Coronavirus and contactless cards: What's really happening?

April 30, 2020 9:54 AM

Ever since people started sheltering at home to limit the spread of coronavirus, payments industry experts have wondered how this would affect the use of cash and cards.

One common expectation is that people will shun cash, perceiving it as dirty and a vector for transferring the virus, and instead favor contactless cards. The benefit of contactless cards over other types of card payments, such as EMV chip-and-PIN, is that they minimize contact with point of sale readers.

But is this shift in behavior really happening? Or do consumers remain stubborn in their payment habits?

CORONAVIRUS IMPACT: ADDITIONAL COVERAGE

This story was compiled from reporting by PaymentsSource writers including John Adams, Kate Fitzgerald, David Heun, Michael Moeser and Daniel Wolfe.

Half of consumers say they’re using contactless payments more — and more than half of U.S. consumers seem to recoil at the notion of providing a signature at the point of sale, a new Mastercard survey suggests.

About a third of U.S. consumers also said they’re using their contactless card more than other cards in their wallet, which could be a positive development for large issuers like Chase, Wells Fargo, Citi and Bank of America, which began pumping large numbers of contactless cards out last year.

The data shows that over the course of several weeks, coronavirus has done something that payment industry players had failed to do on their own: jolted consumers into changing long-entrenched habits.

U.S. card issuers have been seeding the landscape with contactless cards since last year — an estimated 40% of cards have contactless capabilities, as banks and credit unions steadily replace expiring EMV contact-only cards with NFC-enabled cards.

About 60% of merchants’ POS terminals are contactless-enabled, supporting payments with contactless cards or mobile payments such as Apple Pay, Google Pay or Samsung Pay via devices and wearables. Mastercard surveyed 1,000 consumers April 10 to April 12.

The shift in favor of contactless payments was abrupt.

The Futurist Group, a financial services and information management consultancy, conducted a two-wave study of 3,187 U.S. consumers before and after the coronavirus began spreading. About 38% of consumers now see contactless as a basic need or feature of payments, up from 30% a year ago. The proportion of consumers saying they don’t need contactless payments has fallen from 41% in March 2019 to 33% in March 2020.

“The coronavirus could be the tipping point for contactless in the U.S. much like the liability shift was for EMV,” said Demitry Estrin, founder and CEO of the Futurist Group. “Despite issuers pumping out millions of contactless cards and more stores accepting Apple Pay, U.S. consumers have just shrugged their shoulders while the world embraced contactless payments. The question has always been, ‘What will get consumers to change their payment behavior?’ Given coronavirus fears, I think we now have the answer.”

Significantly, almost half of consumers Mastercard surveyed said they wipe their payment cards clean after using them, which could be a sign that mobile payments — which currently account for less than 10% of contactless payment transaction volume — could eventually gain more traction by eliminating the need to handle a physical card.

Now that more consumers are leery of handling cards and receipts, signatures are more likely to get phased out, streamlining checkouts.

More than three-quarters (77%) of consumers now see contactless as a “cleaner” way to pay, while 70% say it’s more convenient than cash and 67% rate it as a faster way to check out. About half say that contactless payments are more secure.

Supermarkets are the top location where consumers say they’re using contactless payments, at 85%, followed by pharmacies (39%), general retail (38%) and fast-food outlets (36%), while 9% mention using contactless payments on mass transit during the coronavirus.

More than half of survey respondents, or 56%, said they plan to continue using contactless payments when coronavirus fades.

The change is a global phenomenon. Banks in some countries — including Denmark — recently raised the cumulative limit for contactless payments with a debit card to minimize the need to enter a PIN during the outbreak.

Shops in Denmark are putting up signs urging customers to pay with contactless methods instead of germ-ridden cash, and government officials are encouraging people to use contactless and mobile payments to slow the spread of disease, said Kristian Sørensen, a former executive at Denmark’s Nets payments technology firm who is now a partner at Copenhagen-based Norfico, a fintech consulting firm.

“Use contactless payments, not cash, and if you are forced to enter a code at the terminal, make sure you wash your hands as soon as possible,” said TV 2, a government-owned cable TV station in Denmark, in an article this month offering hygienic shopping tips during the virus outbreak.

These problems are heightened by the fact that during the coronavirus crisis, consumers are making frequent trips to supermarkets to restock on food and household items in short supply.

If contactless payments have risen, does that mean cash use is also on the decline? According to LINK, the U.K.'s main ATM network operator, the answer is a big yes.

LINK reported on April 29 that its cash withdrawals fell60% over the month ending April 27 compared with the same period one year earlier.

Despite the drop in cash withdrawals, LINK reported that British consumers are still withdrawing approximately £1 billion per week. As a reference, in April 2019 LINK ATMs disbursed £9.7 billion in cash. If the £1 billion weekly average holds for the entire month, it would mean that total cash disbursements could come in at roughly £4 billion for April — a drop of almost £6 billion in cash withdrawals.

One factor that is potentially having a major impact is that in March, Barclaycard increased its contactless payment limit by 50% to £45. The net result is that Barclaycard customers made an incremental 7 million contactless transactions valued at over £264 million (about $330 million) in those 30 days.