You would think with Covid-19 variants still very much in play that contactless payments would be the method of choice at the point of sale. And they are. But not all types.
Mobile wallet use, by one measure, is actually down.
In spite of more forms of mobile banking and payment apps than ever, TD Bank’s Merchant Services Division has found that at the physical point of sale “tap to pay” card usage has been growing while digital wallet usage has been falling.
Doug Mearkle, Head of U.S. Merchant Services at TD Bank, says this isn’t surprising because, while contactless payments has grown more and more important to consumers, “the perception from the consumer’s perspective of what contactless means still isn’t very well defined.”
It’s pretty clear that “tap to pay” is seen as contactless, but Mearkle says that for many consumers inserting a chip card in a terminal and returning it to their wallet, never handing it to a cashier, is relatively contactless as well.
“Although it’s contacting the device, in their minds they still feel that they’re not contacting another human being,” says Mearkle.
Contactless Payment Trends Seen in TD Bank’s Network
“Prior to the pandemic, contactless payments were being driven predominantly by small businesses that saw it as a new kind of technology to offer,” says Mearkle. “What happened through the pandemic has been that consumers are now driving use of the technology.”
In other parts of the world, contactless has been a growing factor for years, pre-Covid, says Mearkle. “But in the U.S. it was the pandemic that served as the catalyst.”
This increase in desire drove some card issuers to give their cardholders contactless cards where they hadn’t before and caused more small businesses to adopt point of sale terminals that accepted contactless payments. Even now, however, holdouts remain among the bank’s merchant base. It doesn’t cost more to process contactless transactions, so the decision basically comes down to being willing to absorb the costs of upgrading to more-sophisticated devices and software.
“Contactless is going to be top of mind for the foreseeable future,” says Mearkle.
Mearkle adds that TD Bank saw use of tap to pay pick up in 2021, while usage of digital wallets fell off a bit.
More specifically, in the bank’s network 10.8% of transactions were tap to pay with cards in 2021, up from 4.6% in 2020. By contrast, purchases with digital wallets were 4.5% of transactions, down from 5.1% in 2020.
There are two reasons for this trend.
“First and foremost is speed,” says Mearkle. “With tap to pay, consumers can quickly take out their credit card and tap the terminal.”
The process with a digital wallet is more convoluted by comparison.
“You’ve got to pull out your phone and go through the process of unlocking it, putting in your code or using facial recognition,” Mearkle continues. Wearing a mask means another moment to pull it down, unless the phone has software accounting for the mask.
“Then you’ve got to locate your mobile wallet app within the device and then place the device against the terminal to process the payment,” Mearkle adds.
For a location where queues of shoppers can grow long, this is a good way to become unpopular in a hurry.
(It’s true users of the Apple Pay wallet on an iPhone with facial recognition can have a transaction time equal to using a contactless card in some cases, but things don’t always go smoothly, depending on the merchant terminal and other factors.)
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Digital Wallet Use Will Grow with Education and Improvement
Mearkle believes that digital wallet usage will grow in time. Improved facial recognition and other biometric ID methods will enable more users to open them up faster. Taking measures to more quickly bring up the mobile wallet and the consumer’s choice of payment account for that purchase will also help. (With newer phones the wallet launches automatically when it gets the NFC signal.)
Wearables Just a Blip for Now:
While use of wearables such as the Apple Watch goes on, at present it's a small factor in actual volume in TD's experience.
“There’s going to have to be continued education to get people comfortable with just using a watch to make payments,” says Mearkle.
Two factors to overcome here are the habit of using cards, but also, according to Mearkle, people’s misgivings over the security of their data processed through a watch.
“I think we will see usage go up,” he says, “but it’s going to take some time to get there.”
Among other new point of sale wrinkles is buy now, pay later at the retail terminal. More and more services can be made available, but thus far TD Bank has found relatively little demand for BNPL acceptance among its merchant base.
“I think that is mainly due to small businesses trying to understand how it works and how it would impact them and their customers,” says Mearkle. “We’re getting only a little bit of interest right now, but it’s going to become a more relevant conversation over time.”
Cashless Transactions Ride Covid and Coin Shortage Trends
Something else going on among small businesses at the point of sale is the tug of war between merchants and customer’s resistance to card processing fees and worries about touching cash and coins.
One factor that has come up is the continuing shortage in some areas of coins, which makes some of the usage question moot. Consumers can bridle at store policies that lead to rounding up of purchases to avoid the need to made change in metal. Some merchants just flatly put up “no cash” signs, which may violate local ordinances.
On the other hand, anecdotal evidence shows that more small firms explicitly promote a discount for cash — basically, waiving the amount of the merchant processing fee. And where consumers don’t choose to pay cash, explicit surcharges for card use are showing up on their receipts.
Mearkle says TD has seen growing requests for programming enabling point of sale terminals to handle surcharges. He says that while the trend was already underway, the rise in inflation in the U.S. has accelerated these requests. Merchants are looking for every way they can find to offset cost increases.