Contactless is enabling the accelerated adoption of mobile payments
While these numbers sound impressive, the impact of contactless will go way beyond plastic cards. Personally, I believe contactless technology is a hugely impressive piece of social technology. It has helped usher us into a completely new era of mobile payments, where consumers feel comfortable to not only wave cards, but also smartphones and wearable devices (like watches or rings) over a card reader or device to initiate a payment.
Clearly there has been a network effect helping the widespread success of contactless, both in the UK and other European countries; new cardholders can observe fellow shoppers casually waving a card. And retail cashiers increasingly expect to be presented with a contactless card at nearly half a million payment terminals across the UK. They will often gently nudge a customer, “Is it ok if I tap it for you?” Contactless stopped being a minority sport, in the UK at least, many years ago.
Making the shift from chip to contactless cards will prove to be a necessary enabler for the accelerated adoption of mobile payments in mature payments markets like the UK. Consumers have become comfortable with the new ‘ceremony’ of waving a card near a device, rather than inserting it into a slot. And this realization will make it so much easier to accept the next step of ‘waving’ to pay – which in many cases will be a mobile device instead of a card.
It seems inevitable that the shift to contactless universal payments will take place. If current adoption rates continue, mobile contactless will reach 3 billion transactions in the UK in 2020 (in other words, the same volume as card contactless in 2016). This will be an impressive catch up if the current momentum can be sustained. This kind of growth could prove to be a great success story for the cards industry, particularly if the most common way of funding a mobile wallet is by linking consumers’ existing payment card details into the new mobile apps. Users of Apple Pay or Amazon Pay are accessing an existing MasterCard or Visa card, using the standard technique of ‘tap and go,” albeit hidden behind a mobile facade.
What’s next for contactless cards?
It is tempting to think that debates about consumer payment techniques and standards may now be “done and dusted.” But, perhaps controversially, I think the future for contactless may be a bit more “touch and go.” Now that consumers are happy to wave a phone and not a card, will it be that hard to add new, non-card instruments into those mobile wallets? How about bank accounts, which will be newly secured, authorized and authenticated using the techniques that European public policy initiatives like the Payment Services Directive (PSD2) are nudging markets towards adopting.
Beyond our familiarity with contactless here in the UK and in markets where consumers have grown up with plastic cards, the transaction volumes for contactless usage are dwarfed by the figures of (predominantly Chinese) mobile payments users, who use alternatives to contactless – specifically optical barcode scanning techniques – within schemes like Alipay and WeChat Pay.
Personally, I find optical QR-codes unpractical and fiddly, but having seen their total ubiquity on a recent trip to China, I have to concede that more than 600 million regular users cannot all be wrong. More importantly, a significant proportion of this user base travels abroad and – not unreasonably – expects retailers to be familiar with their preferred way to pay. Which is why high-value merchants across Europe and the U.S. are currently working hard to add Alipay and WeChat Pay to their POS systems.
Despite the impressive volumes, I still doubt QR-codes will derail the progress of contactless. One reason is that many of us living and working in card-dominated markets are probably not too keen on making fools of ourselves by learning yet another “payments ceremony.” But it would also be foolish to ignore the impact that schemes like WeChat Pay will have on developing markets, where consumers have previously neve held a bank account, never mind a contactless plastic card.