nature, are more expensive than non-contactless cards. Adding an EMV chip was an expense the issuers had to take on. But adding a contactless chip and antenna was an optional expense, one that issuers chose to forgo during this last massive wave of re-issue.

It’s not like it hasn’t been tried in the U.S. before.   In 2005, Chase had re-issued 5 million cards with “Blink”, its branding for contactless capability in its credit and debit cards. Chase continued issuing Blink cards until 2014 when it dropped contactless completely. Most cardholders didn’t even realize that the card in their wallet had this capability.

Wells Fargo and Diner’s Club likewise issued contactless cards at one point and has all but dropped the capability from its cards issued in the U.S.

New Citi-Costco Visa to include contactless technology

So is it time to throw in the towel for contactless cards in the U.S.? In what many in the payments industry would call a surprise move, the newly minted Citi Costco Visa (which took over the 11 million card account after AmEx lost its long-standing partnership with Costco) is now issued standard with the Visa payWave logo on the back. So there’s about 11 million cardholders with a contactless card in their wallet, most likely not even aware of the capability.

Maybe someday that will change.

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Stephanie  Hainje

Stephanie HainjeStephanie Hainje

CSCU Senior Portfolio Consultant Stephanie Hainje is an experienced card industry professional with credit and debit card program management from her previous career at Purdue Federal Credit Union, a leading affinity credit card issuer and top 100 Visa USA issuer.

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3 comments on article "Will Contactless Payment Cards Catch On in the United States?"

Caleb Barnum, 11/1/2016 1:25 PM

Is ApplePay considered a form of contactless payment? Assuming so, will the limits for contactless payments be increased with the likes of ApplePay, SamsungPay, etc. becoming more prevalent? I read recently that MC is removing the limits for contactless payments in Europe in 2017.


Lou Grilli, 11/1/2016 3:42 PM

Caleb

Apple/Android Pay uses the same NFC interface as contactless cards. However, these mobile wallets are not subject to transaction threshold amounts as contactless cards are, at least not in the U.S. The requirement for a fingerprint scan on the phone, or a passcode needed, to access the payment app adds the protection that was thought to be necessary to pass through the underlying payment credential's restrictions. e.g. the debit card used in the wallet may have limited funds.

Hope that helps. Thanks for your comments.

Lou Grilli


Caleb Barnum, 11/2/2016 9:56 AM

Thanks, Lou. That makes perfect sense.

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