Contactless in the U.S. - Tapping into the future of payments
Americans have been introduced to the speed, security, and convenience of tapping to pay, and are now adopting it at an accelerated pace.
Contactless payments, also known as Tap to Pay, arrived in the U.S. in 2014 with the launch of mobile wallets, however adoption remained nascent until 2018 when Visa financial institutions began issuing contactless cards in earnest. In the fall of 2018, around one percent of face-to-face Visa card transactions conducted were with a tap, by the fall of 2019, that number had tripled, and it has more than tripled again since then. Today, nearly one out of every 10 Visa card transactions in the U.S. at the point-of-sale (POS) are conducted with a tap and the majority is a contactless card . Tap to pay payments were already well on their way to becoming the default card payment option at the point of sale, but a new consumer focus on touchless experiences driven by the global pandemic changed the way consumers, merchants, and financial institutions view payment experiences. This new focus on touchless experiences, along with countless other benefits of contactless payments, has made tapping to pay a preferred choice for many.
Visa believes tapping to pay will soon become the default way that U.S. consumers choose to pay with cards in the physical world.
Global tap to pay adoption
The U.S. is mirroring other markets that have become mature contactless countries, like Russia, Australia, Canada, and the UK, in several important ways:
- Two-step migration: In each country, the predominant payment form factor has evolved from magnetic stripe, to EMV chip, and then to contactless. The first step, from magnetic stripe to EMV chip, helped address the growing problem of counterfeit fraud – EMV cryptography has shown to reduce counterfeiting– though it did so at the cost of an easy, consistent experience at the POS. The migration to contactless solves the POS experience issues introduced by EMV chip, while retaining the increased level of transaction security. Typically, the first two years of the migration to contactless are spent laying the groundwork for future adoption – getting enabled cards issued, ensuring that merchants are ready, and optimizing the POS experience with clear consumer messaging and payment flows. Once that happens, adoption of contactless technology has occurred rapidly, passing 50 percent of card-present Visa transactions within two to three years.
- Cards have led the way: The single biggest factor driving contactless adoption globally has been the issuance of contactless cards. Even in a market like Russia, where contactless cards and mobile wallets entered the market at the same time, contactless card transactions outnumber mobile wallet transactions. The same thing is happening in the UK, Canada, and here in the U.S. In fact, contactless card usage is far greater than mobile wallet usage in every Visa geography around the world.
- Transit as a cornerstone use case: Contactless adoption in the UK was aided by the enablement of tapping to pay on transit systems. Initially, this was driven by Transport for London’s decision to enable contactless payments system wide, which later expanded to other transit systems across the UK. While contactless payments are an evolution of EMV chip in most circumstances, they are a revolution for transit because they fundamentally change the ticketing and entry process. Riders can tap to enter a transit system instead of buying and retaining a fare card for the cost of the ride. Again, this same thing is happening in the U.S. – since the New York MTA began implementing contactless payments in May 2019, contactless adoption in New York City has increased from four percent of Visa POS transactions to 25 percent of transactions in January 2021.2
Growing tap to pay adoption in the U.S.
In 2017, Visa decided to invest in a cross-functional initiative to help stimulate the growth of contactless payments in the U.S. We believed that the time was right to deliver the improved experience of contactless payments to more U.S. consumers and that Visa, along with our partnerships, could make contactless successful in the U.S. market. Having seen previous attempts fail in the U.S., we knew this time would need to be different. At the time, there were less than 15 million contactless Visa cards in the U.S. and only about one-third of Visa card transactions occurred at a contactless-enabled merchant – tap represented less than one percent of POS Visa transactions.
Over the past three-plus years, Visa worked with our partners to lay the foundation for a contactless future. And that foundation is now in place. Today, the U.S. is the fourth-largest market in the world in terms of monthly contactless transactions, and it is expected to move into third place in the next quarter. Over 300 million Visa cards are contactless enabled, representing a significant portion of active credit and debit cards in the U.S.3 In fact, the U.S. now has more contactless cards than any other Visa market. More than 75 percent of POS transactions occur at a contactless-enabled terminal and 265 of the top 300 merchants are enabled4. Contactless transactions have grown 900 percent since this migration first began in 2017 and we expect to see the U.S. reach double-digit contactless penetration in the coming months.5
While these figures show progress at the national level, they really are lagging indicators. There are several leading indicators that show just how far along the U.S. is in migration and provide a glimpse into where we are headed. Below are a few examples of U.S. momentum:
- New York City, San Francisco, and San Jose are approaching 25 percent contactless transactions penetration
- In New York, more than 70 percent of Visa cards are contactless enabled today, driven by the New York MTAs rollout of contactless to all subways and buses, which was completed in December 2020
- Several large retailers are above or approaching 25 percent contactless transactions penetration
- Quick service restaurants, pharmacies, and retail merchant categories all exceed 10 percent contactless transactions penetration
- More than one out of every three vending transactions with Visa cards are contactless today
Visa believes that the behavior of U.S. cardholders will significantly change in the next few years and, as is the case with so many innovations and technological improvements, customers will not remember how they used to transact without contactless payments as an option.
What makes contactless so successful
Fundamentally, contactless is successful because it offers something of value to each participant in the payments ecosystem.
- Cardholders: the payment experience with EMV chip was often painful, taking five to eight seconds on average, but sometimes stretching on for much longer. Contactless payments help solve this problem, reducing the time spent interacting with the terminal, in some cases to less than one second. Beyond the simple improvement in the POS experience, contactless payments also represent new payment options for consumers, such as tapping to pay on a subway or bus turnstile.
- Financial Institutions: the value to financial institutions has evolved over time. Early in the migration, contactless-enabled cards offered financial institutions a way to differentiate their card offering in a new way, while bolstering their image as being innovative. As contactless-enabled cards have become more common, they no longer serve as competitive differentiators in the same way. Rather, they are now table stakes and contactless is noticeable when missing. Contactless cards also benefit financial institutions in that they have led to increased card use for low-ticket transactions. This has been true in every market where contactless has been rolled out, including the U.S., and this trend will continue. Even in 2020, a year in which spend patterns shifted dramatically, more than $1T was spent in cash.6
- Merchants: When merchants upgraded their terminals in preparation for the EMV liability shift, many included NFC capability on their new devices. In many cases, a software update was still required to “turn on” contactless, but new terminals were not necessary, reducing the enablement burden for merchants. The value of contactless to merchants lies in a faster, more efficient checkout experience, especially in high throughput segments such as grocery, fast food, and pharmacy. The time saved by offering contactless could result in shorter lines, fewer abandoned sales, and happier consumers.
What’s next for the future of tap to pay?
Tap to Phone and contactless-only acceptance
Where will the U.S. be the next few years, and how will contactless payments evolve? In short, tap to pay is primed to continue to grow, and it will open the door to other new and convenient payment solutions, such as Tap to Phone, where a small merchant uses their own mobile phone to begin accepting payments, and other contactless-only solutions.
Here in the U.S., there are use cases where contactless-only card acceptance makes sense – vending machines, parking meters, and other environments where the benefit of chip and mag stripe readers is not worth the investment. Contactless readers are generally a smaller investment for merchants and fit the needs for these verticals. As consumer usage increases, contactless-only readers will likely increase in the U.S.
Simultaneously, Tap to Phone is a specific version of contactless acceptance where the acceptance hardware is not a traditional POS device, rather, it is a mobile device such as a phone or tablet. Visa plans to begin piloting Tap to Phone in the U.S. later this year.
The rise of mobile payments and instant digital issuance
Contactless is the future of payments. Soon, almost every customer in the U.S. will have the choice to tap his or her cards, mobile devices, wearables, or other new form factors at traditional POS devices. In addition, other new types of payment acceptance devices such as contactless-enabled tablets or phones will emerge.
With the maturity of contactless payments, there could come a time where every customer could have a mobile device which can be used as a payment credential AND a point of sale. What does this mean for payment acceptance? It means that contactless payments – either via card or mobile/wearable device – will increasingly become part of how a consumer will pay in the future.
Forward Looking Statements
This content contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements generally are identified by words such as “believes,” “estimates,” “expects,” “intends,” “may,” “projects,” “could,” “should,” “will,” “continue” and other similar expressions. All statements other than statements of historical fact could be forward-looking statements, which speak only as of the date they are made, are not guarantees of future performance and are subject to certain risks, uncertainties and other factors, many of which are beyond our control and are difficult to predict.
1 VisaNet data, Feb 2021
2 VisaNet data, Jan 2021
3 VisaNet data, Jan 2021
4 VisaNet data, Jan 2021
5 VisaNet data, 2017-2021
6 Euromonitor Consumer Finance from trade sources/national statistics, January 2021
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