Wave to Pay is Far Away
It’s finally happened! Mainstream journalists covering the payments space have woken up and smelt the coffee—contactless is sputtering along in the US. Rather than another rah rah article on how everyone’s swiping—when in fact hardly anyone is—John Stewart has an excellent balanced article in Digital Transactions.
Here’s a summary but you should read the article: Contactless is a minute portion of payment transactions, few merchants take it, most merchants don’t see the business case for it but would love to install terminals if the card networks subsidized them. Consumers might eventually be able to pay by waving but that day is many years away. And today, they are confused or uninterested.
What Stewart doesn’t really touch on is whether there’s a sound business case behind the current contactless strategies adopted by the card networks. I’m not so sure. The problem is that the card networks are making a long-term bet on a particular technology. It might payoff in a decade. Or in this age of rapid technological innovation something better may come along that will make all the investment in point-of-sale equipment look kind of silly. One thing is for sure—the uptake of contactless by merchants and cardholders has gone more slowly than many anticipated.
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Payments, New Business Models, consumers, Economics, two-sided market
A decade away and no business case? Then please explain how contactless payment has taken off so much in Japan.
Easy! Japan had a dominant carrier that introduced contactless mobile phones and subsidized the deployment of contactless terminals. Take that and a country where people do virtually everything with their mobile phones (relatively few have computers) and weren’t already wedded to plastic cards (the use of credit is relatively low) and contactless was a synch. People commonly make the mistake of pointing to Japan as the future in things mobile—the problem is that it is idiosyncratic in so many ways.
I think a key element of the Japanese case study is that fact that the contactless phones are so much more functional than a contactless card. The ease of use and convenience at POS is the same, but away from the POS the phone obviously has more utility. If anything from this applies to the USA — and it’s not obvious that it does, but it may — then it implies that the US issuers need to accelerate on the mobile side.
Absolutely right. By the time the Japanese introduced contactless payments in the phone Japanese were using their phones to do everything from playing games, downloading music, checking train schedules, and much more. It was natural to add payments. I agree and I think many in the industry do too that if Americans had contactless payment-enabled mobile phones they would love to use them at the point of sale. But we have a chicken and egg problem in the US that is just a lot harder to solve than it was in sui generis Japan. The phone companies, card issuers, and networks have to come to some sort of agreement on what to do, or the phone companies could try to introduce their own payment system, or a card network perhaps could buy a phone company. The phone companies are still a ways a way from learning how to play in the same sandbox as anyone. So not much is really happening. The card networks had the bright idea to issue a contactless card in the hopes that this would get the merchants to install contactless terminals so that by the time the mobile phone had sorted itself out there would be contactless pos’s. Lots of idea seem bright but turn out dumb. This is one of them.