Jul 17, 2006

Analyst report on contactless: scared of asking the really hard questions?

Datamonitor recently produced a report (Contactless Payments 2006) to identify and quantify the market opportunities for contactless payment cards. The report gives lots of data on the size of the low value cash payments market, but it has an annoying way of calling this the “contactless opportunity” over and over again as if by definition there is no other card product competing for that same market.

I would have expected to see a serious analysis of Visa’s No Signature Required program and MasterCard’s Quick Payment Service program, both of which compete directly with contactless for the exact same merchant categories. Both programs offer the same fast transaction benefit as contactless, but with a huge advantage: they function immediately on all existing magstripe cards already in everyone’s wallets, and on existing POS terminals already deployed.

What does Datamonitor think of these programs and the potential impact on the success of contactless? I don't know. The report doesn’t mention them. Instead, Datamonitor seems to assume that low value cash transactions can only be displaced with contactless cards and that no other solution exists.

Hopefully the next version of the report will go out on a limb and ask a few really hard questions. But if that comes out after the rest of the industry has already started asking those same tough questions, wouldn't that be too late?

Here are a few questions that analysts could dig their teeth into:

How does contactless fit in with other “no signature” programs promoted byVisa, MasterCard and American Express?

Since contactless requires additional merchant investment (reader upgrade, training, etc.) that is not needed with the other “no signature” programs, what additional benefits does contactless provide merchants to justify their investment?

What percentage of currently participating merchants has had their terminal upgrades paid in part by banks, associations or other third parties? I have heard that the percentage is very high, but there is no mention of this in the report. When will merchants accept to pay for contactless upgrades to their terminals?

In the US, contactless has been positioned as a proprietary Chase brand (Blink) rather than an association brand. Datamonitor even reports that some consumers have approached other issuers in the US asking for a card with ‘blink’. What impact will the strength of the Blink brand, combined with the relative absence of clear association driven branding, have on other issuers?

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