Every single time I present my contactless research, I have to specifically mention that my research is done in the UK, where contactless is huge (50% of transactions has become contactless). Then I can give you numbers about other parts of the world that now predominantly use contactless for spending: the Netherlands (50%), Canada (60%), and Australia (90%) are great examples, especially the latter. After I give people those numbers, I then have to justify that my data isn’t from America.
My research could not have been done on American data. It doesn’t exist.
Even now, contactless transaction make up only a fraction of the total: we haven’t even reached 10%!
Given that America used to be a leader in fintech, why did contactless take so long to break through? if you dive in to some little research there seem to be just two reasons: technology and market-structure. So let’s discuss those.
Technology When touching upon fintech, many things can go wrong. In this case, they all did. Contactless payments require two things: a chip and a terminal that can read that chip. Did America have any of those in place? No…
The U.S. seemed to think keeping old technology was a good idea. It wasn’t. Although most countries left the magnetic stripes behind a long time ago, for both convenience and safety reasons, America kept it going.
Once the card has an updated chip in it, does cost a bit extra (but hey who’s counting?!), the only thing that really needs to change is the card reader. Of course, the terminal needs to be able to read the chip, rather than the magnetic stripe. But then the question beckons: what must come first: the card or the terminal?
Market Structure Well, that depends on the market size and its structure. And when looking at the U.S. this will cause you some serious headache, because that is one hell of a fractured market when it comes to payment providers.
I should mention that for this part, I had to intensively read a Financial Times article by Robert Armstrong, to understand why the market so well-known for being liberal and launching new initiatives all the time, took so long to make it happen.
Apparently, him and his sources actually use this perceived complexity (because it’s big with many different people and enterprises in it) as an excuse. Apparently there are “thousands of banks, tens of millions of merchants, and a fragmented industry that provide payments technology.” Because you know, America is the only one with that issue.
Now the reason I made sure to read this article so closely is because I know relatively little about the American market when it concerns innovation and who provides what. I thought free enterprise was going to be the main driver of the change we are seeing in the U.S. fintech market now. But that is not the story at all.
What is driving the Change? So what happened to suddenly change America’s song? Because the roll-out of contactless cards was relatively suddenly announced. Well, they had a slight scandal. And when I say slight, I mean HUGE.
One of their biggest stores, Target, which is effectively a Tesco Extra on steroids, had a data breach. Lots of credit card numbers got stolen and counterfeited. I told you those magnetic stripes were left behind for a reason…
Moreover, likely following from this scandal (because there is a two year difference), there was a shift in liability rules. It was no longer the banks that were liable for fraud through the magnetic stripes. No, the ball was suddenly in the merchants’ court. Talk about an incentive to update on some old technology. In this case the card-reading machines. Suddenly moving to the much safer chip was no longer an issue whatsoever.
So there you have it. The U.S. is changing its tune, because someone saw a great opportunity for fraud, and took it. And then some. But now what?
What’s next? OK so if you are a U.S. citizen, or just have been there lately, it’s not like contactless has finally taken over. Despite the scandal and the law change in 2013 and 2015 respectively, the year 2019 is not being “tapped” into. Actually, we (Americans and researchers I mean) will have to wait much longer. JPMorgan is the only one so far to have announced a contactless card roll-out, and they scheduled it for the end of 2019. They might have first-mover advantage there, but it seems a bit odd that they are seemingly the only movers?
Now cards are of course not the only contactless method of payment. Digital wallets are becoming increasingly popular, and Apple and Google will likely profit from the general increased usage and acceptance of contactless. Hell, at this rate, contactless cards might be a step that is going to be completely skipped. Straight to the phone we go!
However, even with the roll-out (at least one roll-out) on the way, contactless might still not be making waves. Given the breaches that have happened over the past decade, consumers are becoming increasingly wary of fintech. Younger generations seem to be more accepting, but those who have formed solid financial habits tend to stick with them. And those habits don’t include contactless. So even if the market is finally cooperating, and the technology is in the place, the population might still go: “No, thank you.” However, they might still accept its convenience rather faster than they initially expected. Visa has decided to take a similar approach to the U.S. as has been seen in the UK. Within the UK, contactless was popularised throughout the London Underground and then moved on to general public transport, before it became a hit in retail. Within the U.S. Visa is aiming for a similar development.
Having kept all of this in mind, I still think this transition will continue to be a very slow one.
On a more personal note… I have been fed up with the Americans dragging their feet (and then blaming the market structure). Bigger countries have implemented this fintech successfully, so the U.S. should be able to as well. And they’ll need to.
Why? So, my research can stop being a “European” phenomenon (which it isn’t, Canada and Australia anyone?!) and can finally go Global. Because if it isn’t relevant to America, apparently it’s not relevant to the world. Thanks ever so much.