According to Timetric research, the global contactless card transaction value will almost quadruple between 2016 and 2020, while the global mobile NFC transaction value will grow more than fivefold. Why is contactless affecting the payments world with so much vigour? Patrick Brusnahan takes a closer look
Recent Timetric research predicts that, in the mid-term, contactless cards are set to dominate the global contactless payment environment.
However, smartphone penetration is destined to increase, causing mobile NFC capability becoming more widespread, possibly leading to mobile NFC overtaking contactless card payments.
A number of European countries, as well as Australia and Canada, are outpacing the rest of the world in terms of adoption of contactless; these countries currently account for most of the world’s contactless payment activity.
Europe is also ahead of the US in terms of contactless adoption. According to MasterCard, contactless transactions in Europe grew by 150% in 2015 from the previous year.
Global demand for NFC acceptance is accelerating, and in May 2016 Visa Europe reported thee billion contactless transactions on both cards and mobile devices. In addition, one in five in-store Visa-processed card payments were contactless during the 12 months to April 2016.
Visa reported 165 million contactless cards in circulation and 3.2 million NFC-enabled POS terminals in Europe, and has mandated that all Visa-accepting POS terminals should be NFC-enabled by 2020.
Contactless payments have become commonplace in the UK. The number of contactless card transactions in the UK rose by 212.2% year on year in January 2016.
The number of bank-owned contactless POS terminals in the UK reached 309,706 in December 2015, representing roughly 17.8% of the overall number of POS terminals.
As of May 2016, there were a total of 460,000 contactless POS terminals in the country, equivalent to a 50% annual increase.
Contactless card shipments more than trebled between 2012 and 2015, indicating a rapid increase in the global adoption of contactless card payments.
History and progress
Contactless has certainly come a long way from its origins. The first incarnation of contactless was launched in the US in 1997 through Speedpass. Introduced by Exxon and Mobil, it was a key chain powered by Radio Frequency Identification (RFID).
Technological advances, the shift from cash to electronic payments, media attention and an evolving retail environment have all contributed to the rise of contactless from its humble beginnings.
EMV migration is another key driver. Merchants, PSPs and schemes can take advantage of a mandated upgrade to terminals by matching it with an upgrade to NFC-capable terminals. In many cases, the shift from EMV to contactless is a simple software upgrade.
As a default, many major POS terminal manufacturers such as VeriFone and Ingenico are integrating contactless technology in all newly distributed EMV POS terminals.
The smartphone factor
Smartphones are another crucial factor. According to the Ericsson Mobility Report 2016, there are more than 3.2 billion smartphone subscriptions worldwide, equivalent to around half of the world’s total population; the figure is expected to reach 6.3 billion in 2021.
Following the adoption of smartphones was the launch of the ‘Pays’, Apple Pay, Samsung Pay, and Android Pay.
The entry of payment solutions from some of the world’s most valuable brands, including the ‘Pays’, instantly raised consumer awareness of new payment technology.
The decision by Apple – seen by Forbes as the world’s most valuable brand – to adopt contactless was a huge boost. The attention gathered by anything launched by Apple is huge, and Apple Pay directed a huge spotlight onto contactless.
Contactless cards may have missed their golden opportunity in the US. Due to a lack of migration of cards to EMV in the US, mobile payments have picked up the slack.
Main players in the US payments industry are focusing on mobile NFC payments. This could lead to the region going straight to mobile NFC payments, leapfrogging contactless cards.
Acquirers and card schemes have taken various initiatives to expedite the migration process and support merchants. For example, to promote EMV adoption among merchants, schemes announced that if more than 75% of merchants’ Visa or MasterCard transactions originated from EMV-compliant POS terminals which support both contact and contactless, they may apply for relief of PCI audit requirements.
Many want an accelerated rate of NFC acceptance expansion. Bundled deals are being offered by POS vendors and acquirers so merchants can simultaneously upgrade terminals to EMV and NFC.
As a result of the US EMV liability shift in October 2015, EMV adoption rates grew from 7.7% in 2014 to 42.3% in 2015.
What is stopping contactless cards?
Companies such as Ingenico and VeriFone have already distributed thousands of EMV-enabled POS terminals in the US, the majority of which are equipped with contactless technology.
Merchants can also benefit by making a single investment that would result in the delivery of combined EMV and NFC payments. Also, as consumers increasingly make payments using mobile wallets, merchants could actually lose customers if mobile-based contactless options are not available.
As a result, banks and issuers are not pushing contactless cards to customers; instead, they are promoting NFC-enabled mobile payments.
The price of NFC chips is offputting for banks. In addition, the huge level of marketing from mobile players highlighting NFC solutions has eclipsed campaigns for contactless cards; there is little incentive for banks to roll out contactless EMV cards.
More work also needs to be done with public transit systems to push contactless cards, but with so many different state systems and a general cultural preference for driving over public transport in most US states, there has not been a push for contactless cards.
However, mobile NFC has taken the initiative once again. In a recent announcement, the Metropolitan Transport Authority of New York launched a mobile ticketing app, eTix, enabling commuters to use smartphones to buy tickets and board transit on certain routes on the system. Apple Pay and MasterCard were recently added to the app.
This is likely to accelerate growth in mobile NBC, particularly if similar initiatives are taken up in the rest of the US.
In addition, from a merchant perspective, contactless was not a priority when upgrading terminals ahead of the October 2015 liability shift. This was attributed in part to the higher costs of hybrid EMV and contactless terminals.
The marketing and promotion of NFC via the ‘Pays’ has driven more merchants to focus on EMV and NFC device capabilities.
A fair amount of coverage has been given to the risks of contactless cards. Particularly given the ability for card skimmers to extract personalised card data from the contactless chip by walking near someone’s wallet with an RFID card reader.
This has caused much concern among consumers and has likely driven banks and issuers away from contactless technology on plastic products. The heightened security of mobile NFC is still heavily advertised, and is expected to push consumers and issuers alike towards the solution.
Contactless payment cards have actually been available in the US since 2009. Unfortunately a lack of contactless-enabled POS terminals meant adoption was not high.
According to estimates, only around 2% of POS terminals were contactless-enabled in the US in 2013. However, with the launch of the ‘Pays’ from 2014, the proportion of enabled terminals has since increased to around 20%.
Brazil now ready for contactless
Brazil is no stranger to adopting payment systems into its infrastructure. Various multi-plank strategies to further increase contactless penetration and capture the unbanked population have been undertaken.
Banco Santander has issued more than three million Santander University Smart cards with Gemalto, using MasterCard’s PayPass features.
The cards include digital IDs to access university facilities, enable users to make low-value purchases for everyday needs, and offer discounts and other student services.
Due to high rates of robbery and theft in the country – Brazil ranks ninth in the world in terms of fear of crime – Brazilians prefer to not carry cash; secure transactions are therefore a strong consumer preference.
In addition, Brazil is undergoing an economic recession and political upheaval, which may challenge payment companies already struggling with an unstable internet and contactless payment infrastructure in many areas.
Contactless was introduced in 2013 when banks started EMV migration with dual upgrades, making terminals simultaneously contactless-enabled.
As a result, NFC payments on mobile phones have entered the market. Banks and schemes, in conjunction with the Banco Central do Brasil, have steadily introduced various payment products to gain market share.