By Ray Birch
ST. PETERSBURG, Fla.—Credit unions should be planning now for a future in which there are just contactless transactions at the point of sale, according to one person.
Cody Banks, managing vice president of payments, fraud and loyalty at PSCU, told CUToday.info there is a growing wave behind contactless plastic that will in the near future first wash away the swiping and then, later, the dipping of the plastic.
“Seventy-five percent of our net new orders for plastic are contactless,” said Banks. “You're seeing merchant adoption really pick up. This growth had somewhat been regional by merchant, and now it's grown precipitously. From July of 2021 to July 2022, we've seen about a 25% growth in card present contactless transactions.”
Banks said another reason for contactless’ rapid rise is financial institutions, including credit unions, are largely reissuing with contactless as cards expire.
“Contactless is growing immensely in the FI space,” said Banks. “I think many credit unions are saying we have some contactless in our portfolio, we’re seeing the consumer shift…”
What may also spur greater use of contactless is the rise of soft POS solutions. Soft POS enables NFC enabled smartphones or tablets to accept contactless payments, without additional hardware.
What One Study Forecasts
A new study from Juniper Research is projecting the total number of merchants deploying soft POS solutions will surpass 34.5 million globally by 2027, rising from six million in 2022. This growth will be driven by Apple’s entrance into the soft POS space, enabling iOS users to access an affordable mobile POS solution, Juniper forecast.
The research further anticipates soft POS adoption being driven by the increasing use of contactless payments—with volumes expected to rise from 195 billion in 2022 to 408 billion by 2027.
“Therefore, consumers will come to expect contactless acceptance as standard; forcing smaller merchants to adopt contactless-capable POS solutions,” Juniper said. “Merchants are anticipated to embrace soft POS, based on cost savings achievable from eliminating the need for additional hardware, as well as mobility advantages over contactless POS. This will be profound for small-sum and mobile merchants that must accept contactless transactions, but lack the need for high-cost dedicated terminals.”
The Role of Consumer Sentiment
Cody Banks
Banks said the changes in technology, such as soft POS, are certainly driving the shift to contactless. However, he believes consumer sentiment is playing a larger role.
“The technology piece is certainly a big part of this, but I think it's just more the consumer changing their payment habits,” said Banks. “For example, the other day I forgot my credit card at home and I was at Target and I said, ‘How am I going to pay for my purchase?’ Well, I had left my phone in my car but I was able to pay by my Apple Watch.”
Banks emphasized that consumers are simply thinking more and more about contactless payments and are using them as a result.
“The shift to contactless is just happening more quickly today,” he said. “More and more you see pushes from merchants, telling consumers at checkout you don't have to dip that card, you can tap the cards on top of the reader. So, whether it's my local hair cutting place, the grocery store, the gas station, we are just seeing more emphasis on contactless. I know that CVS and Walgreens are pretty good at dominating the drugstore sector on contactless because they really push it and promote it.”
What the Data Show
The data also illustrate what is happening. Contactless cards accounted for 14% of in-store transactions in Q2 2022, nearly twice the share they captured in 2021. Pymnts.com noted the increase shows these payments are the clear leader in touch-free checkouts, far ahead of Apple Pay and other mobile wallets.
The advance of contactless cards and contactless payments, too, is a result of the pandemic, reminded Banks.
“I think it's a digital acceleration,” he said. “Estimates are that we have advanced seven to eight years with digital due to COVID. From PSCU’s perspective, from the numbers we see in our Payment Index, that's definitely a driver. And, the contactless push is also about how can we do things faster and easier without having more friction? So, if it takes a few more seconds to insert my card…Also, as chips eventually wear out and become expensive to replace, that’s another argument for contactless.”
Attractive to Younger Markets
Banks cited PSCU data that show that in July of 2022, contactless credit payments in card-present increased 24%, compared to a 16% increase in the same period a year earlier. Debit payments via contactless in that same period increased from 17% to 26%.
“Credit unions are always looking to lower the average age of their members, and contactless is attractive to younger adults. The boat has sort of left the dock,” said banks, noting a most of PSCU member credit unions are reissuing with contactless. In the coming years it may likely only be contactless cards that are around.”