A few weeks ago, my friend decided it was time to start using to her phone to pay at the in-person point of sale. On her first foray into the land of contactless pay, she shopped at four stores that promoted their ability to accept contactless card and mobile payments. My friend's experiences show that while the technology may be ready, the human interactions could still use some work.
- Store #1, one of the largest retailers in the United States: Yes, we take mobile payments but not your mobile wallet. Download our app and then we can deal.
- Store #2, grocery chain with more than 1,000 stores: Yes, we take contactless mobile payments. But we want you to use our electronic pen to sign at the terminal.
- Store #3, top-5 grocery store: Yes, our reader can accept your phone signal. Now, touch a button to select debit or credit.
- Store #4, neighborhood retailer: Finally, a transaction where there was no physical interaction between the phone and the terminal or between my friend's hand and the terminal.
My friend's experiences—where only one of four transactions was fully contactless—illustrate that not only for consumers but also for merchants, contactless pay isn't as easy as flipping a switch
. Any change in payments protocol is tricky because of the network of participants in the payments ecosystem:
- Card issuer. For contactless mobile payments, the card issuer has to offer consumers the ability to store their payment card information in a mobile wallet. For contactless card payments, the card issuer has to provide the contactless card (with four ripples on the front). Of the three credit cards and one debit card in my physical wallet, just one credit card is contactless on this summer day 2020. In June 2019, the Federal Reserve Mobile Financial Services Survey asked banks and credit unions about their plans to issue contactless-enabled cards. More than half (56 percent) of the total respondents reported they had no plans to issue contactless cards. For financial institutions with assets under $100 million, about two-thirds indicated they had no plans to issue a contactless card. The major card networks began promoting contactless card issuance and customer usage in mass media channels even before the COVID-19 pandemic and have continued to do so.
- Merchant. For contactless payments of either sort, the merchant has to enable terminals with the contactless technology. Then, as indicated by my friend's saga above, merchants need to set policies and train cashiers to support a customer's use of the technology. Several large merchants that previously had refused to accept contactless mobile transactions have recently announced plans to accept such transactions in the near future, but there are still some major holdouts.
- Card holder. Consumers adapted fairly
quickly to the change from swiping their magnetic-striped card at the terminal to inserting their EMV chip card. And tapping or waving is faster than inserting a chip card, as long as what people expect to be a simple wave of the phone or card does not entail more work to complete the transaction (as in my friend's case). Faced with warnings about virus transmission through physical objects, consumers look ready to see benefit from contactless mobile or card pay.
The decisions of all these parties will be relevant for what happens next. Merchants are more likely to offer the contactless option as they see other merchants offering it. Consumers are more likely to use it as they see other consumers using it and as they gain confidence the transaction will work. Financial institutions, especially the smaller ones, may issue these cards as no-touch becomes more the norm and they feel the competitive pressure. Perhaps the stars are beginning to align with increased card issuance and merchant acceptance.
By Claire Greene, a payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed