Published: April 29, 2020
The coronavirus outbreak has quickly catapulted contactless payments into the mainstream consciousness thanks to their hygienic benefits. For banks to fully capitalize on this unique messaging opportunity and ignite a longer-term behavior change among cardholders, they must ramp up the speed in which they are getting contactless cards into the market.
The 451 Take
Our analysis shows that contactless cards have seen promising early results in the US. We anticipate that this momentum will be furthered by the COVID-19 pandemic, which has quickly positioned proximity payments as the most sanitary way to pay. Card issuers should leverage the market-wide focus on hygiene as an opportunity to accelerate contactless card issuance and double down on cardholder messaging. We believe that doing so will truncate the lengthy adoption curve traditionally associated with engraining a new payment behavior within their cardholder bases. To expedite ROI, taking into consideration demographic variables like cardholder age and location to tactically reissue card portfolios will be essential.
Card Issuers must act fast to Accelerate Adoption to Tap-to-Pay
Major US financial institutions began accelerating issuance of contactless cards in 2019. Visa, for instance, noted that by October 2019 its issuing partners had collectively put over 100 million contactless cards into the US market. This has driven a significant increase in cardholder enablement. Nearly two in five cardholders that responded to 451 Research's VoCUL: Connected Customer, Consumer Representative, Q3 2019 survey (fielded September 30 to October 25, 2019) had already received a contactless debit or credit card from their bank, and about one-quarter of cardholders overall were making tap-to-pay purchases at the time of the survey (see Figure 1). But still, at the time of the survey, more than half of cardholders had yet to receive a contactless card from their bank or credit union.
To date, most US card issuers have eschewed a mass conversion of their portfolios to contactless in favor of a more conservative approach. This has included leveraging natural reissuance (e.g., upon card expiration), new account issuance or customer request to gradually convert their portfolios. This prolonged-path contactless conversion has been a sensible strategy up until this point considering the relative newness of the technology for most US cardholders. However, given the contactless payment tailwinds created by COVID-19, we urge financial institutions to reconsider their reissuance strategies moving forward.
Card marketers at US financial institutions should look to coronavirus as a uniquely simple and effective messaging opportunity to drive tap-to-pay deployment. At present, we believe that the role of contactless in promoting social distancing will resonate much more strongly and widely with cardholders than the speed and convenience benefits that are often touted as the primary adoption drivers. Card issuers would be wise to accelerate contactless card issuance to capitalize on the uniqueness and timeliness of this emerging hygiene-centric value proposition. We feel that acting fast will galvanize further cardholder interest in and adoption of tap-to-pay. It may also help significantly shorten the adoption curve.
While a mass reissuance of a multimillion-card portfolio may be unrealistic for most issuers, a tactical approach targeting high-priority cardholders is not. There is already precedent for this in the US. In June 2019, Bank of America began a mass contactless conversion of its roughly four million consumer cards in New York City, Boston and San Francisco.
We advise card issuers to weigh different demographic variables to ensure the best possible ROI on their contactless conversions. Age and geographic location are among the most important to take into consideration. As Figure 2 indicates, cardholders in the 18-24- and 25-44-year-old age brackets show the highest propensity to begin using a contactless card should their bank issue them one. From a geographic standpoint, cardholders residing in the Northeast are most likely to make tap-to-pay purchases, especially when compared to those on the West Coast. When employing a tactical reissuance strategy, card issuers should closely evaluate the corresponding impact on cardholder adoption and utilization to continuously recalibrate their efforts.
While playing up the hygienic benefits of contactless in light of COVID-19 should be a central marketing message, the high percentage of 'don't know' and 'unlikely' responses in the above chart indicates that further consumer education will still be needed. Addressing security concerns must be a key part of any card issuer or payment network's education campaign to ensure near-term adoption of contactless payments. We find that 51% of cardholders believe that contactless transactions are either less secure than traditional debit/credit transactions (i.e., insert/swipe), or they aren't sure. Educating cardholders on the security mechanisms in place for contactless transactions – and the safeguards used to prevent things like double billing – is essential to dispel misconceptions.
What about Wallets?
While contactless digital wallet options have been available in the US for the better part of a decade, uptake at the point of sale remains in its infancy. Our analysis shows that just 15% of consumers have made an in-store transaction with a digital wallet in the past 90 days. We think that for the time being, contactless cards will have broader market appeal than contactless digital wallets given that they encourage an evolutionary, rather than revolutionary, behavior change.
An Associate Analyst in 451 Research’s Customer Experience & Commerce Channel, Cam O'Shaughnessy covers the digital commerce ecosystem, including e-commerce, mobile payments and omni-channel commerce. Additionally, he contributes to the design and writing of the consumer insight-driven VoCUL (Voice of the Connected User Landscape) Digital Wallets survey product.
Jordan McKee is a Research Director for Customer Experience & Commerce, and also leads 451 Research’s coverage of the payments ecosystem. He focuses on digital transformation across the commerce value chain, with an emphasis on the major trends impacting payment networks, issuing and acquiring banks, payment processors and point-of-sale providers.
Csilla is a senior analyst for 451 Research’s Data, AI & Analytics channel. She currently focuses on decoding the blockchain market to help replace confusion and complexity with an examination of the technology, the competitive landscape and available solutions that are driving the market, as well as real-world use cases and deployments.