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Can’t Touch This: Contactless Payments in the Pandemic and Beyond

December 17, 2020
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By Lynne Cornelison and Greg Ulankiewicz

For years, “tap-and-pay” cards were a solution looking for a problem. COVID-19 has provided that problem, and contactless cards are finally having their day in the sun. Financial institutions that had not or only partially issued contactless cards prior to the pandemic were suddenly asking themselves: “Do we invest in a rapid rollout of contactless cards to all our accountholders, or will the utility of a more hygienic purchase experience fade among consumers if and when the pandemic is contained?”

Old Habits Die Hard

To gain a sense of contactless card usage prior to the pandemic, we can refer to the Federal Reserve Bank of Philadelphia’s discussion paper, “Contactless Payment Cards: Trends and Barriers to Consumer Adoption in the U.S.,” released in May 2020. Contained in this study are findings from a survey of consumers fielded in October 2019. The survey found that four in 10 consumers (41 percent) possessed a contactless credit card or debit card.

Overall, however, only 12 percent of consumers (representing less than a third – 29 percent of contactless cardholders) indicated they frequently use the tap-to-pay feature when making purchases. Twice as many contactless cardholders (59 percent) indicated they still primarily insert the card into the chip reader. Twelve percent said they did not know how to use the contactless functionality. Absent any real incentive to change their behavior, consumers were clearly lukewarm to the idea of “tap and pay.”

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Growing Consumer Comfort With Contactless

In August 2020, about six months into the pandemic, Raddon fielded a survey for our annual Channels and Payments baseline report. As part of our Raddon study, Delivery Insights: Changing Demands in a Contactless World, due to publish in January 2021, Raddon asked consumers how they use their payments cards when making purchases. Notably, consumer use of a card’s tap-to-pay feature is twice that of the Fed’s findings last year. Now, at least a quarter of consumers indicate they make purchases with their debit card (25 percent) or credit card (29 percent) by holding it within a few inches of the card terminal. At the same time, traditional methods of swiping or using the card’s chip continue to be ubiquitous with nine in 10 consumers still using their cards in this way. There is always hand sanitizer.

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With consumers growing more accustomed to contactless, financial institutions should have a planned rollout for tap-enabled cards to their accountholders. But a rollout of contactless cards should not be confused with a payments strategy. As Figure 2 also shows, four out of five consumers use their debit or credit cards for online purchases. More than one in five consumers are now making in-store purchases via their mobile devices, up from 13 percent as recently as 2017. Looking forward, almost half (44 percent) of all consumers say they are extremely likely to use mobile payments in the next five years. In 2017, only 4 percent of consumers indicated the same. Financial institutions need to view and leverage contactless cards as a tactic in their broader strategy to attain top-of-digital-wallet status.

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Contactless Contact Is Critical

A benefit of issuing contactless cards is the opportunity to engage accountholders and remind them of your card’s and brand’s value proposition. A rapid, complete rollout of contactless cards is less important than the quality and efficacy of the messaging that accompanies it. Financial institutions should have a targeted rollout with messaging tailored for their unique audiences.

For higher-risk populations, such as your older accountholders, you may opt for immediate replacement with messaging around a safer payments experience. For those who are active mobile bankers and have used your card for online purchases, consider a primary message that encourages loading your card into their mobile wallets and issuing contactless cards upon expiration. Almost all accountholders should receive messaging and perhaps incentives for using your card for online purchases. If you are not in an accountholder’s digital wallet, or what your accountholder perceives to be their digital wallet, then top-of-wallet status will only grow increasingly elusive. 

In the coming decade, financial institutions that can gain and sustain top-of-digital-wallet status will have a major advantage over their peers. And 10 years from now, we’ll probably have forgotten about the time “tap-and-pay” cards had their day in the sun.