Contactless payments are lapping at our shores. Community banks can look to Australia for examples of how they can profit from this convenient technology.
By Adam Oxford
Sometimes technology throws up unexpected problems. Who could have foreseen that the introduction of front-facing phone cameras would lead to entire websites dedicated to selfie-induced injuries?
Sometimes, though, technology provides the solutions to the problems it creates. Contactless technology is one such example.
In London, which is rapidly turning into a cashless economy, street performers were getting hit by a drop in earnings because commuters no longer carry coins. So, they turned to
Swedish fintech startup iZettle (now owned by PayPal) and QR codes to accept payments from passers-by. And in May, the city’s mayor, Sadiq Khan, set a new standard when he unveiled plans to distribute contactless payment terminals for entertainers in all 32 of the city boroughs.
Estimated contactless cards issued in the U.S. in 2018
Source: ABI Research
Adoption of contactless payments varies dramatically across the world (see sidebar). Australia is one country where consumers have really taken the technology to heart. There, 92 percent of Visa transactions carried out in stores are made using contactless cards or mobile wallets.
In the U.S., of course, that figure is significantly lower. Almost 92 percent points lower. Just 0.6 percent of Visa transactions conducted in September 2017 were made using contactless technology. Some believe that 2018 is the year that things will change.
One reason is that this year, many of the first U.S. payment cards with EMV chips will expire, and new cards are more likely to be ready for contactless. ABI Research estimates that 78.4 million contactless credit and debit cards will be issued in the U.S. this year, compared with just 25.7 million in 2016.
But availability of cards isn’t the only thing hampering adoption, says ICBA Bancard president and CEO Tina Giorgio. Nearly all new point-of-sale payment terminals in the U.S. are capable of accepting contactless payments, but only about 30 percent of currently installed devices have the contactless feature turned on.
“There’s a lot of confusion for the user around where contactless payments can be made,” Giorgio says. “You see the symbol, but you don’t know whether or not your card is going to work.”
“[Contactless cards] can drive significant revenue advantages for banks over their traditional non-contactless brethren.” —Michael Sek Pheng Yeo, IDC Financial and Retail Insights, Asia/Pacific
There’s also the issue of cost, Giorgio continues. “The plastic is more expensive, and banks have only just gone through the full EMV retooling,” she says. “I don’t think consumer pressure is there yet for community banks, but as [consumers] see other plastics issued that are contactless, they may begin to demand it.”
Michael Sek Pheng Yeo, research manager for IDC Financial and Retail Insights for Asia/Pacific, says that getting in early with contactless cards is an opportunity that U.S. banks shouldn’t overlook.
“[Contactless cards] can drive significant revenue advantages for banks over their traditional non-contactless brethren,” Yeo says. “This revenue mainly stems from the increased transactions the customer will use them for. For banks that are particularly savvy, the increased purchasing frequency also leads to new data … which can be converted into insights and drive further revenue through cross-selling or promotional activities.”
Yeo agrees that high availability of both cards and readers was key to the boom in Australia.
“Adoption at food and beverage outlets and convenience stores is often a key driver in usage,” he says. “These are venues where total purchase values are low and convenience for the customer is highly valued. During a busy lunch hour or commute to work, being able to pay as quickly as possible without the usual card purchase process or fumbling with cash is something which is highly appreciated.”
Bronwyn Yam is the director of product at USD$105 million-asset Australian business bank Tyro, which specializes in providing services for small businesses. Yam says that contactless is supremely convenient in Australia because there’s no upper limit to transaction amounts, and payments under AUS$100 can be conducted without entering a PIN.
Tyro is a relative newcomer to the market. Although it started out as a fintech payment gateway 15 years ago, it received its banking license three years ago and currently has more than 20,000 small to medium-sized companies on its books. It has distributed about 30,000 payment terminals to its clients, and was the first in Australia to adopt a “Tap & Save” solution that the financial regulator is introducing to reduce the cost of contactless payments.
“When contactless was first becoming the norm for how payment transactions were done by card,” Yam says, “only Visa and Mastercard had enabled their networks for it. There was a definite pricing difference between the international networks and the domestic ones.”
The new Tap & Save solution uses the lower-cost national debit payments system, which results in lower fees for merchants, Yam continues.
It may be a while before street performers in Los Angeles or New York ask you to tap rather than tip, but U.S. community banks are encouraged to start investigating the implications now. Experience around the world shows that when consumer preference changes from chip and PIN to contactless, it changes fast.
“In hindsight, if you look at how quick the adoption of contactless was in Australia, we would have migrated merchants onto newer terminals much faster,” Yam concludes. “It took time to communicate to merchants what was happening.”
What percentage of Visa payments are contactless?
Australia – 92%
Singapore – 63%
Canada – 47%
United States – 0.6%
Adam Oxford is a writer based in Johannesburg, South Africa.