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The US has consistently lagged other markets in adopting new credit card tech.Execs at Visa, Mastercard, and American Express explained what’s behind the US lag, and whether it was possible for the US to skip full contactless card adoption and go all-in on digital wallets. In New York, OMNY has been slowly rolling out contactless tap on select MTA subway lines. It most recently added transit hub New York Penn Station to its list of contactless-enabled stations.Mastercard has deployed what it calls “station domination,” and ia promoting contactless technology across New York’s subway system.Click here for more BI Prime stories.Will the US leapfrog contactless card adoption and go straight to digital wallets?The question was raised on a panel discussion at the FinovateFall 2019 conference in September. It seemed a reasonable theory. For card issuers in the US, where contactless adoption has lagged some other countries, the strategy involves issuing new cards, influencing merchants to enable point-of-sale card readers, and shifting consumer behavior toward tap-to-pay. Why not skip the hassle and focus on digital wallets?But contactless is slowly but surely becomming more visible in the US. In December, the MTA added to its OMNY-enabled lines to include transit hub Penn Station, which adds six more lines to the contactless subway network. Still, the US has consistently lagged other markets like Europe and Australia in adopting new card tech. For instance, the UK fully adopted EMV chip technology in 2006, and advanced to contactless tap tech by 2014, when the London Underground started accepting contactless fare payments in turnstiles. The US was still using magnetic stripe (“magstripe,” in industry lingo) cards back in 2014, but high-profile breaches at retailers and pressures from card networks finally drove adoption of EMV chips in 2015 — meaning consumers had to become accustomed to inserting cards into chip readers, instead of swiping. Now, the UK and other markets like Australia and Canada have mature contactless tap environments. But in the US, contactless cards still haven’t fully caught on. And 80% of the first million taps of the New York MTA’s contactless subway fare pilot (using OMNY technology) were done with mobile wallets, not cards.We spoke with execs at Mastercard, American Express, and Visa to understand what we can expect for contactless tap, and get a better idea of why it’s taken so long for the US to catch up to other markets. The US contactless environment will likely feature both tap-to-pay cards and digital wallets in the coming years.Read more: We went to Mastercard’s tech showcase, which featured biometric sensors and shrimp-tracking blockchain. It’s part of a push to embrace a future without cards.Commuters and their coffeeSimilar to London, public transit is a strong use case that could be the driver behind contactless tap adoption in the US.”There really isn’t any other use case, other than maybe heavy caffeine users, where consumers are using their Visa cards one or two or even three or four times in a given day like they are in places in New York with the MTA,” Dan Sanford, global head of contactless payments at Visa, told Business Insider in September.In May, New York City’s MTA launched its public pilot of OMNY (One Metro New York) on the 4/5/6 subway line. OMNY is a contactless fare payment system, accepting both mobile digital wallets and contactless-enabled cards.In December, OMNY announced its 4 million tap milestone alongside its rollout of tap-to-pay technology in transit hub New York Penn Station, which adds the 1/2/3 and A/C/E subway lines to the contactless transit network.”When transit goes live with contactless it acts as a trigger category to drive contactless behavior and spend in places beyond transit, whether that’s the coffee shop or the grocery store or a restaurant,” Cheryl Guerin, SVP of marketing and communications at Mastercard, told Business Insider in December.Mastercard has taken over New York’s subway system, promoting tap-to-pay technology at the turnstiles and around the stations. Earlier this year, the credit card network dropped its name from the logo, instead relying on the yellow and red concentric circles to represent the brand.
Mastercard registered a trademark for the phrase ‘tap & go.’
Shannen Balogh/Business Insider
“We’ve taken the tactic of what we call ‘station domination’ where you are showcased throughout the station,” said Guerin. “We’re both educating on the use case for transit, as well as others. That way, people know they can use their card,” she said.The OMNY terminal showcases all credit card network brands, but Mastercard is all in on promoting the new technology. Mastercard also registered a trademark for the phrase “tap & go.”Through the end of the year, Mastercard is running a promotion called Fareback Fridays, where riders who tap their contactless-enabled Mastercards at OMNY’s turnstiles will get two rides refunded every Friday.In the first few months of the OMNY roll-out, the MTA reported 80% of taps came from digital wallets, as opposed to contactless cards.”If you’re comparing the two right now, mobile adoption is further along because it’s more mature than where we are in terms of card issuance,” Sanford said, in regards to these results.”Nine million commuters every day are now experiencing the incredible user interface at the turnstile, where they can simply tap a card and go through,” Linda Kirkpatrick, EVP of US merchants and acceptance at Mastercard, told Business Insider in October. “That’s created a ton of buzz in the industry, and really created the imperative for consumers to want a card that has contactless capability.”Read more: New York City’s contactless transit payment system hit 1 million transactions in its first 10 weeksThe end of swipingEuropean markets transitioned from magstripe to EMV chips starting in the early 2000s. It was more or less a cost-driven decision, given the high telecommunication costs associated with the magstripe payment authentications that have to happen online.EMV chip transactions create unique codes that are validated at the point of sale, instead of having to confirm each transaction online.The US, by comparison, wasn’t facing the same telecom costs. Given the size of the market and sheer number of magstripe cards and readers, there was little incentive for card issuers to upgrade to EMV chip. “The U.S. is a complex and layered payments market, and large-scale adoption of any new technology takes time and participation across the industry,” Liz Karl, vice president of payments consulting at American Express, told Business Insider in emailed comments in October. A transition from magstripe to EMV chip cards would require costly hardware updates at merchant checkouts. For payers, a behavior change from swiping to inserting a chip would complicate checkouts. “We were behind on all of it partly because we could never get a business case on chip cards,” Zachary Aron, US banking & capital markets payments leader at Deloitte Consulting, told Business Insider in October. “It was a solution looking for a problem, and no one found the problem.” That is, until Target and Home Depot had high-profile data breaches in 2013 and 2014, respectively. In both instances, hackers obtained customers’ static data stored on magstripe cards. “When [the US] was moving to EMV, it was driven by a lot of the data compromises,” said Sanford. “We were getting a lot of inquiries from policymakers in D.C.,” Sanford said. So in 2014, chip cards entered the US market. It wasn’t until 2015 that the EMV chips really caught on. Following the high-profile data breaches and subsequent pressure from regulators, the EMV card networks rolled out a liability shift policy in the US that went into effect October 2015. EMV - which stands for “Europay, Mastercard, Visa” - is a standards body that counts several major US credit card networks as members.The policy basically said that in a chip-enabled market, any fraud traced to the point-of-sale would be a liability to the least secure party. For example, if a merchant did not have an EMV chip enabled reader but the customer did actually have a chip card that was swiped, any fraud on the transaction would be the merchant’s responsibility.”The liability shift created a natural motivation for each of the players to make a move,” said Mastercard’s Kirkpatrick. Both merchants and card issuers were now incentivized to upgrade points-of-sale and issue EMV chip cards to their customers.However, issuers did not send out dual-interface (meaning both chip and contactless-enabled) cards to customers at that point.”There has to be some motivation for issuers to take on the incremental cost,” said Kirkpatrick. At the time, there simply wasn’t any consumer demand for contactless tap in the US.”I think they wanted to wait and see if there was a consumer imperative, and now there is,” she said.There was something else happening in 2014 — that’s when Apple Pay launched. Given the hype over mobile payments and the prohibitive costs of issuing a dual-interface card, mobile payments became the card issuers’ contactless strategy, said Sanford.Same challenges “Mobile really hasn’t taken off in the US, and we’ve created the same challenges in the US point-of-sale environment around introducing friction with EMV,” said Visa’s Sanford.So the likelihood of all US consumers adopting mobile wallets as their primary way to pay is low.”We realized that to really move the market in the US, we needed to migrate toward contactless cards, that it couldn’t be a contact chip and mobile-only strategy, because you’re going to have a certain swath of the industry that’s going to adopt mobile, but it’s not for everybody,” Sanford said.As of July 2019, all new American Express consumer and small business cards being issued were contactless-enabled (and new corporate cards were contactless as of October 2019). Existing cards will be upgraded in natural cycles, unless specifically requested by customers.”Whether by card or digital wallet, we believe contactless as a payment option is quick, convenient, and secure,” said Karl. Visa expects to see 100 million contactless-enabled cards by the end of 2019, and 300 million in circulation by the end of 2020. “Much of that is going to happen across different demographics. Certain consumers will select and be heavy mobile users, and the other will be more comfortable using their card,” Sanford said.Sanford thinks that in a few years, the US will look a lot like other markets like the UK and Australia.Read more: Apple Pay adoption is lagging in the US — but Apple Card could change this
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