Contactless payments ten years on: The shift to contactless universal payments is now well established

By Lu Zurawski, Practice Lead Retail Banking and Consumer Payments at ACI Worldwide

In September 2007 Barclaycard introduced contactless payments to the UK. 10 years on and many Brits would not want to live without a contactless card any longer. Six out of ten Brits now pay with ‘touch and go’, and according to the UK Cards Association 108 million contactless cards are now in circulation in the UK, with volumes of transactions currently reaching over £400 million per month.

While these numbers sound impressive, the impact of contactless will go way beyond plastic cards.  I believe contactless technology is a hugely impressive piece of social technology. It has helped to usher us into a completely new era of mobile payments, where consumers feel comfortable to not only wave cards but also smart phones and wearable devices like watches or rings over a card reader or device to initiate their payment.

It has helped to usher us into a completely new era of mobile payments, where consumers feel comfortable to not only wave cards but also smart phones and wearable devices like watches or rings over a card reader or device to initiate their payment.

Clearly a network effect has helped the widespread success of contactless in the UK and other European countries: New cardholders can observe fellow shoppers casually waving a card.  Shop assistants increasingly expect to be presented with a contactless card at nearly half a million payments terminals across the UK. They will often gently nudge a customer: “Is it ok if I tap it for you?” Contactless stopped being a minority sport many years ago.

The step from chip to contactless card will prove to be a necessary enabler for the accelerated adoption of mobile payments in mature payments markets like the UK. Consumers have become comfortable with the new “ceremony” of waving a card near a device rather than inserting it into a slot.  And this realisation will make it so much easier to accept the next step of “waving”, which in many cases will be a mobile device instead of a card.

Consumers have become comfortable with the new “ceremony” of waving a card near a device rather than inserting it into a slot.  And this realisation will make it so much easier to accept the next step of “waving”, which in many cases will be a mobile device instead of a card.

It seems inevitable that a shift to contactless universal payments is now well established. If current adoption rates continue, mobile contactless will reach 3 billion transactions in the UK in 2020 (i.e. the same volume as card contactless in 2016 – an impressive catch up if this is momentum can be sustained.) This kind of growth may be taken as a great success story for the cards industry, particularly if the most common way of funding a mobile wallet is by linking consumers’ existing payment card details into the new mobile apps. Users of Apple Pay or Amazon Pay are accessing an existing Mastercard or Visa card, using the standard technique of “Tap and Go”, albeit hidden behind a mobile façade.

It is tempting to think that debates about consumer payment techniques and standards may now be “done and dusted.” But, perhaps controversially, I think the future for contactless may be a bit more “touch and go.” Now that consumers are happy to wave a phone and not a card, will it be that hard to add new, non-card instruments into those mobile wallets? How about bank accounts – newly secured, authorized and authenticated using the techniques that European public policy initiatives like the Payment Services Directive (PSD2) are nudging markets into adopting.

Beyond our familiarity with contactless here in the UK and in markets where consumers have grown up with plastic cards, the transaction volumes for contactless usage are surprisingly dwarfed when compared to the figures of (predominantly Chinese) mobile payments users who use alternatives to contactless – specifically optical bar code scanning techniques – within schemes like Alipay and WeChat Pay.

Personally, I find optical QR-codes unpractical and too fiddly. But having seen their total ubiquity on a recent trip to China, I had to concede that more than 600 million regular users cannot all be wrong.

More importantly, a significant proportion of this user base travels abroad and – not unreasonably – expects retailers to be familiar with their preferred way to pay. Which is why high-value merchants across Europe and the US are currently working hard to add Alipay and WeChat Pay to their Points of Sale.

Despite their impressive volumes, I still doubt QR-codes will de-rail the progress of contactless. One reason is that many of us living and working in ‘cards markets,’ are probably not too keen on making fools of ourselves by learning yet another new “payments ceremony”. But it would also be foolish to ignore the impact that schemes like WeChat Pay will have on developing markets where consumers have previously neve held a bank account, never mind a contactless plastic card.

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