Making Contact with Contactless Payments
At the start of 2014, just two percent of U.S. retailers accepted contactless payments, making them more of a futuristic concept than a viable means of transacting.[1] But change was coming: Merchants were gearing up for an industry-wide shift to EMV credit cards by stocking up on new card terminals, many of which came equipped with NFC technology. Card issuers began mailing chip-bearing cards to cardholders, elevating consumers’ expectations for security beyond the magnetic stripe.
At the same time, studies showed that smartphones were becoming a more central part of the consumer experience as early as 2014: Approximately 60 percent of smartphone owners were relying on mobile devices exclusively for certain purchase decisions, and about 25 percent were making purchases on their phones.[2] Contactless payments even had early support from tech-giants, including Google, which launched Google Wallet back in 2011. And, in 2014, Apple launched Apple Pay in September 2014, which served as a key catalyst for greater mobile payments adoption in the last year.
“Discover was one of the first financial institutions to participate in Google Wallet, and we had recognized early on that smartphones were significantly impacting consumer shopping behaviors,” said Alisa Ellis, Vice President of Global Products & Solutions at Discover. “As contactless payments grow in popularity and merchants upgrade to EMV, these factors have culminated into an environment in which mobile wallets are quickly gaining traction among consumers, and we want to enable emerging forms of commerce that allow consumers to pay how and when they choose.”
The advantages of contactless payments for both retailers and consumers are clear. Once consumers are exposed to the speed and convenience of using their phone to pay, they may be likely to continue. So, why isn’t it already the norm?
While the pieces have since fallen into place for contactless payments to succeed, many consumers remain in the dark about which retailers accept them, or whether their device(s) or card(s) are compatible. And many still simply haven’t seen contactless in action. That is all set to change over the next year, thanks to a variety of factors working in tandem to bring contactless payments to the top of consumers’ minds.
Today: Apple Pay, Android Pay and Samsung Pay—Oh My!
While Apple Pay is a year old now, the number of locations accepting it has more than quadrupled since launch, with more than one million stores supporting it and more major players like Starbucks, KFC, and Chili’s coming on board in early 2016.[3] In fact, by December 2015, the mobile wallet market overall was expected to double from a year earlier, and Apple Pay is largely to thank—in January 2015, two-thirds of all contactless payments on major credit card networks were conducted through it.[4]
Support from credit card providers has recently expanded as well, with Discover cardmembers now able to take advantage of Apple Pay by easily uploading their existing card information. All of this, coupled with the release of the new, contactless-capable iPhone 6S and 6S Plus—of which more than 10 million sold during the first weekend on sale—and a refreshed Apple Watch, means considerably more contactless devices in hands and in stores.
Google continued to evolve by launching Android Pay in September 2015 with support for any NFC-equipped Android device running the Android 4.4 operating system or above. Android Pay matched Apple Pay at launch with acceptance in more than one million retail locations[5], and the number of active Android devices running Android 4.4 or higher is just shy of 900 million as of September.[6],[7] A definitive count on how many of those devices are equipped with NFC is not available, but best estimates would place it around 450 to 500 million.[8],[9] Regardless of where the number falls, it means Android Pay now represents the largest contactless payment platform. And an awareness campaign is well underway: Android Pay has already been featured in multiple national TV ads since its launch.
Samsung Pay is the final piece of today’s contactless payment puzzle. As the largest Android manufacturer, Samsung holds considerable sway (Android Pay is also available on Samsung devices). Samsung Pay is supported on all of Samsung’s flagship devices as well as the new Gear S2 smartwatch, and ads touting it have been turning up on national television during high-profile events like the Emmy Awards. And while the ads target Samsung Pay, the net result is increased visibility for contactless payments overall.
Square and PayPal Open Up Contactless to Smaller Merchants
On the merchant side, with all of these new consumers armed with devices supporting contactless payments, there needs to be a similar effort to meet interest. While larger merchants are upgrading terminals to comply with the EMV liability shift and, in most cases, gaining contactless payment acceptance in the process, smaller merchants were left adrift. Fortunately, Square and PayPal are filling the void with updated hardware that will support EMV and contactless payments, just like the terminals found at large retailers. At just $49 for the Square Reader and $149 for PayPal Here ($49 during initial promotional period), these options are well within reach for even the smallest merchants and should enjoy rapid adoption by those already using Square and PayPal, plus by those who may have been on the fence. Square alone represented more than two million active merchants during 2014.[10]
The Future of Contactless Payments
Looking ahead, awareness will certainly drive growth in contactless payments, but according to a recent Accenture survey, it may be the integration of rewards programs and targeted discounts that brings widespread adoption.[11] This is borne out by the tremendous success that Starbucks has seen with mobile payments since it combined rewards and payments in-app. Such integration is far simpler than before, with all three major mobile payment systems supporting loyalty cards or planning to soon.
As for targeted discounts, the prices of Bluetooth beacons continue to drop, bringing them within the realm of consideration for even small retailers. They allow you to identify shoppers in specific sections of the store and push them notifications regarding in-store specials and discounts based on their purchase history.
The proliferation of contactless payment options for both merchants and consumers in the coming year will be impossible for consumers to miss. Whether their first exposure comes from a prime-time TV spot or seeing it used in-store, the message will be the same: This is a simpler and more expedient way to make payments that’s worth trying.
[1] http://venturebeat.com/2013/11/19/contactless-payment-to-reach-250m-cards-next-year-u-s-a-is-last-as-usual/
[2] http://searchenginewatch.com/sew/study/2348076/60-of-consumers-use-mobile-exclusively-to-make-purchase-decisions-study
[3] http://www.wsj.com/articles/apple-pay-to-hit-starbucks-stores-this-year-1444344125
[4] http://fortune.com/2015/09/07/contactless-payments-growth/
[5] http://officialandroid.blogspot.com/2015/09/tap-pay-done.html
[6] http://techcrunch.com/2015/09/29/android-now-has-1-4bn-30-day-active-devices-globally/
[7] http://developer.android.com/about/dashboards/index.html
[8] http://www2.deloitte.com/content/dam/Deloitte/global/Documents/Technology-Media-Telecommunications/gx-tmt-pred15-full-report.pdf
[9] http://www.aboveavalon.com/notes/2015/5/23/analyzing-the-iphone-user-base-above-avalon-premium-recap
[10] http://www.nytimes.com/2015/10/15/business/dealbook/square-the-mobile-payments-company-files-for-ipo.html
[11] https://www.accenture.com/us-en/insight-digital-payments-survey.aspx