[Dave Birch] The roll-out of contactless payments is proceeding, but it’s still slow, because it takes a long time for merchants to change or upgrade their POS technology, even when they want to. Bu they may not want to, because they don’t perceive enough value for them, or because they anticipate incentives from other players in the market.
An absence of incentives—particularly for merchants—is handicapping contactless payments in the U.S., and by extension mobile payment at the point of sale could suffer, according to a new report by Aite. About 40,000 U.S. merchants now accept contactless cards and fobs, or 0.5% of all merchant locations. That number will grow to 271,000 over the next six years, but the penetration rate after that time will still be only 2.5%. If these projections prove accurate, it will mean rough going at best for near-field communication (NFC). To make NFC work, cashiers must be equipped with contactless readers. The painfully slow merchant penetration by contactless “kills NFC”, according to the report author Nick Holland.
[From Digital Transactions News]
Nick is, of course, right to highlight the feedback loop that is operating here. There are some banks and retailers who are investing in contactless for its own sake, but there are many who are investing in contactless because they see it as a stepping stone to the greater value-added possibilities around mobile. Now, I certainly see myself in the mobile camp, but that doesn’t mean that contactless can’t be successful in its own right as well, as I was reminded yesterday when driven insane by a Woking Borough Council parking machine that purported to accept cash (credit cards, having been invented less than fifty years ago, are not yet on the menu) but refused my tenner and my 5p pieces, rendering me unable to pay until I found some more coins on the floor in my car. How can it be more cost-effective to operate antiquated system than to accept cards? Anyway, the point is that converting unattended points of sale to contactless must be a good idea if you want to drive acceptance:
MasterCard Worldwide and USA Technologies announced the expansion of ePort cashless payment terminals to 17,500 vending machines nationwide, adding more than 4,000 new locations that accept MasterCard PayPass contactless payments.
[From MasterCard Expands PayPass Acceptance to Over 17,000 Vending Machines]
I wonder if the roll-out will naturally accelerate as merchants replace their POS terminals and systems or whether specific incentives (as noted above) will be required to tilt the balance? If I was a merchant, I’d think it worthwhile holding out and even though I know that it makes commercial sense, I’d still want to try and get a better interchange rate out of the bank if I could. In theory, if the benefits are distributed between banks, consumers and merchants then the costs should be distributed similarly, but in practice in the short term it means banks spending money issuing contactless cards and the acquiring side catching up later (this, incidentally, is one of the lessons from the DoCoMo “curves” in Japan). Therefore, so long as the merchant benefits are sufficient, the infrastructure will sort itself out.
Continue reading “Slow penetration”
