Payments 3.0: Will Contactless Be A Covid-Driven Fad?

It seems obvious that Covid-19 would lead to an increase in the adoption of contactless payments, and it has. But this still may not be the tipping point for tap-and-pay transactions.

Contactless payments are a two-sided coin. They require both consumers and merchants to adopt them, so a variety of factors may slow down that adoption.

On the consumer front, the pandemic seems to have provided the impetus for consumers to give contactless payments a try, but the initial data does not indicate huge adoption.

A survey of 3,014 U.S. adults conducted in May by the Harris Poll for Fiserv Inc. found that only 19% said tap-and-pay cards were their most preferred way to pay. Almost half (48%) said that inserting a chip card was their most preferred way to pay.

So, why is tap-and-pay not at the top of the wallet? It could be the issue of acceptance and availability.

On the acceptance side, about 58% of retailers accept tap-and-pay transactions, up from 40% last year, according to research from the National Retail Federation. In addition, 69% of retailers surveyed said they had seen an increase in contactless payments. Bur while 94% of retailers said they expect contactless payments to increase over the next 18 months, given the consumer data, its not clear that will happen.

What are the factors mitigating against contactless adoption, and why is inserting cards still the most preferred way to pay?

The first mitigating factor is shopping behavior. We know that shopping overall has decreased, but perhaps more important are the changes in the way people shop. A survey of 2,006 U.S. consumers by McKinsey & Co. in June found that 75% of respondents said they had tried new shopping behaviors since the pandemic began. About a third of shoppers said they are using grocery delivery more or for the first time, and about a quarter said they are using curbside pickup more or for the first time.

A contactless option does not matter if the shopper is not going into the store at all. People who have grown accustomed to the convenience of having their groceries delivered, for example, may not return to stores as often even after they are able.

The second mitigating factor, which is harder to measure, is whether or not consumers believe they can tap and pay. Note in the numbers above that, last year, less than half of retailers accepted contactless payments. No one wants to look foolish by tapping a card at a terminal that cannot read the payment, so consumers may just end up inserting the card to avoid the risk of embarrassment.

The payments industry, plus retailers, need to decide if contactless payments need to be promoted. A big opportunity was missed during the EMV conversion to transition everyone over to contactless. Another opportunity exists now. As I discussed in last month’s column, experts say that it is easier to get people to adopt new behaviors when their environments change. As three quarters of people try new shopping behaviors, it is also a good time to convince them to try new payments behaviors.

There are signs that shoppers would be open to it. In the Fiserv/Harris survey, 42% of respondents thought that tap-and-pay was the safest way to make a payment during the pandemic. That could be a powerful driver of new behavior.

Retailers and issuers that want to encourage the adoption of contactless should promote the use of the cards and terminals while consumers are open to new tools and before they slip back into old habits.

—Ben Jackson, bjackson@ipa.org