Contactless cards may be the best way for banks and merchants to persuade consumers to use cards instead of cash at the point of sale for transactions under $5, experts say.
Merchants say there are benefits in moving customers away from cash and toward contactless cards, both because the card speeds up the checkout process and because consumers spend more when they use cards. But the merchants urged banks and card companies to simplify their marketing messages.
And some merchants argue that banks should take the lead in driving adoption, because the shift away from paper money provides more benefits to banks than to retailers.
Those issues were discussed Tuesday at the third annual Micro and Small Payments Conference in New York, which was hosted by the small-payment software vendor Peppercoin Inc. and SourceMedia Inc., which publishes American Banker.
Today consumers often use cards to make small online payments, because mailing cash and checks takes too much time.
Ron Hannah, the national category manager for alternate payments at the nation’s largest convenience store chain, 7-Eleven Inc. of Dallas, said there are benefits in expanding the use of cards for such payments, but mistakes by banks, card companies, and merchants are slowing consumer adoption.
For example, he said, 7-Eleven trained cashiers to encourage customers to use “contactless cards.” However, “there’s a lot of different names for the same technology,” and cashiers were mistakenly telling consumers they could not use cards labeled Blink (the brand used by JPMorgan Chase & Co.), PayPass (MasterCard International’s brand), or ExpressPay (American Express Co.’s brand).
Mr. Hannah also said 7-Eleven decided to install scanners that could accept both magnetic stripe and contactless cards.
Some experts have argued that merchants could accelerate contactless card use by deploying secondary scanners, which they would add to their magnetic-stripe systems by a wired or wireless connection, to detect the embedded radio frequency identification chip cards use. However, Mr. Hannah said cashiers would move such a device out of sight if they were confused by the new system. “If you can move it, it will get pushed out of the way,” he said.
Integrated scanners are more expensive than secondary ones, but the expense can be worthwhile, because the average 7-Eleven card transaction is 20% to 25% larger than a cash one, and there are fewer security-related costs to accepting cards, Mr. Hannah said.
The average 7-Eleven cash transaction is just over $4.
“The vast majority of our customers are cash-based customers, and we have a wide cross-section of customers in our stores; it’s not just underbanked,” he said. For 7-Eleven, moving those cash-based customers to cards “is really born out of necessity.”
Karen Bird, the director of retail technology for Dunkin Brands Inc., which operates the Dunkin Donuts and Baskin-Robbins store chains, said that banks must lead the move away from cash, because merchants do not get the same benefit from nonbank cashless transactions, such as those using gift cards.
The average Dunkin Brands credit card transaction is three times as large as a cash one, she said. “We are not seeing that same factor of lift on our gift cards.”
Speakers at the conference agreed that contactless card transactions are faster than mag-stripe or cash ones, and they said the difference is an important consideration in an impatient society.
Consumers use contactless cards by waving or tapping them in front of a scanner. T.J. Sharkey, a vice president for business development at MasterCard International, said this method — along with MasterCard’s elimination of a signature requirement for contactless transactions of under $25 for many merchant categories — have cut transaction times substantially.
According to Mr. Sharkey, CVS Corp., a drugstore chain that accepts contactless cards, has observed that its average cash transaction takes 33 seconds to complete, while the average mag-stripe transaction takes 26 seconds. Contactless transactions take just 12 seconds — a big enough difference that consumers notice, he said.
“What you are going to see is the eating away of the cash transactions” as contactless cards become more widely used, he said.
Aaron McPherson, the research manager of payments at Financial Insights Inc., a Framingham, Mass., unit of the technology publisher International Data Group Inc., said in a phone interview, “The next six months to a year are going to be really critical.”
He said that the problems Mr. Hannah discussed can be overcome, but that other problems were sure to emerge, such as cards and readers that simply do not work. “It’s the kind of thing that tends to happen in these new technology rollouts.”
Though some panelists said contactless cards are abundant enough today to consider it a successful technology, Mr. McPherson said that “it is too soon” to declare the technology a success.
Despite some positive early trends — and some very aggressive promoting by JPMorgan Chase — “it’s important to keep a level head and not to get too carried away with the excitement of a new technology, because, you know, mag-stripe itself is pretty fast these days,” he said.
Dan Schatt, a senior analyst for the Boston market research firm Celent Communications LLC, said he agreed that the variety of contactless card brands was confusing customers and merchants.
“You get more scale and volume if you go as one unified force,” he said, and some recent steps by MasterCard and Visa International show that the industry is starting to recognize that.
