Contactless technology is beginning to gain a foothold among those who count the most: Consumers. Without their acceptance, contactless cards would just be another “what could have been” trend. A new report from Smart Card Alliance, “Contactless Payments: Delivering Merchant and Consumer Benefits,” summarizes some of the major contactless test projects and gives a good overview on the technology and what’s in it for merchants and consumers.
“Contactless payment is gaining momentum in the United States, with millions of people already using it in one form or another. We thought it was time to look at factors driving this success,” said Randy Vanderhoof, executive director of the Smart Card Alliance.
The alliance’s Terminal and eTransaction Infrastructure Task Force helped create the report, incorporating interviews with executives from American Express, Bank of America, JCB, MasterCard International and Visa USA, about their contactless payment initiatives. According to the 42-page document, the companies testing contactless payment in market trials reported benefits for merchants in select segments and that consumers also liked the technology.
But before anyone jumps to the conclusion that there’s a ground swell of support for contactless, remember that it is still in its infancy, at least as a mass-market payment device.
Covered in the report were several well-known projects–the Exxon Mobil Speedpass, MasterCard’s Paypass and American Express’ ExpressPay, as well as a smaller project in North Carolina, QuickWave by Visa through Bank of America. The total number of cards, key fobs, cell phones, etc., (the prime vehicles for contactless) are still small compared to the number of payment devices currently in use. Of the projects covered in the report, the vast majority of users come from Speedpass, six million-plus. The remaining projects account for just 35,000 users.
What is gaining consumer interest in the test markets, according to the report, are the technology’s convenience and speed. Speed, getting the customer through checkout quicker, is also a merchant benefit. Checkout time for consumers using Paypass at drive-thru locations was 12 to 18 seconds quicker in the pilot areas of Orlando, Fla., and Dallas, Tex. The paper quotes former McDonald’s CEO Jack Greenburg as saying that unit sales jump 1% for every six seconds saved in drive-thru lanes.
Another example: The report cites that MasterCard PayPass cardholder transaction volumes increased 12% from the prior year at the PayPass trial merchants, and that American Express ExpressPay pilot results showed that customer average transaction size increased 20 to 30% compared to cash spending at participating merchants.
The program also devotes a three-page appendix to another contactless market, transit payment and suggests there’s a great opportunity for merchants and transit operators for cross-over transactions.
The report should a strong tool in the effort to get merchants and issuers excited about contactless payments. It shows the savings merchants can realize in checkout time–particularly in environments where speed and convenience are essential, such as fast food restaurants, drug stores, parking garages, gas stations and convenience stores. The report also notes that consumers using contactless cards spend more. Of course, the same can be said for traditional mag stripe credit cards.
And since the big three in the U.S.–MasterCard, Visa, and American Express–have standardized on a single contactless payment technology, ISO/IEC 14443, the report says, merchants can feel good that an investment in technology will enable broad card acceptance as the market matures. And merchants can easily add contactless payment capability to their existing POS systems without making major hardware changes.
To illustrate the increased value of contactless versus standard payment vehicle, the report provides a “Sample Business Case” for a fast food restaurant. It suggests that the merchant would “gain significant incremental revenue” from a contactless implementation.
The Smart Card Alliance’s latest report is certainly optimistic about the future of contactless technology. The organization sees this year as a good time for merchants to make the contactless leap stating, “merchants can take advantage of the nationwide rollout (such as MasterCard with its Paypass) of financial industry-backed contactless payment initiatives in 2004 to create a strategic competitive advantage and increase sales.”
For those potential market issues that may arise, it is important, as the Alliance report points out, “to take a merchant-centric view. It is in the checkout lane where the acceptance of contactless payments will be determined.”
The full report can be accessed, in Adobe Acrobat PDF format, at the Smart Card Alliance’s web site (http://www.smartcardalliance.org). The report is free to members of the Alliance and can be purchased online for $145 by non-members.