The business case for contactless payments

 

Following global trends away from cash and chip cards, industry professionals say U.S. banks have an opportunity to benefit from contactless payments.

By Colleen Morrison

Picture this: You walk into a store, grab a few items, bag them up and are on your way. There’s no need for a cashier or wallet. The store simply knows to charge you based on an identifier in its app on your phone. This sounds like a scene from a futuristic blockbuster, but it’s the reality with Amazon Go, Amazon’s new brick-and-mortar stores in Seattle and Chicago.

This retail evolution sends a clear signal: Contactless payments have arrived.

Defined as a payment that doesn’t require a physical swipe or insertion of a card at the point of sale (POS), contactless payments fall into two categories: contactless cards and digital wallets. With a contactless card, the bank supports the purchase via physical plastic, but this type of card offers a solution that doesn’t need a swipe or a dip. In a digital wallet, the mobile device houses the customer’s payment method of choice to facilitate “scan-and-go” functionality.

“It helps consumers get used to the fact that their card can be used contactless‚ and hopefully‚ it’s a bridge to mobile adoption.”
—Robert Jarosinski, Bankers’ Bank

“A contactless card is a gateway technology,” says Robert Jarosinski, first vice president of bank cards and payments at $700 million-asset Bankers’ Bank in Madison, Wis. “It helps consumers get used to the fact that their card can be used contactless, and hopefully, it’s a bridge to mobile adoption.”

Contactless cards simplify the payment experience for the consumer as a tool in a bank’s digital strategy. Each bank will determine how a contactless card complements a broader wallet approach, supporting “top-of-wallet” goals.

“Contactless is a stepping stone into a digital interaction, and it’s changing the way you interact with the POS,” says Bob Legters, chief product officer of payments and banking product lines at FIS.

Dipping into bank strategy

Contactless hasn’t caught fire in the U.S., but globally, these payments are soaring. And, as seen abroad, with increases in usage comes revenue.

“Contactless cards are an opportunity for growth and acquisition,” says Tina Giorgio, president and CEO of ICBA Bancard. “Research from the U.K. and Australia indicates banks see up to a 30 percent increase in transaction volume. That’s a lot of revenue opportunity.”

As banks seek to deploy contactless cards, they recognize a need for customer education. However, most contactless cards can also function traditionally, so a customer could dip or swipe the card and still make the payment. But the customer would soon realize the card’s full potential and take advantage of its contactless functionality thereafter.

Quick stat

95%

of new terminals shipped in the U.S. are capable of contactless transactions

“It’ll be a fun learning experience,” Jarosinski says. “At the very least, they can transact the way they’ve always transacted, but what we hope will happen is that they start loving it.”

Yet, not all banks see contactless cards as a transitional component of a digital strategy. Take Axiom Bank, a $600 million-asset institution headquartered in Maitland, Fla. It works to drive adoption of its AxiomGO app by brokering relationships with major players like Apple Pay, Samsung Pay and Google Pay to become the customer’s preferred digital wallet.

“We found most consumers, as far as contactless payments go, just prefer doing it on their phone,” says Pete Longo, Axiom Bank’s vice president of digital banking. “A lot of them don’t want to take a card out of their purse or wallet, and it’s less expensive on the institution.”

Time to make a move

Whichever way a community bank’s strategy goes, contactless payments should play a key role. And with the first EMV chip cards expiring, if cards are in the cards for your bank, the time may be right to make the switch.

“I would tell any banker that now is the time to begin to deploy contactless cards,” Giorgio says. “The first-generation EMV chips began expiring in 2018, and if you are going to certify a new EMV card, you might as well deploy contactless at the same time. Many of the large banks are doing the same.”

Contactless terminals are also more prevalent. Seventy percent of POS terminals in the U.S. are contactless-enabled now, and about 50 percent of card transactions are occurring at those terminals. In addition, more than 95 percent of new terminals shipped are contactless-enabled.

Once a bank decides to offer a contactless card, it can go live in as little as four to six weeks, with the longest implementation at about six months, depending on its customization. The bank just needs to say “go.”

“If a bank asks itself the question, ‘Is contactless going to be important to my consumers?’ the answer is going to be yes,” Legters says. “Not starting now puts you behind the pack and makes it hard to compete.”


Colleen Morrison is a writer in Virginia.

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