Making Sense of the Growing Contactless Market

Lessons to be Learned from the Trials and Tribulations of the US Marketplace

By Al Vrancart, ICMA Co-Founder, Industry Advisor

The United States has seen an instrumental growth in the number of contactless card launches in the past year, gaining valuable exposure for this evolving technology. Half of all of the top ten issuers have introduced their own contactless cards. To date, nearly 11 million contactless cards have been issued in the financial market segment. MasterCard has the lions share with at least 5 million cards carrying its PayPass technology. About 4 million more carry the Visa brand and 2 million carry the American Express brand.

This seemingly effortless acceptance is not without skepticism. Some question whether this is the real thing or a passing fad. In 2004, smartcard programs, like American Express ‘blue’ and Target Visa, were expected to succeed but faltered. Consult group First Annapolis indicates that several factors are influencing the current change, proving this time the market is poised for success:

• The use of consumer and merchant driven periods where issuers and merchants fully support and promote the program as well as making the best use of a single application instead of confusing consumers and merchants with multiple applications on a single card.

• Strong investment in the program, building merchant acceptance and educating consumers on utilizing the latest product.

• The convenience of not needing to enter a PIN number for low value products/services.

It is estimated that this year alone, the contactless market will more than double in North America. Contactless technology made a significant leap when McDonalds, CVS (US retail pharmacy chain) and 7-Eleven convenient store chain announced acceptance of contactless cards in their stores. In addition to traditional retailers, consumers can now use their “Tap and Go” payment technology in Vending Machines.

As contactless rollouts continue, it is critical that a consistent industry-wide message educates and empowers merchants and consumers. The absence of a consistent approach to contactless-payment marketing is breeding confusion among merchants and consumers at the very time that the market is poised for explosive growth. With each issuer creating their own distinct message and identity, consumers and merchants can quickly become confused. For example JP Morgan’s “blink” program and the “Tap and Go” program are also known to consumers and merchants as ExpressPay and PayPass. When a consumer inquires about acceptance at a retailer, clerks must be educated on the entire program and the various names in which it may be called.

Although not a traditional contactless card, SpeedPass introduced by Exxon in 1997 is arguably the most successful program to date in the US with over 6 million active users. The program has remained simplistic and appears to follow the advice above by fully supporting the program and making use of a single application instead of confusing consumers and merchants with multiple applications on one card (or in this case key tag).

Around the world – Contactless Technology is Still in Infancy Stage but the Future Looks Bright

Europe
The use of contactless cards as a general-purpose means of payment remains a future prospect in Europe. Most European banks have made contactless payment a lower priority than the introduction of traditional contact-based smart cards that comply with EMV, the global payment standard for chip-based payment cards. This is not to say that issuers are waiting idly by. Visa Europe is planning to trial a contactless product in London this Autumn. Assuming the trial is positive they are positioned to deploy contactless cards commercially
next year.

Australia
In April, MasterCard PayPass launched a six month pilot program in Australia of 35,000 contactless cards. The Commonwealth Bank is the first Australian bank to trial PayPass contactless payment technology with more than 150 merchants across the Central Coast, participating in the trial, including 7-Eleven convenience stores and Subway stores.

Tawain
In May, Visa International rolled out 300,0000 Visa-branded contactless credit cards in Taiwan. Other card companies in Tawain have since issued contactless credit cards, including co-branded store cards accepted at about 400 Watson stores and several Costco warehouse stores.

Albert Vrancart is a co-founder of ICMA and currently serves as an advisor to the association. He has over 30 years of marketing experience, previously serving as president / CEO of NBS Qualteq, a manufacturer of secure plastic transaction, identification and promotional cards.