Inserted EMV chips took decades to adopt in the United States, despite the well-known vulnerabilities of the magstripes that came before. Contactless EMV cards offer the same security, so issuing them may not seem as imperative as the previous migration. Indeed, CSI’s recent 2021 Banking Priorities Executive Report found that only 15% of executives listed it as their highest payments priority.
However, respondents to that same survey listed meeting customer expectations as their second highest priority (behind cybersecurity). This ongoing goal requires modernized payment capabilities. Therefore, institutions that don’t branch into the contactless sphere miss an opportunity to please new and existing customers.
Dual-interface cards offer a simple transition into modern payments for customers accustomed to withdrawing physical cards. Better still, tapping or hovering a card over a terminal’s contactless symbol takes far less adjustment than inserting EMV cards did.
This blog unpacks the data to explore the appeal of contactless cards, opportunities for financial institutions and forecasts for this technology in the payments landscape.
Why to Issue or Promote Contactless Cards
Contactless EMV improves the customer experience by offering quicker, frictionless payments that use the same encryption methodology as an inserted EMV chip. As they provide convenience and flexibility, these cards continue to gain popularity (especially among younger consumers).
Many consumers achieve similarly convenient payments through digital wallets. Yet, many others don’t have a smartphone or are more comfortable using a physical card. As a result, contactless card users are often distinct from mobile wallet users or use each for different purposes.
The broader sample of consumer data over recent years further verifies the benefits of dual-interface EMV. The following Visa trends show:
- Consumers love how contactless debit cards afford them quick and convenient transactions in brick and mortar stores. Over 90% of cardholders who have tapped in stores via card have never done so by a digital wallet. This trend suggests that consumers favor digital wallets like Apple Pay for eCommerce but cards in physical stores.
- Issuers enjoy higher interchange revenue and more frequent taps than credit cards (4.9% compared to 2.8%). CSI also found that consumers use contactless cards approximately 3-4 times more per month than traditional cards. These numbers prove that consumers find them easy to use, which correlates with greater satisfaction with their institution.
- Merchants benefit from additional transactions that result in higher sales revenue (consumers spend roughly $125-$200 more per month). Also, the speed of contactless cards eases the frustration of the checkout line and helps eliminate bottlenecks. Thus, 95% of new terminals shipped have Near Field Communication (NFC) already equipped.
In short, contactless debit cards offer speed and flexibility and can be a revenue generator for financial institutions. Institutions that embrace contactless can optimize their card programs while simultaneously benefitting consumers and merchants.
COVID-19 and the Contactless Payments Boom
A few years ago, the transition to inserted EMV debit cards presented a major shift in the payments space. But adoption in the United States had been exceedingly slow-moving, eventually reaching 99% of Visa’s payment volume by 2019.
Slightly higher costs and initially low consumer demand suggested that dual-interface EMV might follow a similar trajectory. But as awareness of its convenience and security spread, so did the demand. By the same year, these contactless-enabled cards began to boom as well.
The COVID-19 pandemic amplified contactless payment technologies’ appeal as consumers reframed spending habits and sought ways to decrease cash and physical contact. Aite found that 1 in 5 consumers made a contactless payment for the first time during the pandemic. They made more than half of those payments (56%) with contactless cards.
Throughout the uncertainty of a global pandemic, debit also generally outperformed credit. This trend partly stems from consumers preferring to spend money they already have rather than the money they may have in the future. Naturally, contactless debit cards became critical for everyday non-discretionary spending, as they met needs while maintaining hygiene and security.
In all likelihood, many of the habits and preferences formed during the pandemic will continue once it subsides, as consumers have experienced contactless firsthand. In fact, 451 Research found that 86% of consumers plan to continue making contactless payments even when the pandemic is behind us.
What We Can Learn from Retailer Holdouts
Presently, contactless terminals enjoy roughly 67% market penetration overall and are poised to expand. For some issuers, that majority isn’t persuasive enough, as popular merchants such as Walmart have not yet installed contactless terminals in their stores.
However, trends from previous major retailer holdouts suggest that even those businesses could soon begin accepting contactless payments. Companies that joined the Merchant Customer Exchange (MCX) experienced a great deal of friction from frustrated consumers.
As many of these businesses’ prospective customers shopped elsewhere, some companies began to reevaluate their policies. One by one, they enabled payments via EMV contactless cards and digital wallets such as Google Pay or Apple Pay. Best Buy, Walgreens, CVS and eventually Target all eventually conceded to consumer pressure to diversify payment capabilities.
Walmart remains a holdout in the United States, as the company hopes to expand the use of Walmart Pay. However, Walmart locations have begun to accept contactless cards across Canada, where contactless has become the dominant form of in-person payment. Walmart’s branded Capital One credit card is also contactless enabled, which could be a promising sign for the future.
Until then, dual interface users can still insert the chip to transact as usual on terminals that do not provide contactless capabilities or use magstripe as a last resort. So, even those that shop at such businesses can still benefit from contactless cards.
Ongoing Contactless Debit Card Trends
Despite lingering resisters, most merchants are adopting contactless-enabled POS terminals. These include quick service restaurants, convenience stores and grocery stores, which have seen the most debit use over the past year.
According to Visa, 73% of face-to-face transactions occur at a contactless-enabled merchant.
Many gas pumps that haven’t already done so will also implement EMV-accepting hardware to eliminate magstripe fraud. These terminals will almost universally add contactless capabilities.
Regarding the cards, Aite found that 52% of all payment cards are now contactless and forecasts 56% by 2022. As the number of cards issued rises and contactless cards become more mainstream, the demand will follow suit. Card issuers can meet the growing customer expectations by getting ahead of the trends, embracing contactless EMV cards and promoting their availability and use.
To learn the wider payment trends and their impact on your institution, check out CSI’s Digital Payment Trends in Banking white paper.
Matt Herren is the Director of Payment Strategy at CSI. With a strong focus on emerging technologies and how they apply to the financial industry, Matt has led CSI’s effort to drive innovation in the payment space. In his role, Matt has worked to enhance customer experience and helped direct innovative product offerings to increase bank profitability, allowing banks to realize industry-leading results and maximize program performance.