Mar 21, 2006

A merchant case study on contactless cards

American Banker reports on results from merchants now accepting contactless cards, in an article titled Merchants' Plea to Issuers: More Contactless Cards!

It appears the primary frustration is that there are not enough cards for the promised time savings to be measurable. More cards are needed, lots more cards. This learning is important to banks in other regions that are considering contactless card pilots with a small number of cards.

Here are the results of one merchant in particular. Sheets, Inc. is a chain of 320 convenience stores with gas pumps. 80% of sales are less than $25, so this is an ideal candidiate for contactless.

Stated objective: “To speed up transactions and free up parking spots.”

Time savings experienced: “The time savings - about eight seconds a transaction - comes from consumers' not having to extract cards from their wallets, put them back in, and sign receipts. Waving a card in front of a reader takes about as much time as swiping one through.” (AH: It appears that time savings are primarily due to eliminating the need for a signature, which has always seemed obvious.)

Impact on business: “The contactless cards are not yet affecting the parking lots. We know it's faster, but we've got to get a lot of them to make a dent. Tap transactions are slightly smaller than swipe transactions. The average contactless purchase of gasoline, for example, is about 30 cents less than a swipe purchase." (AH: This slight difference could simply be due to the small number of transactions. I can't see why contactless transactions would be less on average than magnetic stripe transactions - they should be around the same.)

Consumer acceptance: "Consumer acceptance was the easiest part. Going into it, we thought we'd be doing a lot of training on the difference between tap and swipe, but it's not been an issue."

Biggest challenge: “Teaching employees how the cards work. At this early stage, employees don't see a lot of contactless transactions. When one comes along, they freeze."

Since tapping the card is just as fast as swiping it, why not eliminate the need for a signature on all credit and debit transactions under $25? Hundreds of millions of cards would then automatically have fast transaction capabilities, not just the 6 million credit cards equipped with contactless chips. That would free up parking spaces much faster.

Other posts on contactless:
Contactless, a response to interchange litigation
A new and fresh advertising theme: the payment experience
Addressing contactless security concerns
Contactless opportunities and challenges

2 comments:

David G.W. Birch said...

"Since tapping the card is just as fast as swiping it, why not eliminate the need for a signature on all credit and debit transactions under $25? "

The contactless cards transmit a cryptogram so the issuer can tell whether the card is counterfeit or not, so their risk is much lower with contactless transactions than with stripe transactions in the absence of a signature or PIN.

Sausheong said...

I think at $25 levels some merchants don't bother to authenticate, especially if there are a lot of customers. Also, counter cashiers hardly check for signatures anyway. (http://www.zug.com/pranks/credit/). In comparison to online purchases that can't ask you for a signature at all, I think the $25 limit is a pretty good trade-off for faster transactions.

Of course I think there should be deeper thoughts on this as in the level of risk -- whether it is acceptable, who should accept the risk and liability in case of fraud, and even technical changes at the POS that can lower the risks.