Could the Horrendous Consumer Experience With Chip Cards Boost Mobile Payments in U.S.?

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Payments experts have predicted that the U.S. could head to mobile payments much faster than other developed regions have, bypassing the use of contactless cards that the U.K., Canada and Australia have embraced. While mobile usage remains outside the mainstream for now, forces at work in the current environment could help push consumers in that direction.

We surmised a couple weeks ago that while the U.S. use of chip cards has gotten off to a slow start due to retailer infrastructure, slow certification, and consumer behavior, it could be a strong market for the use of phones in contactless in-person transactions.

Contactless cards were a bust in the U.S. because swipe cards were so popular and easy and the contactless cards were much more expensive to create. Without a security impetus, there was no good reason for banks and consumers to switch. Now in the age of EMV and post-retailer breaches, contactless makes more sense. So, will the U.S. go the same route as the other developed areas that heavily use contactless?

The U.S. is one step back of the process that Europe has followed—chip cards, reissued with dual chip and contactless capability, then mobile contactless – and its geography, and widely spread collection of issuers and acquirers is not as ideal as those in the U.K., Canada and Australia, where contactless is mainstream, but through cards not phones.

“Apple Pay and Android Pay are still very much on the margins,” says Celent senior analyst Zilvinas Bareisis, who in 2013 wrote a report titled Launching NFC Payments: Seven Emerging Lessons From Recent Implementations. “It’s slowly growing, but the story is more or less the same as in the U.S. If anything I think (the U.S.) has an opportunity to leap frog (Europe) in terms of using mobile-based contactless because you don’t have that base of contactless cards. To you, contactless transaction means mobile, to us it still means a contactless card transaction.”

The major obstacles facing mobile contactless in the U.S. and elsewhere are widespread in-store contactless acceptance, to make wallet use more frequent, and making wallet use much more valuable to the consumer than simply a more frictionless experience. In areas where contactless use is robust, consumers simply don’t choose their phones over their cards.

“From an acceptance point of view that still requires the same capability in terms of terminals but for the consumer it’s a different experience,” Bareisis says. “What we find here in the U.K. is its simpler to use the contactless card than the mobile phone because with Apple Pay you’re always worried if your fingerprint is going to work or not. It can be tempermental and with cards it’s more straightforward and simple to use.

“There’s a lot of talk and expectation this will happen but so far it’s been isolated examples of that, until it gets more ubiquitous so people start seeing the value of it because right now there’s little value. There might be value in contactless phone transactions versus inserting your card and waiting forever, especially in the U.S., where I’m hearing it’s really slow for full contact EMV transactions. In Europe right now there is no value in using your phone rather than contactless cards.

Major brands with skin in the mobile contactless game are attacking the problems with marketing in the U.S.

While Apple has shined a light on contactless and wallet use with its Apple Pay news and innovations, Square took the unusual (for its marketing history) step of blitzing Portland, Ore., in May and June with an awareness, behavioral and educational campaign for its $49 reader that can accept both chip cards and contactless tools (card or phone). Apple Pay was a partner in the promotion.

“That’s a very smart way of doing it, to essentially kickstart the market,” says Bareisis. “If you really want to get acceptance going and sign up merchants basically you need to focus on other verticals or a geography.”

Despite the challenges, Bareisis is bullish on the eventual mainstreaming of mobile contactless.

“I firmly believe we will be using mobile phones for payment and I think contactless transactions probably will be that, especially at the retail point of sale,” he says. “Contactless rather than QR codes will probably be a dominant technology, whether Apple Pay or Android Pay or bank-owned wallets, we’ll have to see.

“I think people tend to forget that change in payments happens pretty slowly. You not only have to deal with the infrastructure side, you’re also dealing with consumer habits. Even when we talk about the explosion of contactless in the U.K., it’s been going on since 2007. We used to joke that debit card was a 10-year overnight success story. When you combine lack of terminals, lack of phones, lack of people that are interested in using (mobile contactless), the numbers are quite remarkable. If you look at the adoption and the growth, it’s slower than many would like but once the infrastructure issues go away I think we’ll see more of it happen.”

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