Sep 4, 2006

Visa's No Signature Required program is working ... how will contactless compete?

Last week, Visa reported that its volume on purchases less than $25 in small ticket segments totaled $27.3 billion in the first six months of the year, an increase of 17 percent over the same period in 2005. Those transactions were performed almost entirely using traditional magnetic stripe cards, not contactless cards.

According to Visa, “The double-digit growth indicates that Visa payment cards are increasingly being used instead of cash and checks for everyday purchases less than $25.”

I recently wrote a post critical of payments analysts who position contactless cards as the only way to address the low value cash payments market. Analyst seem to be unaware 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.

I don’t know how much purchase volume is performed using contactless cards, but hundreds of millions of magstripe cards are certainly producing far more low value transactions than ten million or so contactless cards.

Visa’s No Signature Required program is working. Analysts need to evaluate the impact this program will have on contactless deployments.

1 comment:

Anonymous said...

Its a very interesting article on questioning the viability of contactless but I certainly beg to differ.

There are several factors that I strongly believe contactless will thrive in Asia.

1. Cultural differences
In Asia/Pacific, people are more receptive to new leading edge technologies. For instance Asia/Pacific is the leader in wireless data services.

2. If we look strictly at contactless and no signature magstripe, it may look as if they are both the same. However no signature mag-stripe cannot change its form factor whereas contactless can. Contactless will evolve to a point where it does not require a card. It can be embeded with mobile phone technology, tokens, or keychains or whatever the creative minds may construe in the future.

3. Contactless has worked well in public transportation sector.
Do not be surprise if contactless performs multi-functional roles that will add more value.

Challenges that contactless face is nothing to do with cardholder or merchant acceptance. Today they are legislation and cost issues. If the countries are prepared to liberate and move into off-line payment authorisation. Coupled with falling technology cost and Visa and MCI drive, I am sure we will see a paradigm shift of contactless from a pure payment tool to a lifestyle device.