Momentum and Challenges
The best reason for deploying this technology right now is to speed transaction times, particularly if transactions tend to be under $25 and don't need a signature for approval (thereby saving 10 extra seconds over a signature). Convenience stores, gas stations and specialty retail are the early adopters.
"Adoption by retailers and consumers is still in its relative infancy," explains Rob Garf, vice president, retail strategies practice, AMR Research. "But when it does mature, it will bring a huge benefit to both retailers and consumers. Typically, RF-based contactless payments are 25 percent to 65 percent faster than cash transactions, which can drive significant labor efficiencies and reduce checkout lines. We'll see broader adoption in the next two to four years."
Visa, MasterCard and American Express are currently pushing this wave of technology investment to influence consumers' payment preferences, driving up transaction fees versus cash even on small transactions. The card issuers are providing incentives to retailers like co-branded marketing on the cards/key fobs, charge-back protection, funding, marketing support, and lower transaction fees (still not widely used). However, retailers say that the card issuers' marketing investment has not been sufficient to promote this new technology to the public. Garf advises retailers to ensure that all new payment terminals accept any branded payment device to ensure a natural transition for their customers. He also recommends integrating contactless payment into loyalty and stored value applications in order to simplify transactions for both associates and customers.
Low Usage and Other Hurdles
The biggest obstacle to deployment remains the ever-elusive ROI, which will only improve once usage increases. Early adopter Wawa reports that one percent to 1.5 percent of current transactions are being done through contactless payment, despite Wawa's having deployed 2200 Hypercom L4100 terminals in all 560 of its stores, plus contactless card readers on all of its gas pumps. Guy Festa, store automation manager for Wawa, explains: "We had a very aggressive rollout, and we're allowing it to grow and mature a bit. Chase helped us launch and market this program. It required a blanket replacement of all terminals, plus install costs and more."
Another important hurdle is store associate training and adoption. Associates need to use it, understand the benefits to both associates and customers, and educate customers in how to use it. This will be the key driver for customer acceptance and usage. Some retailers have offered incentives to customers for signing up for contactless payment programs, such as a discount off their first transaction or a free drink while they're signing up.
Security is vital in reassuring the public that their personal data will be safe with contactless payment. All payment methods must adhere to the PCI data security standard. If a card/key fob is lost or stolen, some retailers will require an accompanying signature for transactions. Midwestern grocery and general merchandise retailer Meijer is upgrading its contactless MasterCard program to dynamic CVC3 authorization security, according to Michael Ross, director of marketing strategy and customer relationships for Meijer. "This changes the authorization code every time the contactless card encounters a reader, making it even more secure," Ross says.
Early adopters of contactless payment in addition to Wawa and Meijer include McDonald's, CVS, 7-Eleven, Walgreens, and Sheetz. "Retailers want a simple, secure form of payment, where the processing fees are significantly less than today," explains Ross. "The keys for doing this are strong project management, partnership support from credit associations and hardware/software vendors, cross-functional marketing, IT, finance, and operations team involvement, and an extremely strong customer communications plan."
Electronic Wallets
Other contactless payment options could help drive adoption of contactless cards/key fobs, or eclipse them altogether. The consumer will make the final choice between biometric payment, cell phone payment, and €˜tap and go' payment. Rob Garf cites today's stored value and ACH debit cards as other options to reduce transaction fees for retailers.
Several sports venues are piloting cell phone payment to speed service at their concession stands. Cell phone payment can operate by dialing a number or touching your phone to authorize payment from a stored credit card, or by beaming card data from a mobile phone to a contactless reader. Retailers could also use this technology to display targeted promotions on customers' cell phones as they move through the store. However, the cell phone interface needs improvement for this kind of marketing to move forward.