Contactless payments in the US have been lauded for years as the next consumer payment trend. Aside from a few very large retailers and transit use in cities like New York, Boston and Chicago, however, there are not many merchants that accept contactless payments in today’s market. This post will discuss why US contactless payments are lagging behind International markets.
In many International markets, contactless payments have been in use for years and, as a result, are commonplace to most consumers and merchants. In European markets, dual interface cards (cards that can be inserted or tapped) dominate contactless payments over mobile and are expected to represent 80% of all contactless payments globally by 2019.[i] Contactless adoption is generally concentrated around specific geographic regions such as large cities (i.e., London) or specific verticals like transit. Historically, many markets that see a rise in contactless payments also experience a reduction in cash acceptance. The UK leads Europe in contactless payments with 34% of transaction volume and nearly two thirds of consumers reporting they have performed a contactless transaction since being introduced in 2007.[ii] In Australia, contactless payments represent over 60% of all card payments, which have displaced cash for transactions under $10 and contact transactions over $20.[iii] In Canada, contactless transactions account for ~39% of card payments.[iv]
Drivers for International Adoption
In International markets, contactless adoption has primarily been driven by the card brands and, in turn, card issuers. This trend will continue as the card brands have announced mandates to drive contactless acceptance in Europe, the Middle East, Africa, Latin America and the Asia Pacific regions (note: the US is not included in this list). Specific dates and mandates vary by card brand (big surprise), but the combined summary below provides a general overview: vi
- New card issuance in Europe, Latin America and Asia are moving to contactless/dual interface as early as 2019
- New terminals starting in 2018 and all terminals as early as 2020 must accept contactless transactions
In the US during 2017, only 2% of all payments were contactlessv with mobile accounting for over 90%.i According to Juniper Research, contactless payments in the US are projected to reach 34% by 2022.[v] The US has a long way to go to reach such an estimate, but merchants already have some of the key components in place. The US payment infrastructure is largely setup for contactless processing and a majority of the EMV terminals in the US market today are contactless capable (terminal has contactless hardware) but are not enabled (software is configured and active to process contactless payments):[vi]
- 46% of transactions occur at contactless enabled merchants
- 70% of merchant locations are capable of contactless transactions
- >95% of new terminals shipped are contactless capable
What is Holding Up US Merchant Adoption?
There are a variety of reasons that contactless payments have not been more widely adopted by US merchants. Many of the differences unique to the US payment infrastructure increase the complexity and therefore the level of effort to implement contactless adoption:
- The US market is less mature in EMV processing and many merchants are just beginning to shift their attention and resources from EMV contact and EMV Quick Chip implementations to contactless payments
- Acquirers, processors and gateways have unique requirements and rules for testing and host to host certifications
- EMV contactless certifications are more complex than EMV contact due to the additional specifications and additional test scenarios (depending on CVMs supported), and full regression testing is highly recommended for all payment methods (i.e. swipe and insert). This can be even more complex for merchants that support multiple terminals and/or multiple point of sale systems
- Contactless payments can include a number of form factors such as dual interface cards, mobile wallets (i.e., the “Pays”, card brand wallets, and issuer wallets) and wearable devices
- Business case to implement contactless acceptance is difficult to justify for many merchants
- Contactless payments can impact loyalty process flow (in part due to tokenization). This is particularly true in the petroleum market
- US issuers are not subject to the card brand mandates that are driving dual interface card issuance in other regions
Factors That Should Drive US Merchant Adoption
There are some compelling merchant benefits that should drive contactless acceptance in the US: increased speed of service, enhanced consumer experience and improved security (over legacy Magnetic Stripe Data standard). Another big factor that should drive adoption is an increase of dual interface card issuance (currently ~5% in the US).vi As the 3-year mark after the October 2015 EMV Liability Shift approaches, issuers are increasing the number of dual interface cards in their portfolios as part of the re-issuance cycle. Ultimately, the question comes down to whether merchants or issuers will drive contactless adoption growth.
For further discussion around contactless implementations, contact Sean at firstname.lastname@example.org.