Contactless Payments: Where's Debit and who will benefit

The electronic payments industry has seen rapid change in the last 24 months from the standpoint of payment mix (decreased checks and cash, with increased debit and almost flat credit purchases) to the advancement of new form factors such as EMV smart cards in Asia, Europe and parts of South America, to new contactless technologies such as PayPass (MasterCard), Wave (Visa), Expressway (Amex) and QuicPay (JCB). The consumer base of accountholders has quickly responded to the new RFID form factor because of its simplicity, speed, and convenience. Retailers have also responded well considering the increase in sales, faster transactions and in many cases, higher spend versus its cash equivalent. It also provides less wear and tear on hardware with fewer moving parts to further decrease maintenance and replacement parts.
With the rapid adoption and move to put cards out into the market, several large credit card issuers have announced programs including Chase, City, MBNA. Larger retail chains have also got behind to support the programs as well including 7-Eleven, McDonalds, Meijer’s, Ritz Camera, and Regal Cinema to name just a few. The most recent announcement has been the long ignored debit program from KeyBank, the first contactless program announced. Citibank followed shortly after. Both are MasterCard.

From an issuer’s perspective, they can introduce the contactless payments through either credit or debit programs. Although most have been credit programs as mentioned above. However, the nature of the program is for low-value payments under $25. This is the target market debit programs mostly serve. The largest missed opportunities are in debit programs. One of the largest untapped markets lays within the large and national debit programs for two primary reasons. Firstly, the nature of the contactless programs are to displace cash at the low-value payment level. Debit is the most logical and consumer oriented programs to address this demand.

Secondly, debit card issuers have been mostly absent from previous card technology programs such as EMV. EMV and smart card programs/pilots have been mostly evaluated by credit card issuers. These credit card issuers have learned the lessons of chip and new technologies and they are in a strong position to capitalize on the contactless programs through the technology teams from past smart card programs. Since they may lack both the internal resources and the product (contactless feature) for low-value payments, they will likely lose significant competitive advantages by not being first-market movers. Will debit card issuers have the level of expertise to evaluate and build the requirements or programs needed to deploy contactless card programs?

Consider the following: - McDonalds will now accept PayPass at their stores and other small value retailers (under 25$) are aggressively upgrading their POS systems to accept PayPass transactions. - The pilot for PayPass was conducted by MBNA at the Seattle Seahawks stadium (on credit cards). August 22 pre-season Monday night football game had all 400 terminals within the Seahawks stadium using PayPass. - The Washington Redskins FedEx stadium will be accepting PayPass. - The nature of tap-n-go is to not take the card out of the wallet, just “tap” the wallet. This means the consumer will likely only have ONE contactless card in their wallet as the primary card of choice making first market advantage critical. - Tap-n-go is typically for low-value payments below $25. This coincides with debit purchases as well and the direction the associations are moving in changing the chargeback and dispute rules - As a longer-term strategy, RFID allows issuers to partner with non-traditional players for value added services including key FOBS, stadiums, ticketing, campus, transit, etc. As part of this overall direction, the card associations are seeking partnerships with banks and large municipalities to offer community based services (parking, transport etc) that represents an increase in spend for all parties. - MasterCard has announced a Transit Ticketing application under development to integrate or displace individually issued transit tickets with an Association based card. - Asia as well as other markets are quickly changing direction or re-evaluating traditional EMV contact smart card programs to leverage contactless EMV protocol in either a fully contactless card or a combination contact/contactless card. - Near Field Communications is enabling mobilcom operators and device providers to become an integral part of “wallet” consolidation by converging payment devices with a handset.

It’s certainly a time filled with a lot of changes, please stay posted.

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