Historically, the U.S. has lagged behind European countries’ adoption of more secure payment technology. We have only recently integrated to EMV compliance, years after countries like Europe, the UK and Poland. Our adoption of “tap to pay”, or contactless, payments is no different. Outside of the U.S. however, many of our surrounding countries are already enjoying faster, more secure payments through the implementation of Near Field Communication (NFC) with Canada, Australia and the UK having the overall highest penetration of contactless payment technology. For example, records show that in Canada 51.5% of in person transactions were processed using contactless cards.
The UK’s use of contactless credit and debit cards amounts to about ⅓ of all transactions per a recent study conducted by UK Finance, Ltd.
Many things contribute to mass adoption of contactless payments outside the U.S.
The card brands, such as MasterCard, operating in Europe, Africa, Asia Pacific, Latin America and the Middle East have set a mandate that all new merchant terminals be EMV chip and contactless enabled as well as all new cards issued must have EMV chip and contactless technology embedded. The widespread adoption of “tap to pay” technology in other countries is likely due to strong support from both banks and merchants driving acceptance on site and creating familiarity among consumers.
They have already had ample time to become comfortable with EMV technology due to the fact that they switched to EMV compliant technology years ago. EMV compliant terminals are already equipped with NFC technology making them ready to receive contactless payments as soon as the card issuers put the contactless ready cards in consumers hands. But consumers do not need to wait for cards to be issued to use contactless payments. With the roll out of mobile wallets, consumers can begin using contactless payments right now.
MasterCard predicts that all point of sale terminals across Europe will be NFC compatible by 2020. Currently 46% of all monthly transactions are contactless and that number will only compound as more merchants enable the technology.
Probably the largest contributor to widespread adoption of tap to pay use has been implementation by mass transit systems across various countries. Mass transit’s use of contactless payments, whether with a contactless physical card or through a mobile wallet such as Apple Pay or Samsung Pay, helps to fuel people’s trust in the technology and eventually drive consumer adoption.
Why is the U.S. so far behind when it comes to “tap to pay”?
First of all, it took years before the U.S. finally set up the infrastructure for contactless payments. We are only about three years into implementation of EMV compliance, whereas Europe began implementation of the technology as early as 2005. One of the main reasons it took so long is that our financial system is much more convoluted than that of many smaller countries making it much quicker and easier to implement new mandates for security.
While the majority of merchants who have upgraded to new EMV compliant terminals will find that by default they now own terminals that are already NFC ready, there are still many small merchants who have yet to upgrade to new terminals that contain EMV chip and NFC technology. This only serves to create a “catch 22” situation with the banks and card brands.
Card brands do not feel as if it is urgent to produce the contactless cards when their acceptance is not guaranteed everywhere their customers may try to use their card. Currently only approximately 3% of the cards in circulation in the U.S. are contactless cards.
This in sharp contrast to the UK where Visa predicts it will have 100 million contactless cards issued to its customers by year end. But, still, that only accounts for a mere 12% of Visa’s total card holder base.
What will help pave the way for more widespread adoption of contactless, or tap to pay, payments in America?
First of all, although it took a while, the U.S. has finally completed the EMV updates, created the infrastructure allowing merchants to integrate to the new EMV compliant terminals and consumers are now familiar with the technology. It is not a far leap for consumers to go from ‘dipping’ the card to use the chip to just ‘tapping’ or waving the card utilizing the Near Field Communication.
The largest barrier may be lack of trust in that the technology is just as secure, if not more, than using the chip. American consumers will need to become more exposed to the technology for it to become viewed as not only acceptable but also just become more second hand.
Adoption from large corporations such as Costco will help drive consumer acceptance in America. Costco, who accepts NFC payments in all of their 519 U.S. locations, is now offering its members a co-branded Visa card that can double as their membership card as well as their credit card and comes NFC ready. Not only will Costco customers become comfortable with using tap to pay while in Costco, but will also be seen using the dual credit card in other establishments.
Several other large merchants have also recently begun to accept contactless payments such as Walgreens, CVS and McDonalds. Overall, retailers have a strong desire to continually offer better shopping experiences to their customers and having a frictionless payment and check out process achieves this goal. Contactless transactions are completed in mere seconds, where chips often take 15 up to 30 seconds to approve! Everyone has experienced how annoying it was to wait that agonizingly long time for their transaction to clear before being able to remove the card from the terminal when EMV first rolled out! Especially the people behind them in line! At the end of the day both consumers and retail merchants are more satisfied with a speedier check out process that is also secure.
Humans are creatures of habit. We are only just now getting used to the fact that we can dip our chip instead of swipe the stripe. We feel like we have to have our credit card in hand ready to check out, even if we already have our smart phone in our hand, which just happens to be outfitted with a mobile wallet. There is no reason a significant portion of the population couldn’t use contactless payments, even without an NFC enabled card, through the use of their mobile wallet app. But, old habits die hard. But through consumer education, the fact that the technology delivers enhanced security as well as less friction and faster check out times consumers will begin to see the benefits beyond just a new way to use their card. When consumers upload their credit card information to a mobile wallet the information is encrypted. Whether they use a mobile wallet or an NFC enabled credit card to begin a payment transaction, a unique token is created for that transaction so there is no transfer of the cardholders information making it much more difficult to hack.
In the U.S. too, it will be the adoption of tap and go payments by the larger transit companies in growing cities that helps to fuel consumer adoption. At Chicago’s mass transit system terminals contactless payment acceptance is already up and running and continues to grow with time. New York City’s Metropolitan Transportation Authority will launch contactless payments for transit riders later this year as will the San Diego, Ca transit system, who is already in the throws of contactless payment implementation. The more consumers are exposed to the technology and see the adoption by larger, assumably trusted, companies the more commonplace the use of the technology will seem and ultimately lead to greater consumer adoption.
Merchants are already NFC compatible, consumers just need to become more familiar with the technology available to them. Whether the banks have issued an NFC compatible card yet or not, consumers can begin to take advantage of the technology now. There are several options for mobile wallets and wearables equipped with NFC technology for tap to pay. Iphone and Samsung both have their own versions of mobile wallet with ApplePay and SamsunPay, MasterPass is MasterCard’s answer to digital payments, Fitbit and other smartwatches allow NFC payments. With banks beginning to issue new cards with tap to pay technology, more merchants offering the option and consumers learning the benefits and security of tap to pay, the U.S. won’t be the last in the race for long!