Gone are the days of swiping a magnetic stripe debit or credit card to pay for groceries or conduct other transactions. Chip-enabled EMV cards are on the way out, too, in exchange for contactless, tap-and-go methods of payments. Contactless cards are the current trend across the financial services industry; Chase has already distributed nearly 20 million contactless cards and Visa expects to distribute 100 million by the end of the year, according to a CNET article.
Contactless cards are not the first type of payment method to use near field communication (NFC) functionality for transactions. Launched as early as 2014, mobile wallets like Apple Pay, Samsung Pay, and Google Pay (among others) are another type of contactless, tap-and-go payment method that uses NFC. Mobile wallets, however, account for only about 1% of all transactions, according to data from PSCU, the nation’s premier payments CUSO. Having been in the market for nearly five years, why have mobile wallets not taken off and grown in popularity like chip-enabled EMV cards did in the early 2010s and how contactless cards seem to be doing now?
The answer is simple: not all merchants currently accept mobile wallets (or contactless cards, for that matter), so many consumers have not yet felt the need to adopt these types of payments. However, with the forthcoming influx of contactless cards into the marketplace, it’s expected that contactless will drive mobile adoption as more and more consumers experience for themselves the ease and speed of tap-and-go payments.
Currently, conducting a transaction by inserting a chip card takes several seconds — about 10 seconds on average. Contactless, on the other hand, will take just a single second. Once consumers realize their purchasing experiences can be enhanced and quickened through contactless cards and mobile wallets, it can be assumed they will naturally start to opt for these cards at all locations that accept them.
As such, merchant acceptance is a key driver that will determine how contactless — and, in turn, mobile wallets — will succeed in the U.S. market and how quickly their adoption will take place. According to Visa, 95% of terminals now being shipped are contactless-enabled, and many merchants are committed to turning on their NFC functionality. In fact, 73 of the top 100 merchants in the U.S. are already accepting NFC payments — which means these terminals already have the ability to process transactions using contactless cards, mobile devices, wearables, or other payment objects. Target recently announced its more than 1,600 stores will have active contactless terminals soon, while Trader Joe’s, Whole Foods, and Costco already accept contactless payments.
Passengers that ride MTA subways in New York City — which transport an average of 2 million riders every day — can now pass through a fare gate by tapping their contactless credit card or smartphone on a special terminal at each turnstile. Launched in May 2019, this option is expected to streamline the user experience, eliminate the need to purchase a separate card, and allow consumers to get acquainted with the ease and benefits of tap-and-go payment options. Other cities including Boston, Chicago, and Los Angeles are not far behind in making their own contactless announcements.
When EMV first launched, PSCU saw that once large retailers began accepting chip cards, general merchant adoption accelerated. A similar trend can be expected with contactless cards, and it is assumed that as contactless card adoption takes off over the next few years, mobile wallet adoption will increase accordingly. Once merchants turn on their NFC and start accepting these forms of payment, it’s likely that tap-and-go will become the new way to pay.
In anticipation of this shift, credit unions need to provide their members with these types of payment options to compete with other financial institutions. Credit unions cannot afford to lose transactions or miss out on the coveted top-of-wallet spot because they don’t offer payment options such as contactless cards or mobile wallets. Getting ahead of the curve now will enable members to choose the experience they want.
Jeremiah Lotz is Vice President of Product Management at PSCU. He directs PSCU's initiatives to empower the company's Owner credit unions with innovative and engaging payment solutions. Jeremiah leads an experienced team dedicated to delivering PSCU's credit, debit, prepaid, fraud, mobile banking, and online bill payment services. He also manages the strategic relationships PSCU forges with leading payments technology providers to ensure Owners have access to world-class platforms and solutions that build profitability and loyalty.