Halleluiah! The card industry is starting to wake up to the single biggest problem that has to be solved before contactless can really take off, a problem that has so far been largely ignored and neglected, eclipsed by everyone’s excitement about massive contactless rollouts.
Yes, in some cases the cards are already out there, or will be rolled out soon. It was assumed that merchants would automatically come on board because of all the benefits to merchants, like faster transaction times and shorter queues. It turns out that those benefits are not enough.
According to a Card Technology article (see “London Contactless Launch: Where Are The Merchants?”), no UK merchants have yet announced their intention to accept contactless cards, even though the planned launch is only six months away.
Why are merchants not on board yet?
“It’s primarily about cost,” says the head of payment for Boots, the UK’s largest retail pharmacy chain. He explains that it costs Boots 10 times more for a card transaction than for cash.
What are the card schemes and banks considering to encourage merchants to accept contactless? Lowering interchange. Ah. What about all the other benefits like faster transaction times and shorter queues? Apparently, the answer is something like this: “Yes, those are nice features. But if you want me to prefer cards over cash, just cut interchange fees.”
There’s something very bizarre with this, which I’ll get to in a second. Bear with me while I work through this.
Contactless chip cards are more complex, technologically speaking, than the contact EMV chip cards being rolled out in lots of places. They are certainly much more complex than simple old fashioned magstripe cards. Contactless cards are more expensive than contact EMV cards and magstripe cards. And yet, because they don’t offer much additional benefit to merchants, contactless cards need to be priced less to merchants.
Here’s what’s bizarre. If the goal is to promote contactless card usage, then cutting interchange fees on those cards is a valid tactic. But if the goal is to take market share away from cash, then maybe it would be best to skip the whole contactless thing and just cut interchange on all low value transactions.
Of course, it would be even better to avoid cutting fees and look instead at creating much more value for merchants, so that they agree to continue paying fees and prefer cards over cash. Contactless is of course an attempt to do precisely that, with what we thought would be irresistible benefits, like shorter queues. For right now though, contactless just doesn’t go far enough. The benefits are from irresistible.