Contactless payments soar and access to 1 in 5 forms of direct card payments

Nearly 20% of all direct credit or debit card transactions in the U.S. are currently contactless, Visa reported in its January 27, 2022 earnings call. Of the two forms of contactless payments, the company said point-of-sale card mining is much more common than using mobile payment services like Apple Pay or Google Pay.

That surprised me because Americans are obsessed with their phones. A Visa spokesperson speculated that it’s easier for consumers to touch a not-so-heavy card, rather than taking a heavier phone out of their pocket or wallet and then following a multi-step process to unlock the app and verify their identity.

New York City leads the way.

In the Big Apple, 45% of direct card transactions are contactless. The city’s subway and bus systems began accepting contactless payments in limited quantities by mid-2019 and in full by the end of 2020. This isn’t the only way to pay for trains and buses in New York, but it has been more popular than officials anticipated.

In July 2021, the New York Metropolitan Transportation Authority announced that its customers had made 100 million touch-and-go-style payments. Monthly usage has increased rapidly from about 6 million taps in January 2021 to nearly 17 million in June 2021.

The COVID-19 pandemic has encouraged more people to use contactless payment methods because they worry about touching payment terminals that are potentially infected with germs. Public transport is an ideal use case for contactless payments as it is a quick and easy way to pay for a train or bus fare. But, ironically, ridership has been devastated by the pandemic as more people switch to remote work and spend less time with the crowds.

However, New York’s data shows a significant halo effect. Public transport remains the lifeblood of city culture despite the pandemic. Someone’s first contactless payment experience could be a subway or bus fare, after which they make this new routine elsewhere. Card or phone tapping is also common at takeaway restaurants, grocery stores, pharmacies, and other locations where people want to get in and out quickly.

In San Francisco, Oakland and San Jose, more than 30 percent of direct card transactions are contactless, Visa said. The rate is over 25 percent in Los Angeles, Seattle, Detroit, Miami and Salt Lake City.

America is catching up with the rest of the world.

Although they are a recent phenomenon in the United States, contactless payments have been popular in other countries for several years. For example, in 2017, 92% of in-store Visa transactions made in Australia were contactless. Singapore (63%) and Canada (47%) were also the earliest adopters.

Entering the fourth quarter of 2021, Mastercard says half of its global direct transactions are made with one tap. Visa also showed strong growth, especially in the United States, India and Brazil. In fact, U.S. contactless use had more than doubled in the previous 12 months, the payment network revealed. Of course, it’s still much lower than the worldwide average.

The U.S. never seems to be leading the way when it comes to adopting new payment methods. We also lag behind the rest of the world in the transition from magnetic cards to more secure chip-enabled credit and debit cards (EMV).

In October 2016, the major card networks made a significant change. They transfer responsibility for fraudulent transactions from the bank to the seller (assuming the customer pays with an EMV support card but the seller cannot handle it). Merchants complained about the cost and complexity of upgrading their systems, and many missed deadlines. However, over the past few years, chip card adoption has gained popularity across 50 states. Even gas stations, the last notable stock, which has been extended the deadline for transferring responsibility until the end of 2021, have made great strides.

This is related to contactless discussion as most EMV-enabled payment terminals can also handle contactless transactions. The U.S. financial industry has chosen to focus on chip cards first to avoid confusing consumers with these new chips and simultaneous taps. Over the past few years, many of us have gradually become comfortable with both of us.

Between 2018 and 2020, U.S. card issuers sent hundreds of millions of mailless contactless support cards to their customers. Tech giants like Apple and Google have also stepped up their mobile payment services. While speed seems to be the main attraction of contactless payments, mobile payments can also be more secure as they often involve a biometric screening process supported by a user’s smartphone. In other words, you can prove it’s you by scanning your face or fingerprints.

The bottom line

It took some time, but contactless payments have become popular in the U.S. and are likely to grow exponentially even more as more and more consumers feel more comfortable with the technology.

Do you have questions about credit cards? Email me at [email protected] address and I am happy to help.