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COVID-19 driving contactless card use, mobile payments despite security, cost worries

Safety and health concerns related to the ongoing coronavirus pandemic is "significantly," increasing use of mobile payments and contactless credit and debit cards, according to data from the National Retail Federation and Forrester, an industry research firm.

"Health experts say there is no clear evidence that COVID-19 is transmitted by cash or credit cards but retailers are putting health and safety first and have rolled out a variety of no-touch payment options in order to err on the side of caution," NRF Vice President for Government Relations, Banking and Financial Services Leon Buck said in a press release on the findings. "While mobile payments and contactless cards have accounted for a minority of payments in the past, the pandemic has clearly driven consumers to change their behavior and retailers to accelerate their adoption of the technology."

The State of Retail Payments study, conducted every other year, found 67% of retailers surveyed accept some form of no-touch payment, and that includes 58% that accept contactless cards that can be waved past a card reader or tapped on the reader. That figure is up from 40% last year. Today 56% of retailers take digital wallet payments on mobile phones, up from 44% in 2019.

"Touchless payment methods are an important part of ensuring the health of retail workers and consumers but they do raise concerns about the security of payments and the fees charged to merchants to process transactions," Buck said. "Retailers, banks and card companies need to work together to ensure that these transactions remain secure. And the card industry should not take advantage of this situation to rake in extra fees merchants would not pay otherwise. Card processing fees already drive up costs for retailers by far too much and ultimately increase prices paid by consumers."

Since January, no-touch payments have increased for 69% of retailers surveyed.

Among retailers that have implemented contactless payments, 94% expect the increase to continue over the next 18 months. As of the time of the survey, 19% said no-touch accounted for more than half of their in-store transactions while 30% said it was 10% or less.

On the consumer side, 19% have made a digital payment for the first time since May, and of those, 62% used their phone and 56% used a contactless card.

In regarding to the experience, 67% were satisfied and 57% expect to continue using the purchase option once the pandemic has ended.

The main worry for retailer in using contactless technology is cost, cybersecurity and data privacy issues. One reason for the cost worry is that banks charge merchants the same 2.5% fee with contactless transactions as they do with credit card purchases and the fee goes up to 2.8% if the card is used via online or phone.

That means retailers are expected to pay about $1.6 billion more this year, according to payments analysis firm CMSPI.

"Curbside pickup and buy online, pick up in-store transactions are treated as 'card not present' online transactions by the processors, so retailers are paying an online rate even when these purchases are picked up at the store," Forrester Senior Analyst Lily Varon said in the release. "Retailers feel these are really in-store transactions so there's some pain there."

Contactless transactions also cost more as they are typically processed over networks such as Visa and MasterCard when a PIN is not used. CMSPI estimates retailers could save $2 billion a year if more banks that issue the cards turned on PIN-less capability and the transactions could be routed over the lower-cost ATM networks available when a PIN is used.