IMGCAP(1)]
In the three years since the nation's card issuers began flooding the marketplace with credit and debit cards that can make contactless payments, American consumers also have been exposed to television commercials that tout the new technology's convenience.
In 2005, for example, MasterCard produced another of its ongoing "Priceless" spots that showed a hapless McDonalds's customer struggling to pay the exact amount with cash and change, followed by another customer who quickly and easily waved a new MasterCard PayPass over a card reader. As usual, the spokesman pronounced the latter experience "priceless."
But most industry experts say that even though issuers have put between 50 million and 60 million contactless cards in circulation, American consumers still don't use them very frequently, and many don't even know that the cards in their wallet can send payment information without swiping the magnetic stripe.
While Japanese and European consumers have increasingly begun using smart cards or mobile phones to make contactless payments, "in the U.S. it hasn't gone anywhere," says David Chamberlain, principal analyst for wireless at In-Stat, a Scottsdale, Ariz.-based research firm. And even though issuers probably will have more than 100 million of the new cards on the street by 2012, American consumers still need to be convinced to stop using their comfortable old mag stripes.
Issuers say getting consumers accustomed to waving cards over a reader will just take time. "Our marketing is focused on communicating directly with the customer," says Tom O'Donnell, senior vice president of Chase Card Services, a division of JPMorgan Chase, which began issuing its contactless cards, popularly known as Blink, in 2005. New cardholders get full descriptions of the Blink technology in the mail and follow-up e-mail messages, O'Donnell says.
But Chase also has issued cobranded cards with partners such as United Airlines and the Walt Disney Co., and retailers such as ShopRite and Wawa. The retail partners play a special role. Chase research has shown that paying with a contactless card becomes habitual after just three or four uses, O'Donnell says, and outlets like Wawa, the largest convenience store chain in the Mid-Atlantic region, thrive on regular customers making small purchases. Those cobrand partners do their own outreach to customers, he adds, and Chase "sees a very high usage in the convenience store environment."
O'Donnell says contactless cards are "starting to hit critical mass." More than 90,000 merchant locations are equipped with readers that accept all contactless cards, he points out. Chase has issued about 12 million Blink cards, and expects that number to increase about 20% to 30% by the end of the year. Chase and other issuers don't release the number of contactless transactions performed.
Advances in card technology may at least help alert consumers to their cards' contactless feature. In May 2008, Texas Instruments Inc., announced it had developed an ultra-thin version of the module embedded in contactless cards that communicates the payment information to merchants' readers. "We've been trying to remove the barriers to [contactless use] one by one," says Steve Turner, the company's marketing manager for contactless payments.
The thinner module will give card manufacturers the ability to provide far more elaborate and colorful graphics, possibly drawing consumers' attention to the contactless option, while retaining the industry-standard card thickness. For example, contactless cards now include a little wave symbol to set them apart, but sometimes it's in the front, and sometimes in back, depending on the issuer, Turner says. If issuers agree to use the same wave symbol on all cards and take advantage of the new graphics option, they might ensure that consumers no longer will have a contactless card without knowing it.
In-Stat's Chamberlain believes that near field communication, making payments with mobile phones, could bypass cards as the preferred method of making contactless payments. He points to Japan, where in the last few years, at least 30 million consumers went straight from using cash to waving mobile phones with embedded computer chips over contactless readers. He admits it would take a lot of time for that to happen in the United States, adding that "2008 will not be the year of contactless phones" in the U.S.
In Japan, mobile operators such as NTT DoCoMo had made major investments in the convenience stores that agreed to put in payment readers, which helped drive acceptance among consumers and merchants. But that has not happened yet in the U.S., he says, and since merchants worry about getting stuck with the costs of installing the readers, they currently have little interest in helping to market the technology.
Still, American mobile operators and the card brands have made progress, Chamberlain adds. They have all agreed to standardize mobile payments technology, and many have already started consumer trials. He estimates that about 9 million Americans will use phones to make payments by 2012.
While Chase's O'Donnell agrees that mobile phones will become more popular, he believes U.S. consumers will hold onto the familiar payment cards. Moreover, watching other shoppers use their mobiles will simply make others more comfortable with using all types of contactless technology.
