Consumers and retailers in the U.S. apparently just aren't
coming out of the U.K. show that one in 10 card transactions are
now contactless. And that has jumped like a jackrabbit in just the
Enabling all of the London Transport System to accept
contactless last September contributed a lot to that increase - 1
million transit rides a day are now done via a contactless tap at
the turnstile. Roughly 320,000 of the U.K's 1.7 million merchant
terminals are now contactless too, and a mandate to make every
single POS terminal in the U.K. contactless by 2020 will rapidly
close that gap.
Then there's Australia.
of Aussies now understand they have a card that allows them to tap
and pay. Fifty-three percent of them say that they do that at least
once a week at grocery, fast food and drug stores, most of which
have contactless terminals.
Canada is another market
where the use of contactless is skyrocketing. Seventy-five percent
of retailers accept contactless payments. Nearly 10 percent of all
domestic transactions are contactless now and said to be growing at
the rate of 1 percent a month.
So, What's Up With The U.S.?
Now contrast that to the latest stats coming out of the mobile
wallet adoption study that PYMNTS.com does every quarter with
Remember, in the U.S., that's now the main way to pay by
tapping/waving, since issuers pretty much abandoned contactless
cards after a massive push and corresponding flail years ago.
Contactless cards are as scarce as hen's teeth today in the U.S.
Anyone who has one probably doesn't even know it.
So, perhaps not surprisingly, the
that we released last Thursday at
Innovation Project 2016
painted a very different picture of the relationship between
contactless payments and the U.S. consumer at the point of
Here, it seems that consumers really aren't all that into
contactless payments at the physical point of sale. Apple Pay (
) is the mobile wallet that has been in the U.S. market the longest
- launched in September 2014 to much fanfare - and uses NFC
technology as its enabling technology. We've been tracking its
adoption and usage ever since, and have multiple observations over
the 18-month lifespan of Apple Pay.
What we observed in March 2016, compared to earlier results, was
The number of people who've installed Apple Pay and used it at
least once is stronger than it has ever been. But repeat usage is
down, and has been going in reverse ever since March 2015. Today,
only 3.5 percent of eligible transactions for those consumers are
via Apple Pay, down from 5.9 percent in March 2015 and 4.6 percent
in October. Eligible transactions are those where the consumer has
the right phone and merchants have the right enabling POS
technology - that is, the intersection of consumers with iPhone
6/6Ss and merchants with contactless terminals.
But that's not the most interesting (we think) or disturbing (if
you're on the Apple Pay team) takeaway.
One can easily explain away the drop in usage as being owing to
the flattening of the adoption curve as more people buy iPhone 6/6S
models. If only 3 percent of those who bought iPhone 6/6S did so
because Apple Pay could be used with it, it's only logical that the
next wave of iPhone customers wouldn't be driven to that feature
either. Overwhelmingly and perfectly predictably, consumers bought
their new iPhone because of the larger screen size.
Yet, the speed and convenience of NFC/contactless at the point
of sale that seems to be attracting consumers in the U.K. and
Australia and Canada to contactless like Kim Kardashian to selfies
doesn't seem to be that much of an incentive to the Apple Pay user
here in the U.S.
For the first time since we started doing this study in November
2014, we're seeing an uptick in the number of consumers with Apple
Pay wallets in stores that accept it and who didn't use it say that
they didn't use it because, well, they didn't want to. They made a
conscious decision to pull out a card - and sometimes even cash -
to pay for their purchase instead.
So, does this mean that we should change our tagline here
in the U.S. to something like "the home of the free and the land
of the Luddite?"
Not exactly - or at least not yet.
What the U.K. and Australia and Canada markets teach us about
the contactless experience at the POS is precisely why consumers in
the U.S. are voting with their plastic wallets. And also why it
might not be a slam dunk to assume that those happy contactless
consumers in the U.K. and Australia and Canada will willingly move
to mobile wallets that use the same technology.
Give Me Ubiquity Or Give Me Death
What do both the U.K. and Australia have in common besides
people with cool accents?
They have heavily concentrated banking/acquiring and retail
segments. And they serve a very concentrated, well-defined
Let's take the U.K.,
) drives more than 40 percent of all credit and debit spend.
They also happen to be the No. 2 merchant acquirers there -
with a 38 percent share
in a segment where you don't even need all of your fingers and toes
count the number of acquiring options
. So, when the biggest issuer of cards and the second-biggest
acquirer decides to get behind contactless, you suddenly have a
situation where overcoming the biggest impediment to ignition is
within your direct control: giving consumers contactless cards and,
at more or less the same time, the places to use them.
And the handful (don't even need a whole hand) of other large
issuers and acquirers did the same.
That's exactly what you have in the U.K.
There are contactless terminals in places where low-value,
high-frequency transactions happen a lot: QSRs like Brinker
), Pret a Manger, Slug & Lettuce, Greggs the Bakers, grocers
like Tesco (
), and of course, the massively used London Underground.
The U.K. Cards Association, which keeps meticulous records about
everything payments in the U.K., reports that contactless debit
cards account for more than half (54 percent) of all debit cards in
circulation - an increase of roughly 50 percent from the year
prior, due to the growing number of places where people use debit,
even cash, and now contactless debit. Average transaction values of
~£8 ($11.58 in USD) just underscore the notion that consumers are
now in the habit of using these cards regularly - and perhaps even
daily - to quickly and conveniently pay for the Tube, and grab
coffee and lunch at most of the places they probably visited well
before there were contactless POS terminals installed. (Of course,
in terms of value, contactless is still well below 2 percent of
total card spend.)
But there's another nuance at work, too.
Quite a bit of this activity is concentrated in London. With a
population of 8.5 million and 3 million daily commuters, getting a
critical mass of retailers and consumers is a bit less daunting.
Throw in the Summer Olympics in London back in 2012 and an effort
around it to install contactless terminals to expedite the movement
of people coming in and out of the city, and you have an
environment with all of the critical ingredients lined up for
contactless cards ignition: a concentrated geography, concentration
of merchants, less than 10 million consumers to get on board, a
ready market of 3 million daily commuters, and issuers and
acquirers (often even the same bank) who can slap cards in
consumers' hands and terminals in retailers' shops to get the
Australia, and even Canada, are very similar.
In Australia, 95 percent of its credit cards are issued by five
banks. Debit is similar. And while the overall population of
Australia is 23 million, its two largest cities, Sydney and
Melbourne (at 8 million collectively), account for one-third of the
population, but more than half of the country's GDP. Here, too, you
don't need many fingers and toes to total up the issuers and
merchant acquirers who serve the market.
Australia also has a highly concentrated retail sector.
Until recently, the country was served almost entirely by
domestic retailers. Food/drug, for instance, is the second-largest
retail category in Australia, with 98 percent of the market
concentrated in four domestic merchants. Apparel, the largest
retail sector, is defined by entrenched domestic brands as well,
although international brands like Sephora, H&M and Ralph
) are planning to challenge the status quo by opening outposts in
Australia over the next two to three years.
Starting to sound familiar?
A well-defined geography. A manageable number of consumers
living in that well-defined geography. A concentrated merchant
segment with a few large merchants that drive a disproportionate
swath of spend. The ability to more directly control contactless
card issuance and contactless merchant POS deployment.
All of that greases the skids for a path to more readily putting
contactless cards in the consumers' hands and contactless terminals
in many of the places they probably frequently shop today.
But there's one more nuance.
One that I think marks the biggest difference between the
experiments we see today in the U.S. with our NFC mobile wallets
and other markets where contactless seems to be taking
One Form Factor, Indivisible, At All The Places Consumers
The consumer in the U.K., Australia and Canada is able to use
the same form factor everywhere she shops.
The contactless card that she taps one place is the same card
that she dips at merchants that may not be contactless-enabled. In
those places and in those markets, consumers don't have to put away
a contactless card and pull out another form factor to pay for
something at a merchant she likes to visit.
Yet, that's what the consumer is being asked to do in the
Consumers are being asked to download a mobile wallet. But only
if they have the right phone.
Provision a card. Provided their bank is supported by the mobile
Then remember to use that wallet when they go into a physical
store. At the still relatively small number of places that today
enable contactless transactions.
In other words, a small number of people today have a
small number of places to use their mobile wallets.
We've gone to market here in the U.S. - as I have said many
times before - constraining both the supply side and the demand
side of the market.
And even as easy as we've made the downloading of the mobile
wallet app and the provisioning of the card, having to pull out a
phone to pay at the tiny number of places today in the U.S. that
enable contactless adds just way too much friction for the
But what doesn't is reverting to the form factor that they know
is accepted everywhere: the plastic card or cash.
And even to my surprise, if they have to dip and not swipe that
That's what our data on mobile wallet adoption using NFC
Which explains why Starbucks' (SBUX)
is crushing it at 22 percent of all transactions.
Consumers visit Starbucks every day - maybe even multiple times
a day. And they can use any phone to download the app, and use that
phone with that app at every single Starbucks. Starbucks' mobile
wallet is ubiquitous - at Starbucks.
Now For The "But"
OK, you say, so all we need to do now is hustle up and get
contactless POS terminals out there in massive force.
If it were only that easy.
In the U.S., there simply aren't the same dynamics in play.
Two million contactless terminals today sounds like a great
start - until you do the math. There are something like 13 million
POS terminals across a massive geography that is the United States,
not including mPOS devices.
The U.S. also is a market in which there are 1.2 billion
payments cards in circulation, more than 47 billion debit card
transactions, more than 26 billion credit card transactions and 209
million adults over the age of 18.
Oh, and something like 14k financial institutions that issue
those cards, and countless merchant acquirers and ISOs all hawking
merchants to deploy new terminals.
It's a whole lot harder to wrangle this ecosystem to the ground,
given the diversity of merchants and the ingrained plastic card
habits honed by consumers over the last 50 or so years.
So, where does that leave us?
Are We Really Nowhere With Mobile Wallets In The
Unless we all get pretty serious, pretty fast about giving
consumers another reason to use those contactless mobile wallets -
and not just for paying at a checkout counter once they stand in
line and walk up to it - then it's a slam dunk that the next 10
years won't look any different than the last five.
As someone said at the Innovation Project panel in which we
discussed the results last week, if we're waiting until the
consumer approaches the checkout in a store to give them a reason
to pull out a mobile wallet, we've lost them.
That's exactly right.
The act of paying in the physical store isn't broken today. But
giving consumers a mobile wallet that works at a modest fraction of
the stores they visit does break that experience. And that friction
is enough to drive consumers back into the arms of their plastic
Our challenge here in the U.S. is first making the mobile wallet
experience valuable to the consumer, and then figuring out what
technology can best enable that experience in a store.
We've done just the opposite.
The challenge for the U.K./Australian/Canada markets is
If people are happy using their contactless cards at checkout,
and all those mobile wallets are doing is substituting a tap with a
card with a tap via their phone, that's not much of a compelling
case for consumers to make the switch either.
Mobile wallets that only exist to pay for things at the point of
sale will lose in most developed countries. They will lose in
places like the U.S., where there aren't enough contactless
terminals for people to get into the habit of using them, and
they'll lose in places with ubiquitous contactless terminals,
because they are slower than waving plastic for many
Mobile wallets will win only when using a mobile wallet is SOOOO
much better for consumers than using plastic, when that is what
they really want to pull out when they walk in a store. For better
or worse, paying with plastic is SOOOO easy. Something that makes
mobile payment better isn't going to be payments.
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