Why contactless payments are here to stay

person paying for coffee with a mobile device
Photo by Halfpoint/iStock

Americans were already headed toward greater adoption of contactless payments when COVID-19 changed the way they shop. Now, data shows that contactless payments will be a new normal for many, even after the pandemic. For community banks, it’s time to get ahead of the trend.

By Colleen Morrison

As COVID-19’s impact continues, consumer and business payments have synchronized with today’s more socially distanced society, with a massive migration from EMV chip card payments to contactless solutions. In fact, Visa reported in January 2021 that 65% of U.S. consumers would prefer to use contactless payments post-vaccine as much as—if not more than—they do currently, and another 47% won’t shop at a store that doesn’t offer a contactless way to pay.

“I would have said that we would eventually get to mass adoption [of contactless] in the States without the pandemic,” says Damon Moorer, president and CEO of $300 million-asset TCM Bank in Tampa, Fla. “I believe the pandemic is doing nothing more than accelerating it and getting it to a place of critical mass sooner, because now it is also a personal safeguard.”


The cost to community banks

This quickened adoption of contactless solutions has not only increased the volume of transactions; it has also driven down costs for banks. According to 451 Research, while contactless technology cost community banks more than $2 per card only a few years ago, the global landscape—which embraced this technology earlier than the U.S.—has driven that investment down to less than $1.

“I think as more consumers start using [contactless] … they are going to be relying on this technology. If their bank card doesn’t allow for contactless payments, it’s likely that they are going to reach for one that does.”

—Jacque Frederickson, Lead Bank

“A lot of it has to do with expense,” Moorer says. “Before the EMV chip card, it was a mag stripe card, and we were paying 90 cents or a dollar per card, and here come EMV cards—cards that have a computer chip in them—and the cost of that plastic initially was $5 or $6. The immediate expense to an issuer was real. It took it a while before that normalized. Now we’re dealing with the same thing with contactless.”

And while cost may still be a factor for issuers, experts argue that the cost of doing nothing may be far greater in today’s environment.

“I think as more consumers start using [contactless] … they are going to be relying on this technology,” says Jacque Frederickson, vice president and operations application manager at $515 million-asset Lead Bank in Kansas City, Mo. “If their bank card doesn’t allow for contactless payments, it’s likely that they are going to reach for one that does.”

Moorer agrees: “Initially, it’s more of a defensive play.”


Making the transition

As the saying goes, sometimes the best defense is a good offense. When it comes to contactless, making the transition to this touchless solution allows community banks to be in a position to respond to growing customer demands. In fact, usage has grown 150% since March 2019.

For Lead Bank, the decision to move to contactless was a no-brainer, even amid closed branches during pandemic lockdown orders. In October 2020, the community bank debuted its contactless debit cards, offering them at the bank’s drive-up window and through phone requests.

“We did not do a blanket reissue,” Frederickson says. “We did have a good amount of people come in who were more than willing and happy to trade in their card for a contactless card.”

The community bank’s processor will transition the remaining customers to contactless cards as their EMV cards expire. This rolling update allows Lead Bank to offer the latest technology and spread the expense over a longer period.


The future is touchless

With contactless payments, experts agree any investment now begins a long-term play. Ultimately, these touchless options will extend far beyond technology-linked plastic alone. Industry leaders talk of fast-food drive-through windows where the payment happens as seamlessly as a toll payment via technology embedded in the car.

“When I think about what contactless does, what I foresee is the account is no longer a card,” Moorer says. “There are all these different ways for the account to be accessed to make a payment, whether it be via [my smartphone,] my watch, my car, on plastic, a ring, a bracelet—there’s no telling [what’s next]. Anything that can support NFC [near-field communication] can ultimately become a method by which someone makes a payment.”

Quick stat


The growth of contactless usage in the U.S. The country now
has 175 million contactless cards, the most in the world.

Source: 2020 Visa report

Yet, until that technology hits the U.S. in a big way, community banks can offer today’s contactless cards to not only meet customer needs but also create opportunities for growing business. For example, sending out a new card creates a natural touchpoint with cardholders.

As they roll out new contactless solutions, community banks can reconnect with inactive card holders, incentivizing them to use this new, advanced technology and creating a path for increased card usage. It provides a win-win for the community bank and the customer.

“Over the past year, as our world has changed underneath us without any warning, consumers have become more aware and have higher expectations for safety and convenience,” Frederickson says. “So, being able to provide that safety to your bank client and help to speed up the transactions, just giving them that peace of mind, is well worth the change.”

Colleen Morrison is a writer in Maryland.