Contactless Payment: Try it, You’ll Like It
Nine Percent of Consumers Are Using Contactless Payment and Loving It, Smart Card Alliance Reports
PRINCETON JUNCTION, N.J., September 17, 2008–After two years of fast growth in contactless payments, the verdict is in: Once consumers try contactless, they like it! And with large issuers including American Express, Chase, Citibank, Washington Mutual, Wells Fargo and many others issuing contactless cards, the number of users is growing fast.
New U.S. consumer research commissioned by the Smart Card Alliance showed nine percent of the U.S. population now has a contactless credit or debit card. Last year the number of open network contactless cards in circulation reached 35 million in 2007, nearly doubling from 19 million in 2006, according to another study from JupiterResearch.
The Alliance survey showed 92 percent of contactless users thought it was both fast and easy. On the whole, these users had positive experiences at merchants too, reporting that 85 percent of cashiers knew how to accept contactless, and 84 percent saw contactless acceptance marks at the point-of-sale. Contactless users are also paying with their contactless cards or fobs frequently, with over 22 percent using contactless payment more than six times per month.
The Alliance survey, conducted in 2008 by Javelin Strategy and Research, included two pools of respondents: 1,500 respondents that are representative of the U.S. online population, which is 73 percent of the U.S. population, and 500 contactless credit/debit card users.
Leading contactless issuers have also made positive reports.
“Millions of Chase customers make contactless payments every day using Chase cards with blink,” said Deana Cook, who manages the contactless feature at Chase. “We have found that customers especially appreciate making contactless payments in places where speed and convenience is important. Our research shows that customers who make contactless payments do so often, and we continue to issue and reissue millions of Chase cards with blink. Contactless technology is also safe and secure. Issuers of contactless credit cards have seen no evidence of increased fraud.”
Peter Ho, vice president and product manager for Wells Fargo Card Services, commented on the high security of contactless payment cards. “Unlike other card payment mechanisms, contactless payments utilize a dynamic verification value that is unique to each transaction. This is a very strong security feature because it prevents criminals from making fraudulent contactless transactions,” he said.
One challenge highlighted by the recent Alliance consumer study was that more communication is needed to reach more consumers. Awareness has grown significantly since 2006, with 25 percent of consumers surveyed now familiar with contactless payments compared to 15 percent in 2006; however, more than 50 percent of consumers still are not familiar with contactless payments. Even in high penetration zip codes nearly half of all consumers are unfamiliar with contactless.
“Communicating and building awareness of contactless benefits to get consumers to try it is critical, and an important priority for all of the stakeholders,” said Randy Vanderhoof, executive director of the Smart Card Alliance.
Merchant acceptance of contactless is also strong and growing. There are now 75,000 U.S. merchant locations accepting contactless payment, including taxi cabs and transit operators, according to David Robertson, publisher of The Nilson Report, a trade newsletter that tracks the payment industry.
“Contactless payment acceptance at merchants is taking off much faster than PIN debit did,” said John Suchanec, senior vice president of Payment Research and Innovations, Bank of America. “Contactless acceptance is already growing at a rate that it took seven years to achieve with PIN debit. Mobile will accelerate the curve.”
To help explain the fast take up by merchants, Chris Schwanz, payment systems program manager for IDQ Companies, commented on how Dairy Queen and other merchants benefit from contactless acceptance: “At Dairy Queen, contactless payments are an important part of our overall payments strategy. As a quick service restaurant (QSR), we are constantly striving to enhance speed of service, and contactless payments certainly support that goal, especially in the drive-thru area. Another benefit is that contactless payments are more secure because the guest is able to maintain possession of their card. Our contactless footprint is growing and we have over 1,700 locations accepting this payment option. This fall, we’re planning a contactless pilot for our closed-loop gift card program and we have high hopes for success on that front,” Schwanz said.
Contactless users are very positive on mobile payments as well. Current contactless users are twice as likely to use a mobile wallet as non-users. The Alliance research showed 43 percent of contactless users were likely to use a mobile device as a mobile wallet, compared to 19 percent of the non-users. Consumers are even ready to switch carriers to get what they want, with 47 percent of contactless users saying that they would switch mobile carriers to gain mobile payments.
As to why contactless payment is popular with consumers, a busy professional woman working in New York City summed it up nicely in this comment. “When grocery shopping, I never like fumbling for cash, having to put change back into my wallet, then trying to exit the store with my hands full of groceries. All this with other impatient customers behind me in line. Using my contactless card is super convenient and fun. It’s faster and easier than swiping a card, and I definitely prefer to use contactless where I can,” she said, requesting anonymity.
The Smart Card Alliance Contactless Payments Council Web page provides information, white papers, news and other resources about contactless payment. The most recent white paper, Proximity Mobile Payments Business Scenarios: Research Report on Stakeholder Perspectives, explores business models for mobile payment for banks and mobile network operators. The Council brings together financial payments industry leaders, merchants and technology providers to facilitate the adoption of contactless payments in the U.S. through education programs for consumers, merchants and issuers.
About Contactless Payment
Contactless payments are defined as payment transactions that require no physical contact between the consumer payment device and the physical point-of-sale (POS) terminal. In a contactless payment transaction, the consumer holds the contactless card, device or mobile phone in close proximity (less than 2-4 inches) to the merchant POS terminal and the payment account information is communicated wirelessly via radio frequency (RF). “RFID payment card” is an incorrect usage of terms. The technology used in payment cards is contactless smart card technology. RFID tags are simple, insecure broadcasters of whatever information they contain, something like radio barcodes. In contrast to RFID tags, RF-enabled contactless smart cards contain a microprocessor, a small but fully functioning computer, and software designed to protect the information inside them.
About the Smart Card Alliance
The Smart Card Alliance is a not-for-profit, multi-industry association working to stimulate the understanding, adoption, use and widespread application of smart card technology.
Through specific projects such as education programs, market research, advocacy, industry relations and open forums, the Alliance keeps its members connected to industry leaders and innovative thought. The Alliance is the single industry voice for smart cards, leading industry discussion on the impact and value of smart cards in the U.S. and Latin America. For more information please visit http://www.securetechalliance.org.