In May 2019, New York’s Metropolitan Transit Authority made the milestone announcement that it was rolling out a contactless payment system, starting with the 4, 5 and 6 subway lines from Grand Central Terminal in Manhattan to the Barclays Center in Brooklyn.
It was seen as a major innovation for the MTA, the first update to its payment system—which, until then, had relied entirely on flimsy MetroCards—in 25 years.
For other major metropolises, moving to contactless was old news. London’s Underground system adopted contactless payments systemwide (not just a select part of three lines) in 2014. And while London’s system, which allows riders to tap on with their credit card or digital wallet alone, other cities have embraced contactless in other ways: Paris has incorporated a contactless system with its Navigo card, for example, and in Tokyo, there’s an app that allows for on-phone payment for the subway.
When it comes to payment technologies, the United States has often lagged behind much of the world, particularly as the technology pertains to credit cards—and not just on public transportation. Nearly 60% of all face-to-face Visa transactions made in countries other than the U.S. are contactless, and the overall number of these payments grew 40% from 2019 to 2020. In a global consumer survey from Mastercard, eight in 10 respondents said they use contactless payments.
“In every store [in the Netherlands], you can pay contactless,” said Roderick de Koning, CEO at Ginger, a payments-as-a-service company based in Amsterdam. “There isn’t one store where you can’t.”
There is no doubt contactless is catching on in the U.S. Between March 2019 and March 2020, contactless payments grew by 150%, a number a spokesperson for Visa called “staggering.” And nine of the top 10 American credit card issuers are introducing contactless cards. But the U.S. is behind many countries in Europe and Asia, as well as Australia, where contactless has become the default method of payment for many consumers.
But in the United States, where staying six feet apart has become the new standard, contactless isn’t just cutting-edge; it’s necessary. It’s difficult to imagine a time—in the near future, anyway—when people will feel comfortable handing their credit cards to servers or retail clerks.
That means embracing contactless, which likely would have been slowly but steadily increasing now, will have to happen more quickly. And as stores, restaurants and other merchants begin to open their doors again, contactless provides businesses with a powerful tool, one that will help create the sense of comfort consumers are seeking in the reopening process.
“Everyone—banks, technology, companies, retailers—they all stand to benefit,” brand consultant David Deal said. “Any change that brings more people into brick-and-mortar stores to make purchases is going to benefit everybody who gets a piece of that revenue.”
Why the U.S. has lagged behind
There are a few reasons for the U.S.’s reluctance to fully embrace contactless and why it is typically slower to adopt the latest in payment technologies.
The first comes down to the size and scale of the American financial industry, according to de Koning. While smaller European countries like the Netherlands have a few centralized banks that count nearly all of their citizens as customers, the U.S. has its giants, such as JPMorgan Chase, Bank of America and Wells Fargo, but plenty of smaller institutions, too. As of the end of 2019, there were 5,177 commercial banks in the U.S., according to the Federal Deposit Insurance Corporation.
Rolling out new technology at a few major institutions is a much simpler task than doing so across thousands, particularly when that number comprises mostly smaller banks that don’t have the same resources as the financial giants.
“In the U.S., the market is very fragmented,” de Koning said. “Here in Europe, every country has three or four big banks, and they work together on most of these initiatives.”
The irony is that the U.S. is home to some of the biggest corporations in the credit card game, such as Mastercard and Visa, which means that much of the innovation in the payment sector is happening in the U.S., according to David Duncan, evp and chief product officer for Global Payments. But that innovation gives way to the second reason U.S. consumers have been slow to adopt contactless: The U.S.’s early embrace of credit cards means that the American public is loyal to their plastic as more than just a method of payment, but also an integral part of the culture.
“The U.S. is where the credit cards were born,” Mastercard CMO Raja Rajamannar said. “You have a legacy infrastructure in this country, so changing that over to the next generation is an expensive proposition and therefore, the process is slower.”
A couple of years ago, the U.S.’s contactless experience would have been a tale of merchants lacking the technology and one of consumers not using it. But today, what’s really lacking in the U.S. is awareness that contactless is an option.
Visa has over 190 million contactless cards currently in the market, with an expectation that there will be 300 million this year, and 80 out of the top 100 U.S. merchants now accept contactless. As Chris Curtin, Visa’s chief brand and innovation marketing officer, put it, contactless is accepted “in more places than not” in the U.S.
“I want the perception to catch up with the reality,” he added.
Coronavirus may be the catalyst
Contactless adoption has been slower in the U.S. in part due to the fact that there wasn’t a pressing need. Yes, it’s faster, and yes, it’s more convenient than using a chip-enabled credit card, but it’s not as if that experience is so poor that consumers are desperate for another option, particularly when they are so loyal to their credit cards.
Coronavirus has created a reason—a vital one.
“Innovation takes off when it’s tackling or addressing a point of friction,” Curtin said. “Before, it wasn’t a problem that has to be fixed. Instead, it was an evolution or enhancement. But Covid-19 has introduced a completely different dynamic that will catapult it.”
What’s remarkable about contactless payment is that it’s a ready-made solution to a problem arising years after the debut of the technology. (Apple first introduced it in China in late 2015 and began a stateside rollout in 2016.) Human contact has perhaps never been as charged as it is now, and people are looking for ways to avoid it.
“Right now, in the world of Covid-19, everybody is very sensitive to touching things,” Duncan said. “So, from a consumer adoption perspective, you’re going to see people start to explore this.”
Duncan added that the present circumstances offer a push. People who may have previously been wary of trying contactless or those who had tried it and didn’t love the experience may be more easily convinced to start using it now. But the number of people in the latter category is likely minimal; there are many features about contactless that make it a more positive experience. In Mastercard’s survey, 82% of respondents said it was “cleaner way to pay.”
That’s the case in stores, where contactless payment takes less time than inserting a chip card into a reader—according to Mastercard, it’s 10 times faster than other in-person payment methods. It’s also the case on mobile, a growing segment in the ecommerce universe. In particular, payment methods like Apple Pay and Google Pay make for a more frictionless mobile payment experience, which will only become more appealing to consumers as mobile shopping becomes more popular.
There are also security benefits. When paying with a digital wallet, consumers can complete transactions without ever taking out a physical credit card—they can even leave their wallet at home. That means hackers will never see the magnetic stripe that is so easy to clone.
Consumers have already started to see the benefits. Seventy-four percent of respondents in Mastercard’s survey said they’ll continue to use contactless payments after the pandemic is over.
“I honestly believe that this is a secular shift that is occurring,” Curtin said. “And it’s occurring because consumers and merchants realize that it’s not just a nice thing to do; it’s a must-do.”
Accelerating the timeline
Just as adopting chip-enabled credit cards was always an inevitability in the U.S., so was widespread adoption of contactless. Coronavirus isn’t mandating the use of something that might otherwise have been passed over, but rather moving up the timeline.
And for the U.S., the proposition is less about having the technology and more about letting consumers know it’s there and teaching them that using it should be their first instinct. Embracing contactless in the U.S. comes down to changing consumer behavior.
Several pieces need to come together for that to occur. First, the big players need to get behind it. That’s already the case in the U.S., where both Mastercard and Visa have focused many of their recent marketing efforts on contactless, particularly in areas like New York’s subway system.
“You have to have one or two big banks willing to spend money on it,” de Koning said. “Even if it’s marketing or technology or processing, they have to be on board. There needs to be spending to get this going.”
De Koning added that for larger corporations willing to invest in contactless, it’s likely worth the risk. Not only are they getting ahead of their competitors; they’re also building up their brand, positioning it on the cutting edge of financial technology.
But change only starts at the top. While companies like JPMorgan and Visa can offer assistance, embracing contactless also depends on the merchants.
“When both the merchants and the consumers are used to a particular checkout routine … then they need to come to feel comfortable with changes,” Rajamannar said. “They have to train all their checkout clerks around the country. That doesn’t happen by just flipping a switch. It’s a process that involves training, telling people, reassuring them, motivating them.”
It’s to a merchant’s benefit to do so. As the reopening process continues across the country, retailers are doing everything they can to make consumers feel more comfortable returning to brick-and-mortar stores. Implementing a contactless system is one obvious way to create that reassurance.
Deal said that requires guiding consumers, even in subtle ways, such as putting up signage to let customers know payment terminals are contactless-enabled with instructions on how to operate them and having employees nearby, ready to help and remind customers that contactless is an option.
“A lot of it has to do with making it easy,” Deal said. “Once retailers show people how to make a contact-free payment, the habits will begin to change.”
For merchants that do not yet have the technology available, there is, of course, a greater hurdle to overcome. But in the same way merchants were forced to adapt to chip-enabled cards a few years ago, they now have to reckon with contactless. And making that shift is even more imperative when it isn’t just a matter of keeping up with cutting-edge technology, but a matter of consumer demand.
“Everyone wants to serve consumers,” Rajamannar said. “That’s the only way you’ll survive.”