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Gas pump upgrades could fuel growth of contactless payments in U.S.

Contactless payments for transit are booming in big metro areas, but tap-and-go technology has been slow to catch on across the U.S.

Summary

Contactless payments for transit are booming in big metros like New York City. But despite the progress, tap-and-go cards have been relatively slow to catch on across the U.S. A potential milestone is the imminent adoption of EMV and contactless technology by gas stations.

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I continue to be excited about contactless cards.

I love how easy and fast it is to pay by tapping my credit card or phone. The best example is on public transit. I was an early adopter on the New York City subway last May, and now I have plenty of company.

New York’s Metropolitan Transportation Authority reported 1 million contactless payments in the first 69 days of this pilot program. It has vastly exceeded expectations, and dozens of additional subway stations have already come on line.

The MTA plans to equip all 472 of its subway stations with contactless technology by the end of the year, along with its 325 bus lines. Transit systems in other major cities such as Chicago, Miami and Portland, Oregon, have already gone contactless. Washington, D.C., and Los Angeles aim to join them this year.

To date, contactless transit payments are mostly of the pay-as-you-go variety. Portland is the only one of these major U.S. transit systems to allow riders to add a monthly or weekly pass to a mobile payments service. It sounds like Chicago will probably be next (likely this year), and New York plans to add this capability in 2021.

See related: Rewarding yourself with U.S. train travel

Some tap-and-pay transits still take cash and cards

Much of the criticism revolves around unbanked and less tech-savvy customers; how can they still ride public transit if it requires a credit card, a debit card or a smartphone? Is banning cash an unintended consequence of going contactless?

This same argument has played out with the growing trend of cashless stores. Several cities and states, including San Francisco, Philadelphia, Massachusetts and New Jersey, have outlawed cashless businesses, saying they discriminate against low-income residents. The New York City Council just voted to join them. Proponents, on the other hand, believe cashless payments are faster, cheaper and safer.

It’s possible to allow both, and that’s what New York City is doing. The current MetroCard (which relies on outdated magnetic stripe technology and can be reloaded with cash and credit and debit cards) will exist at least until 2023. In 2021, the MTA plans to unveil a parallel system (the OMNY Card) which will eventually phase out the MetroCard.

While most credit and debit card holders and smartphone users will prefer to pay with those devices, those who would rather load cash onto a closed-loop contactless transit card will have the OMNY Card as an option. This sounds like a reasonable solution.

The downside is that it’s taking a long time and there’s a multiyear period of inefficiency when parallel systems will be in simultaneous use. Sometimes that’s the cost of progress, though. And I suppose it’s better than diving fully into a new system in case it fails or confuses people.

Still, I’m looking forward to more cities offering monthly transit passes on phones and perhaps even credit cards. It sounds like we’ll see more contactless debit cards in 2020, too.

Contactless payments are popular in countries such as the U.K., Australia and Canada, and I think we’ll get there in the U.S., albeit more slowly. To be fair, we have a larger and more complicated (and also more antiquated) payments infrastructure.

But when a long-standing institution such as the Church of England starts taking contactless payments and street performers in China accept donations via QR codes, it suggests some societies have already surpassed the tipping point.

Contactless payments have the potential to replace a lot of cash, and even though there are some legitimate concerns about that, it generally feels like progress (in terms of speed and safety). I don’t think cash needs to go away entirely, either.

See related: Cash vs. credit vs. debit: Here’s when to use each payment method

Gas pumps nearing EMV compliance deadline

The subject of outdated payments infrastructure brings me to another key contactless theme for 2020: gas stations. While most merchants were required to upgrade to chip card (EMV) readers by late 2015 (or accept financial liability for fraudulent transactions), gas stations won a five-year extension to October 2020.

Their main argument was cost; the National Association of Convenience Stores estimates the conversion will cost gas station owners $6,000 to $10,000 per pump.

Because most gas stations still require customers who pay with credit and debit cards to swipe their cards’ magnetic stripes, fraud has run rampant. A common example is card skimming, when crooks install small devices on card readers that extract sensitive information from magnetic stripes, enabling the bad guys to clone the cards.

Gas stations are easy targets because many aren’t well-attended (especially at night) and few have upgraded to the much more secure EMV technology. The Secret Service is reportedly seizing 20-30 skimmers per week – a noble effort but likely a drop in the bucket since FICO found that skimming fraud is growing 10% annually.

There are two silver linings: The Oct. 1, 2020 deadline for gas stations to upgrade to EMV is coming, and it seems that most gas stations will make it a twofer, adding chip card and contactless capabilities at the same time.

If you’re especially concerned about gas station payment security, you should know that credit cards are safer than debit cards (because they represent lines of credit, not direct access to your checking account).

And major gas station chains such as BP, ExxonMobil and Shell have already unveiled their own mobile payments apps with more secure authentication and no need to swipe a card.

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