US embraces contactless payment revolution

June 05, 2019

The US is in the grip of a payment revolution, with contactless card technology now rolling out in earnest. The shift will see one of the world’s biggest economies finally fall in step with technology taken for granted elsewhere in the world.

So, what’s the go with contactless payments and why has it taken so long in the US?

US lagging behind

Up until recently one of the world’s biggest economies has been lagging behind on the contactless front.

While consumers in other countries like the UK, Canada and Australia have been happily tapping their bank cards or paying with their phones, a delay in the adoption of contactless terminals has seen the US stuck swiping.

That delay has been attributed to the complexity, size and age of the US market, with a recent article in the Financial Times noting although the US is where the card industry began, it “is arguably the most complex market in the world, with over 50 years of legacy systems”.

“There are thousands of banks – compared to a handful of major ones in other markets – tens of millions of merchants, and a fragmented industry that provide payments technology. This makes it hard to settle on ubiquitous solutions.”

But that’s all set to change over the coming months as big banks like JP Morgan and big credit providers like Visa and Mastercard look to implement contactless cards.

Mastercard told the Financial Times it has agreements with its bank partners that will bring contactless cards to customers accounting for two-thirds of its total payment volumes within two years, while Visa expects 100 million contactless Visa cards to be issued in the US by the end of 2019.

Why the move?

Ultimately the shift to contactless has been driven by a transfer of liability. In November 2015, merchants rather than banks became liable for fraudulent transactions made using magnetically swiped cards.

The Financial Times says this was the impetus needed for merchants to start upgrading their legacy card reading equipment to machines which could handle EMV chip technology. These EMV card readers also facilitate contactless payments through near field communication (NFC).

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Where to from here?

With banks offering more contactless cards and more merchants being able to accept them, it’s anticipated the US stands on the precipice of a payment revolution that will see more consumers using either their contactless card, or digital wallet (Apple Pay, Samsung Pay, Google Pay etc) to complete transactions.

In 2016, Statista noted contactless payments generated US$29 billion. By next year it’s anticipated they will generate almost three times that at US$83 billion, and by 2025 the sector will balloon to US$358 billion.

In the interim Visa notes 78 of their top 100 merchants (in terms of transactions) now offer tap to pay at the checkout, and more than 60 per cent of Visa face-to-face transactions occur at contactless-enabled merchant locations in the US.

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