The Argument for Contactless Debit

At the end of last year, I predicted that we would not see many debit issuers issue contactless debit cards in 2019.  There still aren’t THAT many financial institutions who have taken steps to go down that path, but they are the big ones. This week Bloomberg announced that Wells Fargo will be issuing contactless debit cards in addition to credit cards for all new cards:

Wells Fargo & Co. is joining rivals including Bank of America Corp. and JPMorgan Chase & Co. in adopting tap-to-pay technology for its credit and debit cards.

Starting this week, all new Wells Fargo credit cards will be issued with the contactless technology, which allows users to tap their cards at the point of sale instead of swiping or inserting them, the San Francisco-based bank said in a statement. It will add the technology to its debit cards beginning this summer. 

TD Bank also issues contactless debit cards.

To be convinced that contactless debit cards are the right product to offer, I think a financial institution needs to be convinced that the consumer convenience of tapping a card at some merchants – the approximate 40% that have contactless terminals- is better than inserting a chip or on rare occasion swiping a magnetic strip. That decision comes with added expenses for issuance and the on-going maintenance of cards.

I don’t believe that contactless will be a meaningful competitive issue where a consumer will dump one bank for another based on contactless card capabilities. At least not in the near term. If contactless becomes commonplace, which is more likely to happen on credit cards, then there will be pressure for all issuers to offer the same experience across card types.

The argument is being made that contactless will replace more cash transactions and the reduction of cash will create savings and revenue opportunities. I remain skeptical that contactless can impact cash in the U.S. by a meaningful amount, but if more financial institutions jump on board, we may find out:

Banks stand to boost earnings by $2.4 billion and cut expenses by $22.2 billion by transitioning to contactless-card technology, researchers at A.T. Kearney said in a report based on data provided by Visa Inc. That’s because contactless card transactions often replace cash, which remains the most common payment method in the nation, representing 30 percent of all transactions, according to the Federal Reserve.

Overview by Sarah Grotta, Director, Debit and Alternative Products Advisory Service at Mercator Advisory Group

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