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Contactless cards: ‘Whoa, it’s the future!’

Tap-and-go payments are in their infancy in the U.S., but that’s about to change

Summary

Contactless payments have caught on in the U.K., Canada and Australia, but they’re still in their infancy in the U.S. However, with major credit card issuers and metropolitan transit authorities jumping on the bandwagon, that’s about to change. Here’s what’s ahead for contactless cards.

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This story was updated on Aug. 28, 2019 to reflect a change in Citi contactless card issuance.

I’m a big fan of contactless cards. I had an amusing experience at the grocery store a couple of weeks ago. I touched my card to the payment terminal and the cashier began to shake his head.

He started to say, “No, you …” and then his expression changed to shock when the machine dinged and my transaction processed. The shopper behind me exclaimed, “Whoa, it’s the future!”

I’m sure the store employee was about to tell me I needed to dip my card into the payment terminal, as we’ve all done countless times since chip cards went mainstream a few years ago. He (and the next shopper in line) had clearly never seen someone pay by tapping, rather than inserting, their card.

See related:  Moving toward a cashless society with peer-to-peer payments

How it works

Contactless payments are much faster than dipping a card and just as secure. Visa says 48 percent of its in-person transactions (excluding the U.S.) are contactless. That includes more than 90 percent of transactions in Australia and more than 50 percent in the U.K. and Canada.

The technology behind tapping a card and mobile payment services such as Apple Pay and Google Pay is interchangeable. If a merchant can accept a tap from a card, it can accept a tap from a phone, and vice versa.

Generally, I prefer tapping a physical card rather than using a mobile payment service. I’m more comfortable identifying the card that offers the best rewards by pulling a specific piece of plastic out of my wallet rather than activating the payments app and scrolling through a list of cards on my phone.

Coming to America

Contactless payments are still in their infancy in the U.S. A.T. Kearney reported a few months ago that just 0.18 percent of point-of-sale transactions were contactless.

But that’s starting to change. All Chase Visa cards will be contactless by the end of the year. American Express and Capital One were among the early leaders in sending contactless cards to their customers (typically for new cardholders and when existing cards expire, although you can request them sooner). Wells Fargo joined the bandwagon earlier this year, and Bank of America initiated a pilot program last month in New York, San Francisco and Boston. (See chart below for a list of U.S. issuers that offer contactless credit cards.)

New York is a fascinating case study. It’s the country’s largest city and, in late May, it began accepting contactless payments at certain subway stations in Manhattan and Brooklyn, as well as Staten Island buses.

The Metropolitan Transportation Authority plans systemwide contactless availability by the end of 2020. It’s very early, but in the first weekend, the MTA reported 10,700 riders paid with a tap. That’s at the high end of the range the agency forecast for a full week. And, about 80 percent of the payments were made with phones. That’s a notable contrast with other countries, where about 90 percent of contactless payments are made with cards, according to Visa.

We’re nearing a tipping point in the U.S. Most merchants can now accept contactless payments. More card issuers are delivering contactless cards to consumers. There’s a big mobile payments push from popular companies such as Apple and Google. And transit systems in New York and Chicago are contactless-equipped, with other big cities such as Boston and Washington, D.C., working on it.

In the U.K., many people first experienced contactless payments on London’s transit system, and then they realized they could also pay quickly and easily by tapping at restaurants, supermarkets, pharmacies and so on.

I think the same thing will happen here. The demand is definitely there: Our research shows three-quarters of credit card holders prefer to pay for small purchases with cash and debit cards. The most common explanation for avoiding credit was that other payment methods are quicker and easier. With contactless payments, that’s no longer true.

See related:  How will the rising demand for contactless cards affect instant issuance?

What happens next

The change won’t happen overnight. Much more education is needed, starting with store clerks. I’ve had a number of confusing interactions when I’ve tried to use new technologies such as Apple Pay, Chase Pay and contactless cards. Many consumers are in the dark as well.

To that end, Chase is offering select Chase Freedom cardholders the opportunity to earn 500 bonus Ultimate Rewards points if they tap to pay three times from June 27 to July 31, 2019 (each transaction must be $1.75 or more). And Mastercard is running a free summer Fridays promotion on New York City subways through July. They’ll refund up to two free contactless rides on each of those dates.

These promotions are all about exposure and starting a habit. I’m already hooked on contactless payments, and once you tap, I don’t think you’ll want to dip a card ever again.

U.S. issuers that offer contactless credit cards

Many credit card issuers today still do not offer contactless credit cards – but that might be about to change. (Dan Rafter)

American ExpressAmerican Express: 

Bank of AmericaBank of America: 

  • Bank of America is piloting contactless cards in select cities across the U.S. – including New York, Boston and San Francisco – according to reports cited by Doctor of Credit.
Capital OneCapital One: 

ChaseChase: 

  • Chase announced November 2018 it’s preparing to roll out contactless technology on all newly issued and renewed Chase Visa cards. Popular cards such as the Chase Sapphire Reserve and Chase Freedom will feature the technology by summer 2019. Chase debit cards will also be granted tap-and-go abilities sometime before 2020.
CiiCiti: 

DiscoverDiscover: 

  • A representative for Discover said that this issuer does not currently offer contactless cards.
Wells FargoWells Fargo:

  • Fargo offers several cards with contactless technology, said Sara DuBois, with Wells Fargo Corporate Communications.
  • These are the Wells Fargo Visa SignatureWells Fargo Rewards, Wells Fargo Home Rebate and Wells Fargo Home Rebate Visa Signature cards. 
  • The new Wells Fargo Propel American Express® card is EMV-enabled and will also be enabled for contactless payments later this year, DuBois said.

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