Contactless Trend Will Wither Without Move to Handsets, Report Argues

The momentum behind contactless payments is likely to stall unless the wave-and-pay method moves from cards to mobile phones, a new research report argues. But while that movement may boost the potential for mobile payments, it will also require a delicate balance of interests among card issuers, payment networks, merchants, and wireless carriers, the report's author tells Digital Transactions News. That complex balance has so far proven elusive. Over the past couple of years, about 32,000 cash-based merchants heavily dependent on speedy transactions?such as fast-food restaurants and convenience stores?have installed equipment to accept contactless cards and key fobs now held by about 19 million consumers. But adoption by consumers will virtually flatten out?gaining only about another 1 million users over the next five years?unless a broader array of merchant categories accept the payment type, according to a forecast published by Javelin Strategy & Research, Pleasanton, Calif. That can only happen, argues Bruce Cundiff, senior analyst at Javelin, if issuers start moving contactless capability to mobile devices. With sufficient merchant penetration, by contrast, consumer adoption of contactless could reach 50 million by 2012, Javelin forecasts. Consumers' chief concern with contactless payment, Cundiff says, stems from spotty merchant coverage, a concern that outweighs any lingering worries about data security with the devices. Contactless payment relies on radio waves rather than mag-stripe swipes to transmit card-account data to point-of-sale terminals. If issuers move contactless payment to phones, which unlike contactless cards don't offer a mag-stripe default option, merchants will be left with little choice. Those without contactless POS equipment would soon see a business case for installing the gear, Cundiff says. “If the only method of payment I have is contactless, if I don't have a mag stripe, you're going to potentially lose the sale,” he says. Further, merchants could reap benefits from the ability to send coupons and marketing messages to customers, even while they're waiting in line to pay. “It's much more dynamic,” Cundiff says, than cards. Currently, issuers and wireless carriers are experimenting with a short-range transmission technology called near-field communication (NFC) to allow cell phones to make contactless POS transactions. But the carriers have been reluctant to invest in NFC, citing an undeveloped business case. That has restricted the supply of NFC-capable handsets. Cundiff argues that situation isn't likely to change soon unless the banks and bank card networks make some major concessions. “We're not going to see the wireless carriers budge until they see a clear path to revenue,” he says. That could mean the banks will have to share transaction revenues with the carriers to help seed the market with enough handsets to spur consumer adoption?and hence buttress the case for the carriers to make further investments, Cundiff says. So far, banks have been loath to do that, leaving merchants and carriers without a clear-cut business case for NFC, and thus effectively capping the growth of contactless payments, Cundiff argues. “That's where we are,” he says. “We're stuck.”