How Contactless Payment Cards Will Lead to Mobile Payments

“Tap-and-go contactless payments will pave the way for cell phones and handheld computers to become 'electronic wallets,' packed with consumers’ payment and merchant cards, coupon offers, even medical records, family pictures and more,” said Javelin’s Founder and President, James Van Dyke. “But consumers won’t benefit until the primary players — card networks, financial institutions, mobile carriers, merchants and handset manufacturers — work together toward a unified, simple solution that lets everyone win.”

Javelin’s latest research shows that progress is slowed because there isn’t sufficient incentive for merchants and wireless carriers to make essential investments that will enable contactless infrastructure development and the evolution to NFC-based (Near Field Communications) mobile payments. If industry-wide cooperation occurs, Javelin’s projects that 57 million consumers will be using chip-embedded credit cards to make contactless payments by 2013, which is more than double the 24.8 million in 2008 and will be bolstered primarily by expansion of contactless products into gift cards and private label cards.

Momentum is occurring as significant subsidies from card networks spur progress with fast-food restaurants, stadium concessionaires, convenience stores, and gas stations. But such efforts are insufficient to serve as the catalyst for broad adoption of mobile payments and the projected 57 million consumer users could slip substantially — to a comparatively stagnant 34 million — if card networks fail to take recommended steps outlined in the report.

Card networks must create acceptance among merchants and migration among wireless carriers with a step-by-step contactless-to-mobile conversion strategy that builds on consumers needs for simplicity, integrated financial management, and control. “To drive the next phase of contactless payments, card networks must help merchants create competitive, desirable products: closed loop gift cards and private label cards,” say Bruce Cundiff, Director of Payments Research and Consulting at Javelin. “This will create a robust contactless infrastructure, hinder the development of products and networks from threatening powerhouses such as PayPal and Google, and spur wireless carriers to push the spread of NFC technology.”