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As part of their efforts to deliver banking services on mobile phones, banks have had to learn to work with wireless carriers.
February 20
Has "Tap and Go" come and gone?
As issuers mail out contactless credit and debit cards by the millions, it's not clear how often they are being used.
Several payments executives say consumer interest in the technology is falling off, and they blame the banks' and card networks' apathy. Even the format's biggest backers concede they have sacrificed broad-based marketing, preferring to promote contactless cards in the cities and industries where they are most likely to be successful.
Observers say this approach is relegating the technology to the periphery.
"Even if you do have a PayPass and/or a blink card, it's very unlikely that you know what it means," said Nick Holland, a senior analyst at Aite Group LLC. "They've just done a totally crappy job of pitching this. … Merchants have told no one about it. Card networks have told no one about it. The issuers haven't really told anyone about it."
From the numbers, it would appear that contactless is booming. At the end of the third quarter of last year, MasterCard Inc. said that more than 66 million of its contactless PayPass cards had been issued worldwide, up 50% from a year earlier. JPMorgan Chase & Co., primarily a Visa Inc. issuer, has sent out 30 million of its blink-branded contactless cards to date, triple the number in 2007. The New York banking company began issuing blink cards in 2005, and it is also adding contactless capabilities to cards it is reissuing to customers it took on from Washington Mutual Inc. in 2008.
But while the companies boast about issuance, they are mum on contactless transaction volume, and their marketing push is nowhere close to the level of several years ago, when they began promoting the cards in earnest.
Stuart Taylor, the vice president of global marketing for the terminal maker Hypercom Corp., said the lack of communication has hurt adoption.
"There is little-to-no marketing by the issuers in most parts of the country, and as a result, there is little usage — and retailers question whether they want to make the investment" in his company's contactless readers, Taylor said.
If not for the fact that he works in the payments industry, he would not have known that his bank had sent him a contactless card, Taylor said.
"I noticed that it had a PayPass logo on it — on the back, not the front," he said. Aside from some extra-fine print in his cardholder agreement, "that's 100% of the marketing that I've seen from my bank."
The card brands defend their quieter approach.
Cathleen Conforti, MasterCard's senior vice president for global PayPass solutions, said that MasterCard's nationwide marketing push has tapered off, but this is because the format is taking off, and there is now less need to educate people about how it works.
"Are we doing as much television? Not as much," she said. "We did that around an initial rollout, and we don't feel we need that level of support at this stage."
Stephanie Ericksen, Visa's head of cross-product services, said her company is trying to build a "concentrated acceptance space" because a nationwide push is impractical.
"We're trying to be more targeted," she said. "When we're rolling out a new technology, we do try to focus on a concentration of cards and terminals and merchants all being in the same area."
Contactless payments have always faced a conundrum: Merchants have little incentive to deploy terminals for a format that is not yet universally embraced by consumers, but consumer demand is unlikely to take off if people can't make contactless payments.
Ericksen said terminal makers are trying to jump-start demand by making it easier for merchants to support the technology.
"It started out in the early days where they were a peripheral attachment to an existing terminal … it just was not as seamless an experience for the merchant clerk or for the consumer," she said. Since a contactless reader adds $100 to $150 to the cost of each terminal, "it's quite a big incremental cost," particularly to larger merchants with many terminals to upgrade, she said.
To address this, "we're working closely with the terminal vendors to see how we can get it more integrated and get the incremental cost to go down," Ericksen said.
Chris Justice, the president of the French terminal maker Ingenico SA's North American unit, said his company is trying to reduce the cost of upgrades by making the hardware plug-and-play.
"All of the new devices have the contactless antenna actually baked in," Justice said, but they lack the hardware necessary to activate it.
Merchants now have two choices if they want to accept contactless payments with an Ingenico terminal: add the module when they install the reader, or add it later. The hardware cost is the same in both cases — about $100 — but labor costs go up sharply when adding the tech later because a technician must visit the store.
To address the cost hurdle, Ingenico is making the upgrade a do-it-yourself endeavor. Later this year, Ingenico terminals will ship with a cavity that allows merchants to add contactless capabilities simply by plugging in a module.
Rival terminal makers VeriFone Holdings Inc. and Hypercom are similarly tweaking their hardware.
Hypercom's Taylor said that despite his concerns over the industry's lack of marketing efforts, U.S. retailers are still eager to deploy the technology.
"Interest is just as high here in the U.S. as it is in other parts of the world … preparedness to pay, I would say, is much lower here in the U.S.," Taylor said.
And for guidance on preparing consumers for contactless payment, VeriFone and Hypercom both point north, to Canada.
Scott Henry, VeriFone's director of product management for North America, said that in Canada up to 40% of new terminals deployed in the past 12 months have had contactless technology in them; in the U.S. it was less than 10%.
The difference, he said, is the attitude of the card brands and the issuers. "They have every card issuer in Canada pushing aggressively to get this out," Henry said.
In the United States, "the campaign was strong early on but then it waned." Today "most people that actually have a contactless card in their wallet don't really realize that they have one," he said.
Beth Robertson, the director of payments research for Javelin Strategy and Research, said that contactless "usage rate is very low and the interest is very low" among consumers.
She attributes this to a "lack of knowledge or lack of education around contactless."
She praised the terminal makers for making their hardware easier to upgrade. "It's a good transition step in lieu of replacing the equipment," Robertson said.
Ingenico's Justice said that despite some of the issues that have slowed contactless adoption, progress is being made.
"Some of this is along the line of the chicken and the egg, but I think the two of those are coming together very quickly," he said.
