Will NYC’s contactless transit push catch merchants off-guard?

It’s too early to measure the market effect of New York City's contactless payment acceptance pilot launched at transit locations barely a month ago, but many merchants in the immediate area may not be ready if demand spikes.

So far just a couple of million NYC-area consumers likely have a contactless card in their wallet, and the Metropolitan Transportation Authority is only accepting payments on a few subway and bus lines. But if the history from other markets is any guide, smaller merchants could be in for a surprise.

Large merchants including McDonald’s and Walgreens have long supported NFC, but because few consumers have contactless cards, there’s been virtually no promotion of contactless acceptance in the U.S., according to Julie Pukas, head of commercial product and merchant solutions at TD Bank.

“When merchants see people trying to tap to pay at stores after getting off the subway, I think there will be a need for broader merchant education around contactless cards,” Pukas said.

The shift will happen gradually, she predicts. Experts believe about half of U.S. consumers will have a contactless payment card within the next two years or sooner.

Bank of America is shipping NYC-area customers contactless credit and debit cards now in a concentrated forced rollout of NFC-enabled cards there. BofA customers in Boston and San Francisco, two cities whose local transit agencies are also promoting contactless, also are being flooded with contactless cards.

Other major issuers including Chase and Wells, Fargo & Co. in recent weeks began replacing expiring credit and debit cards with contactless versions.

Most businesses in the zone where the MTA is piloting contactless cards are aware of the local push for NFC and their readiness is mixed, according to a survey TD Bank conducted last fall.

About half of businesses surveyed see contactless as a positive for speeding up transactions, while about a quarter see benefits in increased security from contactless cards.

About a third of merchants TD Bank surveyed said they accept contactless payments already and 27% said they plan to switch on NFC within the next year. Another 25% said they plan to add contactless in the next three years or afterward, and 20% have no NFC plans. TD Bank surveyed New York-based merchants in October 2018.

According to Pukas, the spread of contactless payments in the U.S. also creates a natural path for banks and merchants to migrate more consumer payments to digital wallets.

“We know digital wallets are evolving at the same time contactless payments are coming to the U.S., and because banks are in the interesting position of sitting between the consumer and the merchant, this is a critical moment to educate both sides of the ecosystem,” she said.

Consumers with NFC cards also may end up educating merchants about their own contactless payments capabilities that exist but haven’t been promoted, Pukas said.

“Merchants should be preparing to accept payment on any device, and as consumers start to build the muscle memory of using their card to pay at transit stations, they will naturally migrate to doing the same thing at merchants everywhere,” Pukas said.