Nov 13, 2007

Report on contactless/NFC problems gives useful information (but useless advice)

According to a report by research firm Aberdeen Group, most merchants that have adopted contactless don’t promote those programs to their customers, leading to lower than expected usage and uptake of tap-and-go transactions.

The report's authors are critical of retailers. “Retailers must shoulder more the marketing and information burden,” says Sahir Anand, a senior analyst at Aberdeen. “Most merchants have left this function to the banks and card networks.”

If merchants get significant benefits from contactless, they should be encouraging customers to tap-and-go, right? You would think that it would be to their benefit. Tap-and-go transactions are faster and more convenient, so the greater the number of customers that use contactless, the greater the ROI benefits to merchants, right? Merchants should normally be promoting contactless, but they’re not. Why aren’t they? The report doesn’t ask this question.

It’s a fantastic stretch of the imagination to believe that merchants get lots of benefit from contactless, yet for some mysterious reason don’t promote tap-and-go payments.

One possible problem is that research firms may prompt merchants to repeat the same contactless benefits mantra over and over again (“customer convenience”, “increased speed”, etc.) and don’t explore how merchants actually value those benefits. Aberdeen's report appears to assume that the benefits are enough to justify investments in contactless. But the way merchants are reacting doesn’t demonstrate this. Instead, merchants are acting exactly as they would if the benefits from contactless are relatively minor. Unfortunately, nobody seems to have asked them.

“How valuable to you is customer convenience and increased speed at the checkout?”

“Very valuable.”

“No, wait. Let me re-phrase that. Are the benefits enough to justify you upgrading your terminals, promoting tap-and-go to your customers, getting your cashiers to prompt customers for their contactless cards and offering promotional incentives to cardholders?”

“Hmmm. What exactly do you mean when you say ‘promoting tap-and-go to my customers’? Also, who would fund the promotional incentives? Since I would be encouraging more card usage, the bank should fund the incentive, right?”

Aberdeen’s advice that retailers must do more to promote contactless payments is not very useful. Instead, their conclusion should have been that banks need to do more to make contactless useful and valuable to retailers.

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