Visa Inc.’s announcement Monday that this summer it will expand its “No Signature Required” program for magnetic stripe card transactions less than $25 to the majority of merchants could create yet another setback for contactless-payment growth in the United States, some observers say.
The no-signature process accelerates the checkout process, enabling merchants to handle more customers per hour and encourage consumers to make more small-ticket purchases with cards instead of cash, Visa says. Under its existing program, Visa permits no-signature in 26 merchant categories, but in July it will expand that significantly, to cover cover about 98% of all merchant types.
At least one analyst contends Visa’s move further undermines one of the key selling points for contactless “tap and go” payment, which Visa introduced in 2005 as a faster way to pay. Visa’s payWave contactless chip card enables customers to pay by waving their card a few inches from a reader, with no need to sign for purchases up to $25. For purchases, over $25, contactless card transactions require a signature.
“The no-signature rule changes have taken away a good chunk of the contactless value proposition,” Red Gillen, a senior analyst with Celent, tells PaymentsSource. “If a magnetic stripe card can come close in terms of speed (for low-ticket transactions), what’s the big deal about contactless?”
Visa formally introduced its No Signature Required program in 2006.
MasterCard Worldwide offers its own PayPass contactless-payment brand, while Discover Financial Services offers Zip and American Express Co. has ExpressPay.
MasterCard earlier extended its own no-signature program, Quick Payment Service, to include most merchandise categories for purchases. Its ceiling for such payments is $50, twice that of Visa’s. And Discover in October expanded its no-signature policy to all merchants on transactions less than $25. AmEx officials were unavailable to comment on the company’s policies.
The card networks say the no-signature programs are designed to speed the transaction at the point of sale, so consumers need only swipe their card, then wait for a receipt after authorization. The networks declined to provide recent data on the speed on transactions with or without signatures.
But as contactless continues to struggle to reach widespread use in the U.S., the rise of no-signature payment programs has blunted one of the primary reasons merchants might adopt it. Since contactless’ initial rollout, some 10% of consumers have cards equipped with the chips, and 70,000 of some 7 million potential merchants have compatible card readers, analysts estimate.
Even Discover, which has tested its Zip contactless card in pilots over the past few years, concurs that no-signature programs have dealt a blow to contactless payment adoption. “We do believe that no-signature has impacted the adoption of the contactless payment card,” says Troy Bernard, Discover Network senior business leader, noting the difference in checkout time at the point of sale between tapping a contactless card and swiping a mag-stripe card is “negligible.”
As a result, Discover is rethinking its contactless-payment strategy, Bernard says, including expanding its contactless applications to perform more functions, such as “combined payment and door-access devices, transit devices and new form factors such as contactless stickers.”
Discover recently conducted a test using its Zip contactless technology in postage stamp-size stickers it distributed to 700 employees at its corporate headquarters. It has not announced any commercial rollouts of contactless stickers.
Contactless technology’s backers say it offers other benefits besides speed.
“Fraud prevention is becoming one of the driving forces for contactless payment in the U.S,” says Randy Vanderhoof, executive director of the Smart Card Alliance, noting mag-stripe transactions continue to be targets for card skimming and replication. “Certainly for issuers, because they pay for a majority of the fraud, contactless payment would be a huge leap forward in preventing card-skimming, which is on the rise.”
Many industry analysts suggest that, its benefits aside, contactless payment needs significantly more marketing help to get off the ground.
“There should be more communication and education of merchants and cardholders so people know what contactless is,” says Deborah Baxley, a management consultant with Keypoint Consulting. “A lot of cardholders may not know they have contactless capability or where they can use their cards.”
