I must admit, when I saw my first contactless device I didn’t think
there would be any ROI for the small merchant or that there was a
future for such a product. After almost two years of doubting the
solution, I have done something that most would say is very difficult
– I have changed my mind. The issuers have literally driven this
initiative to the point where it is going to happen with warp-speed
momentum. I recently spent some time with On Track Innovations
“OTI” (www.otiamerica.com), one of the largest suppliers of
contactless solutions, to gain some insight on the growth of
contactless and how it will impact all merchants, especially the
smaller ones.
The growth of contactless lies in the force on the issuing side of
the card industry. The card companies will tell you that at the end
of last year there were 5 to 6 million cards issued, but we know that
the banks already had about double the number of cards than they
officially issued. In addition, some of the major credit card
issuers have publicly stated that they are going to completely re-
issue their portfolios with contactless. Many debit card issuers
have also looked at the current need to re-issue and have decided to
go ahead and issue as contactless. Most of the banks are looking for
a way to differentiate themselves in the market, to stand out. This
is one of the driving forces behind the fobs. You can have them
constructed in innovative ways and consumers have shown they like
them. By the end of the year, contactless will be national. While
each bank is very secretive about where and when they will issue, the
cards and fobs are moving onto the street quickly, much faster than planned.
Retail adoption has been coming along as well. Tier 1 and Tier 2
merchants, where people stand in line, have been early targets for
contactless. If the technology moves customers through the POS
faster, with more security, and in a way that customers like, it is
extremely attractive to retailers (merchants). Many of the early
retail adopters of contactless were given readers at no charge, or
the costs were subsidized by the Associations and/or acquirers. With
the demand growing, many retailers are now purchasing readers from
acquirers or third parties down the supply chain as they purchase or
upgrade their integrated register systems. In addition, contactless
cards use a microprocessor, not a memory chip. They can support
multiple applications on a card that provide a lot of value to a
retailer that wants to know more about his customer, reward his
customer and provide services (pre-paid, gift, frequency) to his
customers.
The benefits to a small merchant begin with one key point. The
biggest finding (for all the numbers related to merchants) from the
Orlando pilot was that customers like to use these cards, the cards
go to the “top of the wallet” and cardholders look for places to use
them. On the acquiring side, we often are oblivious to this
phenomenon. It has been a long time since there was a card that
caused people to change their shopping patterns, but we saw that in
Orlando and it is being experienced elsewhere. If holders of
contactless cards are looking for a place to use them, and a merchant
puts a new decal on the window that says PayPass or ExpressPay, it
will make a difference. The other benefits for a small merchant are
the same as for the bigger guys. If the merchant has customers
queing up or who are more comfortable not giving a card to the clerk,
contactless will no doubt help.
It is important for any acquirer to remember that contactless should
complement their overall strategy. If they have been giving away
terminals, this is a lower cost give-away. If they are looking for a
reason to go back to an existing merchant, this will facilitate. If
they are looking to upgrade a merchant to a new piece of hardware,
this will force an upgrade. Again, it is all wrapped around cards
being issued in their area. Buying patterns will change when
cardholders find that some merchants accept contactless and some do
not. It will be difficult for retailers to win those customers back
just because they can now do what the competition has been doing. In
areas like Philadelphia and north Dallas where numerous contactless
cards/fobs have been issued, this has proven to be a strong argument.
So it is true. I had to eat my words.
Contactless is going to
happen. The growth is phenomenal and this is just the beginning.
There are numerous applications for contactless around
the world (QSR, mass transit, petroleum, convenience, drug & grocery,
etc.) and it is just starting in the U.S.
The capability to use this technology to add value to our lives is
just unfolding. Find a way to integrate contactless into your
overall business strategy.
Those acquirers that can effectively do this will yield success.
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