Touchy-feely is out in the world of payments. Customers do not want to give their physical payment cards to anyone, and they do not want to touch terminals. A JD Power study released in early June this year provided hard numbers on this trend that emerged at the outbreak of the COVID-19 pandemic. It showed that 41 percent of retail bank customers were using their bank’s mobile app more frequently, while 40 percent said they were using credit cards in a contactless manner. How are banks, which in recent years have focused on producing elegant, exclusive, and eminently touchable cards, going to respond?
The urgency with which they will respond depends on how permanent they think this change will be. Will contactless payment be a temporary trend, driven by fears of COVID-19? Or will these new behavior patterns be permanently forged into the minds of customers and bring in a banking revolution? Given the speed with which consumers have already adapted to masks, plexiglass, hand-washing, and queuing at two meters’ distance, it is hard not to believe the age of contactless cards is here to stay. Banks have known that this era is coming. Over the years, they have taken several positive steps to enable contactless payments. But have they done enough?
Some banks are well prepared for this change. CIBC, for example, created a COVID-19 hub on its mobile application and website, providing access to emergency government programs besides offering digital forms for a host of services, from loans to credit deferrals. It saw a 40 percent increase in digital registrants, while digital banking sessions went up to 20 percent compared to pre-pandemic data.
In the United States, Visa has reported a notable increase in tap-to-pay usage, thanks to the pandemic. In March, 31 million U.S. consumers used their contactless cards or digital wallets, up by six million since November 2019. The U.S. has a total of 175 million contactless cards, the largest in any market. The use of the Visa contactless card is up by 150 percent since March 2019.
Canada is well ahead of the curve on this trend, while the United States has lagged until recently, due to factors such as limited merchant support and lack of consumer comfort with contactless payments or digital wallets. A Mastercard study for April found that 76 percent of Canadians were using contactless payments, a majority with health and safety in mind. Around the world, 80 percent of contactless payments were for transactions of $25 or less, which pre-COVID typically would have been done in cash. Perhaps the most telling part of the study was that 80 percent of Canadians want to continue with contactless payments, COVID-19 or not. The study has prompted Mastercard to take the next logical step and work with partners in Canada to increase its limits for contactless purchases to $250.
Canada is well ahead of the 'contactless payments' curve, while the United States has lagged until recently, due to factors such as limited merchant support and lack of consumer comfort with contactless payments.
The pandemic is shocking the financial services industry into digital action. That the FAANGs (Facebook, Amazon, Apple, Netflix, and Google) are looming large on the financial services horizon, bringing new and competitive payment options to users, is further reason to act. The disruption created by both the pandemic and the FAANGs seems certain to drive a wave of payments innovation in the banking space.
There will be an explosion in contactless online and mobile payment options. Radio-frequency identification and near-field communication tags for individual products will help create more seamless contactless payment experiences. Digital wallets will become ubiquitous. Computer vision will become common, enabling experiences such as identifying products as a consumer places them in a shopping cart, and billing consumers as they leave the store. Even now, McDonald’s is piloting the scanning of car license plates to complete contactless transactions at its drive-throughs. Innovation around contactless payments and digital wallets has only just begun. The countless opportunities it is providing will turn contactless payments into a revolution in banking.
The consequences of delaying innovation in the payments space can be fatal. Technology giants are already exploring fascinating ideas to make tomorrow’s world of payments frictionless. In late May, Google announced it was testing its transactions application using voice-match biometrics. It is also working on a smart debit card that leverages biometrics. Technology behemoths are moving as quickly as they can to un-level the payments playing field. But banks have their own advantages in this game. They understand payments, regulations, and their customers better than anyone else. And, also to their advantage, advanced technology is available to anyone who dares to play the game.
This blog was originally published in Financial Post of Post Media, Canada.