Contactless Cards Take the U.S. by Storm, finally

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Better late than never. Contactless cards begin to take off in the U.S. after having gained popularity in the U.K., South Korea, and other jurisdictions years ago. Now U.S. consumers will have the opportunity to tap a credit or debit card at the retailer’s point-of-sale terminal. Banks and other card issuers are motivated to integrate the technology to capture a combined $2.4 billion in profits over the next half-decade as a result.

Tapping technology is not entirely foreign to Americans. For instance, digital wallets such as Apple Pay allow users to tap the mobile device at the PoS to pay. However, this technology has largely been missing from debit and credit cards. In 2019, that’s set to change.

So why has the U.S. lagged other jurisdictions for contactless card integration? For one, the U.S. retail landscape is a highly fragmented one. The U.S. economy is still getting a grip on chip card technology, which is used by the likes of Apple Pay. There are more moving parts including banks and retailers versus the U.K., for instance, so it’s more of a gargantuan task to implement change.

It won’t happen overnight, either. Only 3% of payment cards are equipped for contactless payments in the U.S. versus nearly two-thirds of cards in the U.K. and close to 100% in South Korea.  In Australia, more than three-quarters of transactions are completed via contactless cards. Meanwhile, contactless cards have taken off at the U.S.’ neighbors to the north. Ninety-five percent of cards in Canada have contactless technology, and 50% of adult consumers say they use it on a regular basis.

Nonetheless, many of the PoS devices in the U.S. have the capability to accept contactless cards; it’s just that demand among consumers has been low and the cards haven’t offered it for the most part. Now cards that have the chip technology will also include an “antenna” so that customers can tap-and-pay at checkout.

 

Winners and Losers

Contactless cards will usher in an entirely new way for Americans to pay at the PoS. They will accelerate the checkout process and result in shorter lines, where cardholders no longer have to go through the prompts to enter a PIN, etc. Certainly, merchants will benefit as they provide a more seamless experience to customers.

Card issuers, however, are considered the big winners in all of this. Credit and debit card use is already on the rise in the U.S., leaving other payment methods, including cash and checks, in the dust. The Nilson Report predicts that debit and credit cards will comprise 70% of consumer transactions in 2022. The amount of internet payments hovers at 14% and that’s not expected to change much as a result of the rise of contactless payments in the U.S.

 

Source: The Nilson Report/Wall Street Journal

 

Clearly, cash is a casualty in the rise of contactless payments. Arthur Hayes, who is the CEO of bitcoin exchange BitMEX, said in a recent podcast that cash would be obsolete in the next five years. The loser in that, he suggests, is the consumer because the cash will disappear with the consumer privacy. In his opinion, this will fuel the rise of digital currencies such as bitcoin, the latter of which could be a winner in the shift toward contactless.

In fact, contactless payments are set to capture $200 billion in “small-ticket cash items” this year; purchases that would otherwise have most likely gone to cash. For instance, U.S. consumers can now complete everyday purchases such as a cup of coffee or other micro-transactions more quickly and easily with the tap of a card rather than having to dig for cash and wait for change.

Nearly three-quarters of U.S. retailers including quick-service restaurants have the technology to accept contactless payments. In other cases, it’s just a matter of the retailer turning on the right switch on the device. Until now, the demand hasn’t been there.

 

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