Contactless payments: it all happens at the merchants
Gemalto highlights the need for merchants to understand the contactless payments value proposition and the tangible benefits the technology can bring to them
The successful deployment of contactless payments requires the involvement of several key contributors - banks, payment and national regulation schemes, implementation and industrial partners, whose input and coordination are critical throughout the project's lifetime.
The bottom line, however, is that merchants need to be synchronised with the bank's contactless initiative. It takes two to tango - a contactless card cannot be used without a contactless Point of Sales (POS) terminal.
The balance between issuing cards and deploying terminals is a real chicken and egg situation: what comes first? If there are no cards out there, there is no point for merchants to equip themselves with contactless terminals. But if there are no terminals, the cards will not be used. A critical success factor is that both issuing and acquiring sides are well balanced in their deployment.
Something interesting we have observed is that the rate of contactless adoption is directly linked to the merchants offering the new service. For instance, when an important retailer claimed they would not adopt contactless payments there was a very significant drop in the use of contactless payment by customers. Inversely, if a major retailer announces its acceptance of contactless payments the level of card usage will rise significantly.
It is important for banks to look for the right merchants in their market, i.e. ones that will enable customers to use their contactless cards. Naturally, merchants with small cost merchandise and long queues are those that can benefit most from the value proposition of contactless payments. From large retailers to small individual merchants, different types of merchants serve different purposes. Large retailers often contribute to building customer awareness, while smaller merchants are usually where contactless increases the convenience of paying.
Experience tells us that it is critical to get merchants to understand the contactless value proposition and to convince them of the tangible benefits the technology can bring to them.
One difficulty observed in major deployments is that the types of merchants usually targeted for contactless payments, such as fast food chains, large or small retail stores, experience a continuous staff turnover. Once retailer's employees are educated on the contactless POS and its value to the customer, they are likely to be gone three months later. For this reason, it is very important to have merchant managers on board, being motivated by the clear benefits it can bring to their businesses.
Another difficulty is the process of replacing terminals being slowed down by the terms of existing leasing contracts. These often state that merchants have to pay a penalty fee if they return the terminals before the end of the contract. To counter this issue, banks could lend contactless POS terminals to merchants, or develop a commercial arrangement whereby they pay for the contactless technology to be installed, and then charge a monthly fee to the merchant to recover the cost over a period of time.
Once merchants are equipped and convinced of the benefits that contactless payments will bring, it further helps to launch incentive programmes to boost the usage of the contactless terminals.
The bank's role is to encourage and help merchants make the experience of deploying contactless payments a pleasant one.