Physical contact lost, efficiency and security gained
While the credit card was invented in the United States, we are lagging behind the times as important technological advances have been adopted earlier in other countries.
EMV cards – credit and debit cards with smart chips – only gained widespread adoption in 2015, long after these more secure cards had replaced the old magnetic stripe cards in other parts of the world. EMV has now gained a strong foothold in the U.S. payments market, as they have been extremely successful at reducing the amount of counterfeit card fraud.
The downside of EMV cards is that transactions are significantly slower than the magnetic stripe transactions previously relied upon. Contactless cards combine the safety and security of a contact EMV transaction with the speed and convenience of a swipe. It is technology that has been in use in other parts of the world now for some years and with impressive results.
An increase in contactless card transactions has corresponded with a decline in cash usage in some countries. Cash usage in the U.K. fell by a third in 10 years, while in Canada the drop has been even steeper – down 40 percent in just five years.
While the U.S. has been slow out of the blocks, the rollout is gathering impetus on all fronts, with further acceleration coming as a result of the COVID-19 pandemic. World Health Organization guidelines issued earlier this year encouraged use of contactless payments to reduce COVID-19 transmission risk.
Our research at Fiserv shows that U.S. consumers have increasingly positive attitudes toward contactless payments. A survey found that, in addition to the cleanliness factor, 37 percent of consumers believe tap-and-pay is the fastest payment method, up from 28 percent last year. Close to 20 percent of those surveyed said they prefer contactless, nearly double the number from 2019.
Speedy, secure payments on tap
When consumers perceive real benefits, it drives their preferences and eventually it drives their behaviors, so it’s important to understand how consumers perceive the benefits of contactless cards.
The seven seconds it takes on average to insert a chip card at a point-of-sale terminal and complete a transaction does not sound like a long time, but tapping a contactless card on the terminal takes around one second. Our research found more than two-thirds of consumers say speed and efficiency are important when determining how they pay. Respondents perceive that tapping a contactless card is as fast as using cash and more convenient.
For issuers, there’s an opportunity to grow revenue from incremental transactions, specifically those accustomed to being paid using cash.
Approximately a quarter of all payment transactions in the U.S. are in cash, representing an aggregate $50 billion in spending. Global management consulting firm Kearney estimates there will be a lift in U.S. card transaction volume of up to 30 percent within three years.
Big box retailers, supermarkets, quick-serve restaurants, drug stores, convenience stores and public transit companies – the types of merchants that many cardholders visit on a daily basis – are increasing their contactless capabilities. Nine of the 10 top card issuers are issuing contactless cards, as are many mid-size banks and smaller financial institutions. Card branding may have greater value as consumers visit branches less frequently.
Education and communication of contactless capabilities is important, both for cardholders and employees. It would be a good idea to list examples of where contactless cards are accepted, emphasize the speed and convenience of the contactless interface, and equip staff with the information they need regarding the safety and security of contactless cards.
Some cardholders may be concerned about the risks of remote theft, given that a contactless cards has an embedded antenna. Employees should be prepared to explain that the antenna only works within an inch or two of a card-reading device, and it does not transmit enough information to enable criminals to manufacture a fake card or execute a fraudulent transaction.
Though the U.S. was initially slow to embrace contactless cards, recognition is growing that contactless cards combine speed, security and convenience, while reducing the amount of physical contact required when making a payment at a merchant location. Contactless cards may drive engagement through higher usage levels, which would generate incremental revenue through additional transaction volume.