With Contactless, It’s Faster Payments That Draw Retailers the Most

The primary reason contactless payments are gaining favor with merchants has to do with speedier transactions and other point-of-sale efficiencies, while retailers installing or planning to install the technology show little concern about its security, according to a recent survey of retail companies. Some 58% of 160 respondents to the survey, which covered North America and Europe, said they plan to implement contactless payment within the next two years, while 30% have already done so. Of the 58%, those planning to install within a year accounted for 28 percentage points; within one to two years, 30. Retailers in Canada and the U.S. provided 54% of the responses. As it turns out, though merchants generally are concerned about transaction costs and recognize contactless payments offer no direct benefit with respect to card-acceptance rates, they are drawn to the technology because it promises to speed up tender times and hike in-lane throughput, according to Sahir Anand, retail research analyst at Aberdeen Group Inc., a Boston-based research firm. Anand conducted the survey and analyzed its results. The latest merchant to adopt contactless is grocery distributor Spartan Stores Inc., which has started accepting transactions on MasterCard Worldwide's PayPass platform at its 87 stores under various retail banners in Michigan and northwest Ohio. PayPass is interoperable with platforms operated by Visa USA and American Express Co. So far, neither Visa USA nor MasterCard Worldwide has offered interchange incentives specifically targeted at contactless payments, so a contactless transaction costs merchants the same as if a card had been swiped. “The bulk of the respondents say the card associations are not offering anything remotely substantial, but cutting down on manual processing at the point of sale is substantial,” says Anand. This is especially true for cash-intensive businesses, he says, where contactless can replace bills and coins. “There's less money handling and other input efficiencies, so there's a hidden cost there that can be saved,” he says. Indeed, among factors prompting merchants to adopt contactless, improved transaction volume and competitive differentiation rate highest, the survey shows. Meanwhile, the factors considered most important to achieving a return on investment in contactless, according to the survey, are process efficiency, transaction time, and customer satisfaction. The last two factors generated responses exceeding 60% overall. “They're looking at how streamlined their lane experience is as a result of contactless,” says Anand. Studies by Visa, MasterCard, and American Express Co. have documented substantial reductions in average tender time for contactless transactions when compared with cash and conventional cards. At the same time, merchants seem largely unconcerned about the security of contactless payments, which rely on radio waves to transmit card-account information to a POS device. Though recent reports have indicated heightened risk surrounding the security of payment data in contactless transactions?reports the card networks have rebutted?nearly three-quarters of respondents who had installed or are considering adopting contactless technology said they don't view security as a “major factor in their planning or implementation strategy,” says an Aberdeen report. Indeed, 80% don't see security “implications” as a reason not to consider contactless, the report says. This result surprised Anand. “I was quite shocked,” he says. “It's a valid issue.” He attributes it to retailers' tendency to “absolve themselves” of liability for fraud losses related to cards, as well as to general confidence in security measures, including unique transaction codes and cryptographically protected transaction messages, that the card networks have introduced. But, for all its progress so far, contactless does face significant concerns among merchants, according to the survey. Anand says these include the cost of transceivers, the devices that read the radio transmissions at the point of sale, and slow adoption among consumers. Merchants are concerned about whether the contactless “message is getting across to the average consumer,” says Anand. “A movie-theater chain said a lot of times a clerk has to suggest the use of contactless rather than it being impromptu.”