Mass Transit Likely To Break The Contactless Payment Logjam

For years, contactless payment has been on an endless death spiral, with consumers often unaware that they even have a contactless card in their pocket, never mind what to do with it. And those that managed to use the card discovered that the convenience and speed benefits promised weren't there, when compared with familiar mag-stripe transactions.

Frustrating for contactless proponents, the more trials that happened, the further in the hole they found themselves. Even retail participants were often resistant, having to be have been bribed into doing the trial at all. But a pair of recent mass transit uses of contactless—an existing trial in New York City and an imminent changeover in Chicago—have a surprisingly good shot at finally giving contactless payment a real shot at success.

There are many reasons why these two efforts could easily be received very differently than traditional retail trials. But the key difference is that the very nature of mass transit—the subway system for both cities—actually delivers the convenience and speed improvements that no retail trial could.

Even better, we're not suggesting that contactless would only work for mass transit. Once those huge cities make contactless work underground, the millions of consumers who have used it to ride will know they have it, and will be open to trying it at above-ground merchants.

The contactless payment marketing positioning was regrettable. Instead of arguing that contactless is faster and easier than mag-stripe—in retail, it's generally not—the argument should have been that's better in mass transit and other areas and it's just as fast and easy as magstripe, so why not use contactless for everything? The transit trials give consumers a chance to see contactless from the opposite perspective. Once they've discovered a powerful use for it, they'll be open to other things.

After all, the problem isn't that retailers and customers hate contactless. The problem is that there's no compelling reason to use it—or even to be aware of it. Customers have the cards because that's what the payment card company sent—often without any explanation that the new credit or debit card can be used for contactless payments.

Meanwhile, retailers have installed contactless-capable card readers, but cashiers routinely instruct customers to swipe and often don't even know how to handle a contactless card. (A week ago at a large chain drugstore, it was a big event for the cashiers when I pulled out a card to make a contactless payment. One of the cashiers had never seen that kind of transaction before.)Increasingly, everything is in place for contactless payments. The only thing in the way is an awareness gap—one that isn't getting any smaller. And there's no reason for it to shrink. Card issuers aren't pushing contactless, retail executives don't see an obvious benefit, and customers don't even know it's there.

Enter the giant contactless users such as transit systems. The Chicago Transit Authority sends someone through a subway turnstile or past a bus fare box 1.7 million times each day. That's a lot of payments—most of which involve running a ticket through a scanning machine that has lots of moving parts. Moving parts break down. Contactless cuts out many moving parts. That means it's very much in the interest of the CTA to push contactless as its main mode of payment.

And that's exactly what's specified in the Request For Proposals that the CTA just issued as part of its project to replace its fare system, due to be completed by 2014. The RFP not only directs the winning vendor to make contactless the primary way of getting through a turnstile, but also requires the vendor to launch a promotional campaign to encourage riders to use contactless.

That won't just make the CTA the biggest contactless user in Chicago. It will also make millions of Chicagoans (and more than a few tourists) aware of contactless, many for the first time.

Or consider the 2012 London Olympics, which faces the same kind of problem of scale: eight million ticket holders who will have to file past large numbers of pay points during the course of the games. At that scale, saving a second per person really does matter. Saving a second each time a member of those huge crowds buys a ticket, a ride, a meal or a souvenir could be critical in getting those crowds where they want to go on time—and where the Olympic organizers want them to go.

That's part of the reason Olympics organizers are promoting it as a "contactless event," and pushing card issuers to get 20 million contactless payment cards into the hands of British customers by the time the Olympics arrive. It's not so much that the Olympics loves contactless. It's that the Olympics needs contactless.

And as Olympics attendees use contactless, that awareness gap will close. They'll know contactless exists. And many of them will be inclined to use it more often.

No retailer individually could hope to make a major dent in the contactless awareness gap. Chances are, even a group of major retailers could take years to get millions of customers using contactless. The Olympics will do that in 17 days.

Transit systems and giant events might seem like the wrong way to go about transitioning to contactless. Yes, this should be something that retailers and card issuers can do for themselves. But they can't. It's going to be up to those big users to make customers aware of contactless. At least for now, retailers are just along for the ride.