Data: Why contactless is still dead in the U.S.

September 27, 2018 10:40 AM

Contactless payments are a big success story in most countries around the world—including developing markets—but not in the U.S.

NFC-enabled payments are still relatively rare in the U.S., despite a flurry of marketing activity from about 2006 to 2011, headlined by JPMorgan Chase's "blink" brand. Today, only 20% of store locations are contactless-enabled, a factor that's making issuers reluctant to broadly issue cards with NFC built in.

New data from Visa suggests contactless payments are nearing a global tipping point, with half of face-to-face transactions now conducted by tapping cards or mobile devices.

Visa predicts the U.S. will follow, but not anytime soon. “Given these factors and overall momentum, we expect contactless adoption will continue to grow around the world, including in the U.S. over the next few years,” said Dan Sanford, Visa vice president for consumer products.

Outside the U.S., contactless payments account for 40 percent of in-store transactions, according to data Visa collected through June 2018. Contactless penetration varies widely, though many markets saw rapid adoption once a critical mass of merchants supported NFC payments, Visa said.

The U.K., Australia and Canada have the highest overall penetration of contactless payments, with strong support from banks and merchants over the last three years. In 163 non-U.S. countries, contactless payment volume is less than 25 percent of all in-person transactions, but the format's usage is significantly higher in other markets. In 18 countries outside the U.S., contactless payment volume is 25 percent to 50 percent; in 12 countries contactless volume is 50 percent to 75 percent and in seven countries contactless payments exceed 75 percent of all transactions, according to Visa.

Developing countries also are seeing rapid adoption. In Myanmar, where electronic payments are a relatively new phenomenon, contactless payment penetration for in-store transactions zoomed from 2 percent to 20 percent of all transactions in the last 10 months, Visa said.

The highest rates of contactless payments occur at merchants with high sales volume and relatively low average ticket sizes, such as quick-service restaurants, grocery and drug stores, according to payment card networks’ data from around the world.

The average transaction value for contactless purchases by region indicates consumers use contactless for routine purchases in the $20-$30 range, which meshes with the types of merchants that are most likely to encourage consumers to tap to pay. High volumes of mass-transit purchases in many markets also are contactless, including in Asia and the U.K., according to Visa.

Visa’s latest data suggests most contactless payments are around $29 in the Asia Pacific region, compared to $51 for non-contactless payments. In Europe, the average contactless payment is about $15 compared with $56 for non-contactless transactions. The Mideast, Africa and Central Europe together drive average contactless payments of about $11 compared to $25 for non-contactless payments. The disparity is greatest in Canada where contactless payments average $19 compared with $82 for non-contactless transactions.

In the Latin America/Caribbean region, the trend that exists everywhere else is reversed, because payment cards are still relatively scarce in many markets. Where electronic payments exist, they’re likely to be contactless, so the average contactless purchase is $32, compared with $25 for non-contactless payments.

“While we are in the very early stages of introducing contactless payments in Latin America, we are very pleased with the positive momentum we’ve seen there, specifically in Costa Rica and Colombia,” Visa's Sanford said.

The U.K. began seeding contactless payments at key merchants including McDonald’s more than a decade ago, but momentum significantly accelerated with domestic mass transit systems going contactless. Transport for London’s integration with contactless open-loop mobile payments was a major driver for widespread NFC payments adoption in the U.K., according to Mastercard.

Forty-six percent of all U.K. transactions per month are contactless, according to data Mastercard released this month, and contactless volume has increased 95 percent within the last year. Mastercard predicts that by 2020 all point of sale terminals in Europe will be contactless-enabled.

"The U.K. is a global leader in its use of contactless and the technology has become synonymous with everyday payments," said Mark Barnett, Mastercard's president in the U.K., in a recent press release.

Lower-ticket purchases account for the largest share of contactless transactions, and Visa’s data suggests merchants in key categories including quick-service restaurants, drug and grocery stores account for a disproportionate total of merchants’ contactless transactions volume.

In the U.S., contactless is strongest at merchants emphasizing quick checkout via contactless including chains like McDonald’s, Walgreens and CVS, which recently added Apple Pay. Costco recently activated contactless payments at all its U.S. stores, and several more large merchants are poised to begin contactless support in 2019, according to the U.S. Payments Forum.

Contactless payments typically are restricted to lower-ticket purchases, which offsets reports about consumer concerns about payment security. Nevertheless, in a recent survey, U.K. consumers expressed some trepidation about the safety of contactless payments.

Asked which payment types seem least secure, 48 percent of respondents in a recent survey by Compass Plus pointed to contactless card payments, followed by cash at 18 percent. Seventeen percent of respondents mentioned mobile payments seemed least secure, followed by 7 percent who mentioned checks and 4 percent calling out debit cards as least secure.

Contactless cards issued today typically incorporate EMV chips to deter counterfeit transactions, unlike the first generation of contactless cards circulated about a decade ago, according to the U.S Payments Forum.