Tap, Pay, Go

By Monica C. Meinert

Consumers have a need for speed.

Whether it’s one-click shopping from Amazon or using an EZ Pass to glide through toll stations without tapping the brakes, consumers are increasingly expecting a fast, frictionless experience in all aspects of their daily lives.

When it comes to making point-of-sale payments, though, there are some bumps in the road.

Consider this familiar scenario: you’re checking out at the grocery store. The cashier rings your total, you insert your debit card into the card terminal, and wait. The machine reads the card, processes the transaction and indicates that the payment has been authorized—a process that can take up to several seconds, depending on the configuration of the terminal.

While EMV has undoubtedly made point-of-sale payments safer and more secure—according to data from Morning Consult, counterfeit fraud fell 76 percent between 2015 and 2017 at retailers that upgraded their systems to accept EMV—one of the most consistent complaints among merchants and consumers is that it takes longer to process a payment.

And while consumers may feel anything from neutral to mildly irritated over the several-second pause, there’s a true, bottom-line implication for merchants: longer transaction times—even just a few seconds longer—can mean that fewer customers are able to move through the line per hour, which can affect daily sales volumes.

But there is an alternative that’s beginning to take off in the U.S.: contactless payments, or tap-to-pay technology.

How it works

As its name implies, tap-to-pay technology allows consumers to make payments by simply tapping their contactless-enabled payment device—whether that’s a card with an embedded near-field communication antenna, an NFC-enabled mobile phone or a wearable like the Apple Watch—against a contactless-enabled POS terminal. Card information is then transmitted wirelessly to the terminal.

From a security standpoint, the “contactless transaction flow utilizes all of the key principles of EMV,” according to a recent white paper from the U.S. Payments Forum.

To the cardholder, this means that the “card or NFC-enabled mobile device never leaves the consumer’s hand, making the consumer payment experience simple and quick,” the paper notes. “For contactless cards, the consumer retaining possession of the card also reduces the likelihood of a cardholder leaving a card behind.”

Driving the shift

While the concept of contactless payments is a novel one in the U.S. market, in many countries around the globe, tapping to pay is now routine. In fact, “there are over 10 markets in which more than 80 percent of all face-to-face transactions are contactless,” says Doug Leighton, head of community accounts at Visa. Of these, Australia leads the way: close to 95 percent of all face-to-face transactions in the country are made using tap-to-pay technology.

“The sheer [size]of contactless and the ubiquity of it outside the U.S. is one factor that’s driving change here in the U.S.,” Leighton says. “The other is transit.”

According to the American Public Transportation Association, individuals board public transportation 34 million times each weekday, and in 2017, total trips using public transportation topped 10 billion. Given the high volumes of riders in major urban centers like New York City, Chicago, Washington, D.C., and others, many transit agencies are looking to tap-to-pay to make it faster and more convenient for individuals to pass through the turnstiles.

Earlier this year, New York City’s Metropolitan Transportation Authority began offering travelers the option to use contactless payments on the 4/5/6 subway lines and on all Staten Island buses. The announcement marks the city’s first steps toward a fully contactless-enabled transit system, with plans to expand to other subway lines in the near future.

Playing catch-up

With the many advantages contactless has to offer, why is the U.S. so far behind?

“One of the issues is that on the issuer side, the cards just haven’t been in people’s hands yet,” observes Mark Schulze, co-founder of Clover, a cloud-based point-of-sale system, who also serves on the board of First Northern Community Bancorp in Dixon, Calif.

Rather, most of the contactless focus in the U.S. to date has been on the merchant acquiring side, he says. In fact, as merchants upgraded their POS terminals in response to the EMV transition, many of those terminals came equipped with contactless acceptance technology. “Sixty to 70 percent of all merchants are enabled to accept tap-to-pay or contactless payments,” Schulze says. Perhaps the reason for the slower uptake, then, is a lack of knowledge among consumers. “Consumers need to demand it—to demand it, they need to have the card.” And to have the card, they need to know it exists.

As awareness of tap-to-pay grows, both Schulze and Leighton expect to see adoption take off quickly. According to data from Visa, there are an estimated 50 million contactless-enabled payment cards in the U.S. market—and the card issuer estimates that by the end of this year, that number will have doubled.

“In Australia, it took two years to get from zero to 7 percent tap-to-pay penetration. The next year, it went from 7 percent to 50 percent,” Schulze adds. “I believe we’re very much at a precipice, and we’re going to be rolling forward very quickly.”

Strategizing for success

With that in mind, banks should start making plans now for how they’ll get contactless cards into their customers’ hands.

“Every bank should have some plan around how they want to engage with contactless, even if that plan is not to enable,” Leighton recommends. “But assuming that you do, you want to work closely with your partners—particularly your debit or credit processor—to make sure they have that capability, [and]you want to work with your card vendors to make sure they have stock for you.”

Leighton notes that the largest card issuers have already announced some plans to deploy contactless cards, with some opting to issue new cards for their entire portfolios. Others are planning to push the cards out to consumers gradually via a natural reissuance, or are targeting specific customer segments first, such as international travelers.

At Schulze’s bank—a $1.22 billion community bank serving a largely rural market—the strategy so far has involved “identifying the people who use their cards most frequently, who are more valuable to the bank and actively getting those cards in their hands.”

That’s a good place to start for smaller institutions that may not have the bandwidth to reissue their entire portfolio at once. “Getting these cards to a limited number of people is relatively low-cost, and it makes a lot of sense,” Schulze adds. “Otherwise, there’s a perception risk that you’re too far behind the times.”

Leighton also encourages banks to include debit cards in their thinking. Most contactless cards in the market today are credit cards, so there’s yet-untapped potential in the debit market, especially considering that “many of those entities that take contactless—pharmacies, grocery, convenience stores—those are more debit-heavy,” he says. “There’s a real opportunity to get ahead and differentiate if you have a contactless debit card in the market.”

Given the many benefits of contactless for consumers, retailers and banks, issuers can safely bet that interest and uptake of these cards will continue in the months and years ahead. “This is not a speculative endeavor,” Leighton says. “The infrastructure for acceptance is there. It’s up to us as issuers to now build this into our issuance plan so our customers can take advantage of it.”

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About Author

Monica C. Meinert

Monica C. Meinert is deputy editor of the ABA Banking Journal and editorial director at the American Bankers Association, where she oversees ABA Daily Newsbytes.