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Payments Becoming a Contactless Sport

Just as 2015 was the year of chip cards, 2019 is turning out to be the year of contactless. Proof of this trend was recently featured in PULSE’s latest 2019 Debit Issuer Study. The annual survey of issuers found that 80% of financial institutions planned to issue contactless cards before 2020. National and regional banks are furthest down the road, with 95% indicating that they already issue or plan to introduce contactless cards by the end of 2019.

Community banks and credit unions are heading in the same direction, albeit at a slower pace. As of the start of 2019 when the survey was conducted, over 40% said they had no plans to issue contactless cards. Based on market momentum, it’s reasonable to expect that will change.

For one thing, financial institutions realize the importance of keeping pace with evolving customer expectations. With Chase, Bank of America and Wells Fargo all issuing contactless debit cards, and a growing number of other national and regional banks jumping on the bandwagon, there is a palpable sense that taking a cautious approach means you risk being too late to the party.

“I don’t know if other banks will succeed, but we don’t want to be at a competitive disadvantage,” said a regional bank respondent to the Debit Issuer Study. “It takes a while to convert, so we don’t want to be in a situation where we’re a year behind our peers.”

Beyond the desire to keep pace with others in the market, other major drivers of the push toward contactless cards that were reported in the Debit Issuer Study include:

  • Improved Customer Experience – While the process of dipping a chip card usually doesn’t take as long as when first deployed, contactless payments are faster and more convenient for the consumer.
  • Timing – Many issuers are replacing chip cards as they expire with contactless-enabled debit cards as part of the natural card reissuance cycle.
  • Broad Acceptance – Due to the deployment of chip terminals, which for the most part can accept contactless payments, the majority of merchants can accept contactless cards.
  • Cost Efficiencies – Due to economies of scale, the deployment of contactless debit cards typically isn’t as expensive as chip cards were when they were first deployed.

Various studies from countries where contactless payments are more mature have found that consumers are quick to adopt the new payment method. In Australia, more than 90 % of in-person transactions are reportedly contactless. More than half of all in-person payments in the U.K. and Canada are contactless.

As demand for contactless payments has picked up, PULSE launched cryptogram validation services earlier this year for contactless transactions made using Visa, Mastercard and Discover cards co-branded with PULSE.* This service enables PULSE to perform cryptogram validation on contactless enabled debit cards for both contactless chip data formatted (EMV) cryptograms, as well as contactless magnetic stripe formatted cryptograms (dCVV/CVC3).

Cryptogram validation services can help issuers get to market faster with contactless cards. It’s especially helpful for issuers whose processors do not support contactless, or those that connect directly to PULSE and act as their own processor. This is an optional service, but issuers interested in participating in this service must certify prior to enabling BINs for this expanded capability.

With the infrastructure and processes in place for contactless payments, and contactless debit cards entering the market by the millions, issuers have one more important role to play: cardholder education. Aside from instructing cardholders on how to use the cards for contactless payments, issuers also can help to dispel myths about contactless cards that might erode cardholder trust.

*This service currently supports Visa cryptogram versions 17 and 18, Mastercard cryptogram versions 10 and 14, and DPAS cryptogram versions 15 and 16.  PULSE will be adding support for Visa cryptogram version 22 in our 20.1 release.