Contactless cards: an acquirer perspective – By Marc Abbey, First Annapolis


There are fewer than 10m RFID-enabled cards in the US market currently, highly concentrated at JPMorgan Chase and Citibank. Other issuers with cards in the market include Bank of America, American Express, Key Bank, HSBC, and Citizens Bank, and these and other issuers have reported an intent to issue substantial additional cards in the coming months.

There are varying estimates of the merchant acceptance base, but Visa reported over 20,000 RFID-enabled acceptance locations in February and MasterCard reported over 25,000 in December. This article will explore the factors driving RFID-enabled payment card issuing, merchant acceptance, and acquirer attitudes towards RFID.

RFID is being driven by heavy promotion from the issuing side and especially by Chase, though other issuers are following suit. Competition in issuing is such that US issuers are looking for fine points of differentiation, and over the years, many issuers have experimented with technical points of differentiation of varying sorts, including chip cards in the late 1990s. It is our opinion that the issuers have learned a great deal since the chip card episodes of the 1990s.

The issuers and the card associations were more sophisticated in their use of pilots for RFID than for chip card. The RFID payment card is a single application concept – proximity payments – whereas chip cards were positioned as application-rich but in actuality had little tangible utility. RFID cards are positioned as having a very simple value proposition for merchants (primarily speed) and for consumers (convenience), and though we think there are dubious aspects to both of these claims, this positioning is much more simple and defensible than the complicated positioning of chip cards.

Finally, the issuers and the associations have been more sophisticated in their strategy to build acceptance. All these reasons plus the raw resource and marketing efforts the card associations and issuers are applying to RFID make it a significant development.

The value proposition to merchants is appealing but suspect. RFID-enabled cards are being positioned to the merchant community primarily as a faster technology than cash or swiped credit and debit cards. Secondarily, the card associations associate an increase in sales with the technology. These benefits are powerful inducements to certain types of merchants.

The biggest problem with the value proposition is simply the substance of the claims. There are two time saving elements of RFID – the first is the reduced time due to the technology and the second is the absence of a requirement to sign a receipt for small transactions. Most acquirers believe any time savings relative to magstripe is related to the no-signature requirement rather than RFID, per se, and a no-signature policy could be applied to magstripe technology without any accompanying investment in POS technology.

The secondary claims of increased sales are also suspect. Pilots and early roll-outs in fact report higher average tickets for RFID-enabled cards than for cash and other payment cards. However, this observation is far from conclusive. It does not address simple substitution (e.g., the possibility RFID cards simply displace larger than average transactions that would have occurred anyway on another tender type.)

Further, these pilots and roll-outs have occurred in an environment of significant POS promotion and often at the same time that other changes at the POS were occurring, and it is not generally possible from the third party reports to tease out the impact of the technology from the impact of the promotion and other factors. The parties with the best information are also the parties trying to generate primary demand for the technology and do not have an interest in airing data contradictory to the stated value proposition.

When merchants upgrade their POS in the normal course of their investment cycles, they routinely try to anticipate future devel