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What does the pandemic mean for mobile pay?
While there’s no evidence COVID-19 can be transmitted by cash or credit cards, the use of mobile payments and contactless cards has taken off in recent months over concerns about touching surfaces, according to research from the National Retail Federation’s “State of Retail Payments” study.
Among the findings:
- Sixty-seven percent of retailers now accept some form of no-touch payment.
- Fifty-eight percent accept contactless cards that can be waved past a card reader or tapped on the reader, up from 40 percent last year;
- Fifty-six percent take digital wallet payments on mobile phones, up from 44 percent;
- No-touch payments have increased for 69 percent of retailers surveyed since January.
“Retailers are putting health and safety first and have rolled out a variety of no-touch payment options in order to err on the side of caution,” said Leon Buck, NRF VP for government relations, banking and financial services, in a statement.
A separate consumer survey found 19 percent made a digital payment in a store for the first time this May and 57 percent would likely continue to do so once the pandemic has subsided. Of those, 62 percent used their phone and 56 percent used a contactless card.
Visa’s just-released “Back to Business” study likewise found consumers significantly prioritizing contactless pay, while Mastercard just reported strong quarterly growth in contactless and digital transactions.
On the downside, according to NRF’s study, higher costs, including fees for processing transactions, are the top concern for 67 percent of retailers that accept no-touch payments.
Banks charge a fee averaging about 2.5 percent when a credit card is used for an in-person purchase, and the fee climbs slightly higher for transactions made online or over the phone. Curbside pickup and BOPIS are also charged at the online rate, despite in-store retrieval.
Debit card transaction fees also run high since many have to be processed over networks run by Visa and MasterCard when a PIN isn’t used. NRF is lobbying the Federal Reserve to expand access to lower-cost ATM networks.
Other concerns were cybersecurity and data privacy risks, cited by 65 percent; increased fraud, 63 percent; and increased chargebacks of disputed purchases, 61 percent.
- Coronavirus leads to more use of contactless credit cards and mobile payments despite cost and security concerns – National Retail Federation
- Global Visa Study Finds 67% of Small Businesses and 78% of Consumers Have Adopted New Behaviors to Adjust to COVID-19 – Visa
- Mastercard Incorporated Second-Quarter 2020 Financial Results Available on Company’s Website – Mastercard
Discussion Questions
DISCUSSION QUESTIONS: Will adoption of mobile and contactless payments accelerate as the coronavirus crisis continues? Do you see the benefits to consumers outweighing any negatives to retailers?
Poll
BrainTrust
Lee Peterson
EVP Thought Leadership, Marketing, WD Partners
Lee Kent
Principal, Your Retail Authority, LLC
Contactless payments are not only safer, but they are also really convenient. There is no question that contactless payment will continue to play an increasingly important role in retail and commerce even once we are past this pandemic. While there will be some customers who prefer or have no choice but to use cash, the acceleration in contactless payment from COVID-19 is here to stay.
Many consumers that are concerned about COVID-19 are doing everything they can to reduce contact with anything or anyone in the store. Contactless payments are an appreciated service that many retailers now offer and the consumer adoption is growing during the pandemic and it will become a habit for the future. Contactless payment and pay at the table is also quickly becoming a new standard in full service restaurants, which is welcomed by guests as they now don’t have to lose sight of their cards and it increases payment card security.
Multiple good points, David, but one I noted in particular — “restaurants, which is welcomed by guests as they now don’t have to lose sight of their cards and it increases payment card security.” Even though it wasn’t contactless, in Europe the credit card transaction has always (certainly for more than 20 years) been at the table and the card never leaves one’s site.
Good point Gene! On mobile restaurant payments, we have been way behind Europe and Canada. It is time we catch up.
This is a tipping point, for sure. However to become totally ubiquitous there needs to be easy access for EVERYONE and — right now — for the 30 million below the poverty line in this country, downloading apps and maintaining Venmo accounts is not that easy. Same goes for the elderly. We opened a grocery store outside of Chicago that was cashless — for about a month. Then reality set in. It’s definitely the future of monetary exchange but, like many things, the trick will be to figure it out for all.
Yes – the pandemic accelerated this move and will continue to push it further into place beyond the 67 percent number referenced here. The benefits to the consumers should translate into benefits for the retailers, which will outweigh the associated negatives. Handing your card to someone should already be an extinct process and there really is no need to make contact with the PED given the available technology.
This is the optimum time for a broader acceptance of contactless payments. More and more businesses are emphasizing contactless over paying with cash. There will have to be a cash option for those that can’t or don’t want to, but I have seen a great increase in contactless payments for almost all retail transactions.
Mobile and contactless payments have been the future of in-person payments for the past several years, and like many other customer conveniences which have seen rapid adoption during the pandemic consumers are seeing the benefits and will likely maintain adoption. If you walk around a store, pre-pandemic or even now, you will find the majority of shoppers with phones in their hand but essentially none with their credit cards out. As the U.S. continues its push towards a cashless society, it’s logical that frictionless payments become the more attractive option than taking the extra step of utilizing a physical payment card for payment. And for those who choose to use payment cards, a “tap and go” payment is certainly more convenient than a card swipe or insert. The challenge is the inconsistent adoption and support by the retail community which results in consumers having to utilize more traditional payment approaches at many of the stores they shop. However as the pandemic continues to drive consumer demand for mobile and contactless, the retail community is responding appropriately. Hopefully the banks and Federal Reserve will also do their part to make this customer convenience easier on retailers as well.
Contactless payment was already inevitable. The convenience is the driver of course, but even before COVID-19, touch payment systems had an “ick factor” for many people. Those folks (like my spouse) adopted contactless payment immediately. Others (like me) needed COVID-19 to push us over the tech ledge — just as it has done in multiple areas of our life where learning to use new technology just didn’t seem worth the bother. Retailers will figure out the margin implications quickly as contactless payment gains share. They always do.
The coronavirus has given contactless payments the boost it needed to gain major adoption, and everyone just implementing it will wonder why they didn’t deploy it sooner.
Like the article says, there’s no evidence COVID-19 can be transmitted by cash or credit cards but we have planted a seed that it can, and we all know perception is reality. Yes, mobile pay is more convenient when you pay with your phone, but even with a contactless credit card you still have to dig it out of your wallet. What contactless payment really does is give consumers a false sense of security, and puts more money in the banks’ pockets.
Okay. You are in a fast food drive through waiting to pay, with your credit card. You just went to the gas station (usually not the cleanest place) and you touched the gas pump and you put that same credit card in the gas pump. Maybe you used sanitizer on your hands, but what about your card?
Now you are waiting in the fast food drive through, card in hand, ready to pay. You sneeze. You probably used hand sanitizer on your hands at some point. But what about your card? Again, contamination for your card.
Now you pull forward and it is your turn to pay. You hand that card to the cashier. The cashier inserts the card into the reader or swipes it. The same cashier who has just taken someone’s cash, someone else’s card, and has had their hands in the cash drawer full of many someone’s cash pieces. Now they hand your card back to you. Your card before had just your germs. Now, your germs have been given to the cashier and you have also just received the various germs the cashier has.
However, had this fast food handled drive through payment properly — the way it is done in Canada, Europe, Australia, and various other places — the process would have gone much differently. When it was your turn to pay, the cashier would have held the card reader out the window. You would take your contactless card (or phone) and hold it a few centimeters above the card reader and the reader picks up the tap. The cashier has no contact with your card, the card reader has no contact with your card, it is safer for you, safer for the cashier, safer for all of the other customers.
That is how contactless payments are safer and more sanitary.
Good points!
Contactless will continue to grow in NA with several factors contributing to the growth including the pandemic. However cash will remain very important for several more years for many retail segments. This is driven by the ~7 to ~10 percent of the people in the U.S. who are unbanked and the additional ~15 percent who are underbanked. The major credit/debit card issuers have made a big push in the last year to issue a large number of contactless cards which will also help increase the number of contactless transactions. The other major factor contributing to the increase in contactless will be the broader acceptance of mobile wallets and money transfer tools. It is also interesting to note that many retailers do not understand that in almost all cases a debit transaction under $12 costs them more in processing fees than that same transaction processed as a credit transaction.
Mobile and contactless payment have been around for years. Back in 1995 Bill Gates wrote “The Road Ahead” and predicted cashless payments. COVID-19 pushed us into the future. The technology was here, but it wasn’t adopted yet. Now it is being adopted and embraced by much of the public. The issue with transactional fees will work itself out. The big negative is the need of consumers to have credit cards and bank accounts that are tied to their smartphones. There is a percentage of our population that this doesn’t work for.
Fear alone is driving so much behavior even though there is no scientific evidence about COVID-19 transmission via card or cash as this article states. However fear is more than enough to drive new habits so, yes, contactless payments will continue to surge.
Acceleration! Acceleration! Acceleration!
This is how the pandemic has affected so many things. Trends that we saw were five to 10 years off are now spreading. As a famous football coach said, “The future is now.”
As we have discussed many times, habits are naturally hard to change — then when a disruption comes, they do change and new habits are formed.
With regard to mobile pay, I checked the ranking by country. Not surprisingly China was first (India was second). But to my surprise, it measured Chinese mobile payments at 39.5 percent. My observation is that it is considerably more than that in China. Almost no one carries cash. Mobile pay is accepted for transactions that are the equivalent of 1 RNB (about 14 cents U.S.) .
Benefits? Convenience! Convenience! Convenience! For years now, everything retail has been about convenience. For this, it means less “stuff” (multiple credit cards and cash) to carry. Sweden is on its way to being totally cashless (only 2 percent of transactions include cash).
For me, I must carry my mobile phone. Let it do everything it can to simplify my everyday life.
Consumers – not surprisingly – are driving the move to contactless payments. The challenge now is for retailers to make them more available to all. Forcing shoppers to use the retailer app with a credit card is not a long-term strategy. On the other side, retailers need to pressure banks to reduce costs and promote the enhanced security of contactless. It is the future, but there is a lot to be done to make it work for all stakeholders.
This is a tipping point for consumers regarding contactless payments, which are here to stay and will only increase in usage beyond the pandemic. Convenience was already becoming king with consumers and COVID-19 concerns have given contactless payments the last “push” needed to gain mainstream adoption. I wouldn’t go so far as to say we are approaching a cashless society, but the writing is on the wall for payments in general that aren’t contactless – the convenience is now recognized as too great. Retailers will look to push for payment fee reform as a result as their margins are being squeezed from every angle these days with every new consumer convenience eating away at that margin bit by bit.
The pandemic was just the catalyst to tip some people over to contactless payments, etc. Before that many just did not trust them or were uncomfortable trying/using something new. The technology is here to stay and will probably appear in several ways and shapes. What concerns me, as was mentioned, is the cost. We have been trying to get away from high processing fees for a while and started to make some progress. Let’s not lose sight of that. For my 2 cents.
Retailer-specific payment apps have largely been failures, outside of the Starbucks app which has been very successful. There are just too many retailers. And many of those retailer-specific payment apps still take credit cards and they take them and process them at higher card not present processing rates (such as Walmart Pay) — the retailer is actually paying more to process the credit card when you use their app than if you would use the physical card (or the Apple/Google Pay if they would support that, which they, in the case of Walmart, don’t support yet). There is zero monetary customer benefit to using Walmart Pay (they took away all the previous monetary benefits, like Savings Catcher).
Starbucks’s app was successful for unique purposes. Starbucks runs a lot of small ticket transactions. Starbucks will pay less in processing fees if you reload $25 via credit card to their app gift card than if you just did 5 $5 transactions with them and used your credit card every single time. As a result, Starbucks can then offer a good rewards program tied to its app which helps motivate customer use.
Many others have tried to copy Starbucks but so far, I do not see many people loading money to the McDonald’s, Dunkin’, Wendys, etc. apps the way so many people keep money loaded on their Starbucks app.
COVID-19 fear has definitely challenged consumers’ existing brand preferences as well as payment preferences. Given the length of this pandemic, it is highly possible that consumers come out of this with brand new habits which are likely to stick around. This changing consumer behavior is steering brand strategy and forcing them to adopt mobile and contactless payments to retain the customers but brands also need to work with banks to offset the additional cost and security issues which come along with this.
Growing adoption of contactless payment is just another example of how the coronavirus is accelerating the digital transformation of our economy. Consumers today are hungry for new ways to shop safely, securely and easily, and contactless payments provide the right digital tools for doing so. For retailers, going digital in their payment system will include some upfront costs. But in the long run, increased consumer spending and retail engagement will more than compensate. Ultimately, contactless payments are a surefire way for retailers to protect the safety of their customers while still providing access to the products and services they want.
In a word, yes. As the pandemic continues, consumers are taking necessary precautions including mobile and contactless payments to help stop community spread of the virus. But this does have potential downsides to retailers. In addition to transaction costs, retailers are at risk of carding attacks in which criminals use bots to test lists of recently stolen credit or debit card information on merchant sites. Retailers can end up paying a heavy price if they are hit with a carding attack. For example, payment processors can block all transactions if the carding attacks are not handled quickly, which can result in lost revenue. As a retailer, you are responsible for keeping the chargeback and card-not-present (CNP) fraud levels under control. It’s important that retailers are prepared for this situation with the right defenses in place on their payment sites.