Contactless EMV Cards Finally Gain Traction in the UK
The UK Cards Association reported recently that contactless transactions in that country were up over 200% from December 2014 to December 2015. It seems that seven years after many issuers and retailers enabled contactless EMV (“tap-and-go”) payment functionality for their customers, consumers are finally responding. This experience in the UK may allow the U.S. to better predict the likely adoption of dual-interface cards and other types of contactless payments.
As shown in Figure 1, UK banks began issuing dual-interface cards (i.e., cards that support both contact and contactless EMV transactions) shortly after the market shifted to EMV in 2008. By 2012, the national Post Office, the London bus system, and many prominent fast food chains, grocery stores, and retailers began accepting contactless payments without a PIN for transactions below £20.
Figure 1: Value of Contactless Transactions in the UK (millions of £s)
Contactless volume grew by a compound rate of 360% per year between 2012 and 2015, approaching £8 billion last year out of £621 billion in total card spending. While only 1.2% of volume, contactless transactions made up 12% of card transactions in December 2015, illustrating the small average size of contactless relative to other card transactions (£7.41 versus £46.38 in 2015). Increased acceptance should stimulate even more consumer demand. By October of 2016, all London cabs will be outfitted with contactless terminals, and the UK Cards Association recently announced that the contactless transaction limit will rise to £30 in 2016 to capture a greater share of everyday spending.
Comparisons of the UK and the U.S. must be approached with caution. The in-store rollout of EMV in the U.S. is occurring relatively slowly; however, mobile NFC payments (e.g., Apple Pay, Android Pay, and others) could spur faster adoption of contactless payments generally. Contactless EMV cards and mobile NFC payment systems use the same contactless ISO payment specifications from Visa and MasterCard, and many U.S. merchants are installing contactless terminals.
Some issuers may forego the more expensive dual-interface EMV option if they can push consumers to a contactless mobile wallet solution instead, but many banks will likely offer both. Regardless of form factor, the UK case study suggests that contactless payment adoption will likely be a multi-year process in the United States, but once card and terminal enablement reaches a tipping point, consumer adoption may be rapid.
For more information, please contact Stephen Kiene, Senior Consultant, firstname.lastname@example.org, specializing in Payments Strategy and Innovation.
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