Published in: Research | June 18, 2020
By: Christy Bieber
Have you ever made a contactless payment with your credit card?
You just hold your card out over the card reader or tap it on a pad. It takes a couple seconds. Wait for the beep and you're done. No swiping, inserting, or typing in your PIN.
If you live in the United States, statistics show that you probably haven't done this. While 56% of transactions in the U.S. included a card in 2018, less than one-third of 1% of those transactions were contactless.
But the novel coronavirus pandemic is changing how we think about paying (along with just about everything else). Americans are concerned about using cash and the high-touch nature of card readers -- and they're increasingly opting for touch-free payment methods.
We're still far behind countries like South Korea and the United Kingdom. But COVID-19 could start changing that.
Contactless payments have become the norm in many parts of the world -- but not the United States.
In fact, while the first contactless card was issued in the United States in 2003, only around 3.5% of credit and debit cards in the United States include contactless technology. Even among the best credit cards, this feature isn't ubiquitous. By comparison, close to six in 10 cards in the United Kingdom and almost 96% of cards in South Korea offer the option for touchless payments.
While other parts of the world embraced this technology, the U.S. has been slow to embrace it in large part because of its decentralized banking system. While many small European countries have just a few banks serving nearly all citizens, the U.S. has over 5,000 commercial banks.
The added complexities associated with prompting thousands of banks and merchants to adopt uniform standards for new pay structures also explains why the U.S. was one of the last countries to adopt chip and PIN technology, as well.
Although U.S. consumers have been slow to switch to touchless payments, COVID-19 is speeding the process.
The novel coronavirus has caused concern about the exchange of money, with 55% of U.S. consumers worried about handling cash. Because contactless technology doesn't require consumers to hand over their money or cards to a cashier or interact with a chip and PIN machine, it's viewed as a safer alternative. In fact, 82% of consumers believe it's a cleaner way to pay.
As consumers aim to maintain their distance from other individuals, it should come as no surprise that they're flocking to this safer payment method in record numbers.
MasterCard revealed 79% of worldwide card users now opt for contactless transactions. This reflects a 40% growth in the number of contactless transactions across the globe in the first quarter of 2020.
Closer to home, the data also shows contactless payments are on the rise in the U.S., with 31 million Americans opting to pay with a Visa contactless card or digital wallet in March 2020. This was a sharp increase from November, when 25 million customers used touchless technology to pay, and a 150% jump in contactless usage in the U.S. compared to March 2019.
Merchants have also picked up on the trend, with 27% of small businesses reporting an increase in contactless payments in April of 2020.
As COVID-19 led to the closure of non-essential businesses and Americans sheltered in place, contactless payments became an especially common way to pay for necessities.
In fact, transactions involving touchless payments grew at double the rate of non-contactless transactions at both grocery and drug stores. Costco, one of the leading warehouse stores in the U.S., saw a 60% increase in the use of contactless payments in March of 2020 compared to the prior year.
Contactless payments didn't just replace the use of other credit and debit cards. As many as 80% of contactless transactions that took place were for purchases under $25.
Mastercard has indicated payments of this size are normally made in cash, so this shift suggests people are especially concerned about the risk and the inconvenience of handling paper money.
The move toward contactless payments is unlikely to turn around, with 60% of users indicating their use of contactless technology during the pandemic has made them more comfortable with it, and 74% reporting they plan to continue using contactless pay methods after the pandemic ends.
Speed and ease of use are two primary reasons consumers will likely persist with touchless payment methods even after the dangers associated with cash or traditional card usage have waned. Contactless payments are as much as 10 times faster than other methods of in-person payment, and 69% of users find contactless transactions more convenient than those involving paper money.
Mobile wallet users were especially pleased with their touchless experience, with 77% indicating mobile wallets were even more convenient than other contactless transactions, and 84% reporting they preferred this payment method to cash.
Those who use touchless payment methods use them frequently, with 50% of consumers responding to a PaymentSource study indicating they'd made contactless payments at least four times in the prior month. And most plan to continue using the technology over the long term, with 85% of mobile wallet users predicting they'll still be making payments this way two years from now.
As consumers make use of touchless payment options with increasing frequency, the value of contactless transactions in the U.S. is expected to increase from $178 billion in 2020 to $1.5 trillion in 2024. This will help drive the tripling of global contactless transaction values, which Juniper Research forecasts will jump from $2 trillion this year to $6 trillion in four year's time.
It will also accelerate the shift to a cashless society, which 57% of consumers told PaymentSource they were more comfortable with after using contactless payment methods during COVID-19.
The rise of contactless payment methods may permanently shift the way consumers choose a credit card, with more Americans prioritizing options that include touchless pay technology, even over credit cards offering more generous rewards.
As many as 46% of consumers worldwide have already switched their default credit card (called their top-of-wallet card) for one that offers contactless functionality. And within the U.S. alone, 38% of consumers in the beginning of March reported having a contactless feature was a "table stakes" need, compared with only 26% who viewed this as a necessity during a prior period.
Card issuers will likely respond to this shift in consumer priorities by making contactless pay available with more cards. And as this change occurs and more Americans experience the speed and convenience of touchless payment methods, it's very likely that the U.S. will soon look more like the rest of the world in terms of the number of transactions that take place touch-free.
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