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This story is from the Nov. 20, 2008, issue of ISO&Agent Weekly.
Selling contactless-payment technology requires a more-sophisticated and time-consuming sales process for independent sales organizations because many merchants and consumers are not interested in the technology, according to observers.
An Auriemma Consulting Group Inc. survey earlier this year found most consumers remain unfamiliar with contactless technology, which enables them to pay by tapping payment cards and other devices containing radio-frequency identification chips near a sensor on point-of-sale terminals.
Only 3% of respondents were familiar with contactless technology, and 23% would not use contactless cards because of identity-theft concerns, according to Westbury, N.Y.-based Auriemma, which conducted the survey of 508 credit card users in the first quarter. "Our research shows that most consumers simply don't know what contactless technology is, what the benefits are, and/or how and why they should use it," says Megan Bramlette, Auriemma managing associate.
Little Merchant Response
"We have tried to sell contactless, and we have had zero response, zero interest from merchants in that solution. A lot of people have talked about contactless, but it's possible it is just not the time yet," says Justin Milmeister, president of Elite Merchant Solutions, a North Hollywood, Calif.-based ISO.
Part of the problem, Milmeister and others say, is that there are not enough contactless cards in the hands of consumers. "The card issuers need to be more behind it than they are if they want it to work," Milmeister says. "Think about it: How many contactless cards do you have in your wallet right now? And do you use them?"
There are 19 million contactless payment cards circulating in the U.S., which account for 3% of all debit cards and less than 1 % of credit cards, according to an Aite Group LLC report. Roughly 40,000 U.S. retail locations, less than 1% of all U.S. merchants, accept contactless cards, states the report "Contactless Payments and NFC in the United States: Beyond Science Fiction" released earlier this year. Aite Group is a Boston-based consulting firm.
Other ISOs contacted for this story said they do not support contactless or pay-at-the-table systems because they do not see demand either at the merchant or consumer levels.
The prevalence of advertising around PayPass cards and contactless capabilities at fast-food restaurants and gas stations may suggest otherwise, but marketing energy is coming from a handful of giant national and international chains, such as McDonald's Corp., BP PLC or 7-Eleven Inc.
"Unless you're a national-chain merchant, this may not be something you're comfortable with," Milmeister says. "The big boys are better at dealing with new technology. Many of the smaller merchants are maybe a bit old-fashioned in that they don't feel like this is something they really need."
Card issuer Discover Financial Services would dispute the notion that card issuers have not been behind contactless payment enough. "Many ISOs/ acquirers do not have contactless programs today. Only the top three or four have programs of some type, and Discover does partner with them," says Farhan Ahmad, Discover director of emerging markets and strategic business development. American Express Co., Visa Inc. and MasterCard Worldwide also have contactless card products.
Discover is hopeful that the contactless payment adoption will improve in the next 12 months. Ahmad notes a couple of major contactless programs, including First Data's Go-Tag trial at the Democratic National Convention in Denver this summer. First Data plans to offer Go-Tag prepaid contactless stickers and readers to its merchant partners, and the company has been promoting how merchants might integrate contactless payments with customer-loyalty programs. In addition, processor Heartland Payment Systems Inc., of Princeton, N.J., has launched campus-wide contactless payment capabilities at Slippery Rock University in Pennsylvania as part of its campus division using a sticker.
Lack Of Understanding
One of the major merchant benefits of enabling contactless-payment technology and acceptance of contactless cards has been the understanding that transaction speed, and thus customer service, could be improved greatly. "In the beginning, contactless deployments were largely focused on [quick-serve restaurants], convenience stores, movie theaters and other 'quick-pay' venues. The value proposition hinged on line-busting," says Discover's Ahmad. He describes such opportunities as having limited reach.
However, bringing the technology to other kinds of venues has proved difficult in part because sometimes the payment transaction itself is not necessarily that slow of a process, says Ahmad. Sometimes a long checkout line is just a long checkout line.
Proposing contactless cards as a replacement for cash, however, is a more broadly applicable strategy, he says.
"We looked at merchant venues where accepting contactless payments would be more convenient than accepting cash, such as subway terminals, buses, taxis and vending machines. These points of sale are many times unattended, prone to cash shrinkage and still rely on speed," Ahmad says.
Merchant understanding of how contactless technology works and its security also might have been lacking thus far. ISOs have to be ready to conduct—and endure—a more-sophisticated and time-consuming sales process.
ISOs and their merchants want the sales process to be more "black and white" than that, Milmeister says. "We absolutely have tried to educate them about it," he says. Elite Merchant Solutions no longer promotes contactless-transaction products but has not ruled out doing so in the future.
