Contactless and card penetration trend from Visa.

In this post, I want to share with you what I found while I was doing some research on credit card trends.

Tap to pay

  • As of March 2020, one in three card present transactions by Visa is tap to pay, up from one in four a year ago (1)
  • In 2019, excluding the US, 55% of Visa transactions were contactless (1)
  • In the US, there are 145 million contactless credit cards in circulation and Visa expects that the number will reach 300 at the end of 2020 (1)
  • 17 out of the top 25 issuers are fully issuing tap to pay cards. 8 out of the top 10 merchants are accepting tap to pay. 60% of all in-store transactions in the U.S. are now taking place at terminals that are enabled for tap to pay. (1)
  • Globally, tap-to-pay has resulted in 20% life in card transactions. (2)
  • In the US, tap-to-pay cards led to plus 4 more transactions per month and $160 increase of spend per month (2)
  • “CEMEA now has the highest tap to pay penetration of any Visa region. 2 of our CEMEA countries, Russia and Georgia, are in the top 10 tap to pay countries in the world. Georgia is, in fact, number one, with an incredible 96% tap to pay penetration.” (2)
  • 77% of active terminals in South America are contactless-enabled. Tap-to-pay penetration was doubled in one year. Chile and Costa Rica have a leading 50% contactless penetration
  • “For example, on transit for London services, we saw double the transactions and 70% higher growth in spend by tap to pay transport for London users versus those not using tap to pay. In New York City, Visa is partnering with Chase to promote tap to pay in and around subway stations that are contactless enabled. As a result, Visa has crossed 4 million taps within the MTA system and contactless payments will be accepted system-wide by the end of 2020.” (2)’
  • In Asia Pacific, tap to pay penetration increased from 29% in 2016 to 41% in 2019. Post activation, tap-to-pay card saw 3.8 times more transactions and 1.8 times more spend per card. Specifically, tap-to-pay cardholders made 3.9 times more transactions at fast food restaurants and 2.3 times more at supermarkets and grocery stores
Source: Visa

Card Penetration

  • On average, an American makes 12 cash transactions a month. 55% of all transactions under $10 were made in cash (2)
  • In daily segments such as gas or supermarkets, card penetration stood at 60% for the US (2)
  • Retail digital spending has grown at CAGR of 23% since 2016, yet it still only makes up 14% of global retail spending (2)
  • Cash and check penetration remains at 92% for Sub-Saharan Africa, excluding South Africa (2)
  • “The macro trends are incredible. It (Sub-Saharan Africa) has the fastest-growing population among major regions, double the global average and half of sub-Saharan Africa is under 18 years of age. It has 46 countries, and 6 of which are in the top 10 fastest-growing economies in the world. The market is still greenfield. Cards have only penetrated 3% of PCE, and 2/3 of the population does not have a bank account. Yet Africa is home to nearly half of all mobile money users. Sub-Saharan Africa is mobile first. People use their mobile phones daily to make and receive payments. This opens immense, immediate and long-term opportunities for Visa.” (2)

References

  1. Visa Inc at Wolfe Research FinTech Forum (11th March 2020)
  2. Visa 2020 Investor Day

Disclaimer: I own Visa stocks in my personal portfolio

Today I learned – 1st Jan 2020

US lags behind the world in tap-to-pay

The latest annual report by Visa wrote:

Contactless payments—or when a consumer taps to pay at checkout with a contactless card or mobile phone—continues to see strong adoption around the world. In 2019, excluding the United States (“U.S.”), tap to pay had surpassed 50 percent of face-to-face transactions that ran over the Visa network. This is up from less than 30 percent just two years ago. There are now more than 50 countries where tapping to pay represents at least a third of all domestic face-to-face transactions processed on our network, up from 35 countries at the end of last fiscal year.

The U.S. is starting to catch up to this global adoption rate. In 2019, U.S. financial institutions began issuing contactless cards to customers nationwide. There are now more than 100 million Visa contactless cards in the U.S., and we expect that number to grow to 300 million by the end of 2020

Contactless payments can also open up new payment experiences, such as transit. Transit continues to be an important use case for introducing consumers to the benefits of tapping to pay. In 2019, Visa helped launch contactless transit solutions in cities around the world, including Belarus, Edinburgh, Florence, Manchester, Miami, Milan, New York, Rio de Janeiro, Singapore, São Paulo and more—making it easier for people to get around while reducing operating costs for private and public transport operators.

Visa’s 2019 Annual Report

In July, Apple CEO Tim Cook said the following in its earnings call

In the United States, in addition to a successful integration into Portland’s transit system in May, we’re beginning to rollout of New York City transit and will launch in Chicago later this year. In China, Apple Pay launched the payment card for Didi the world’s largest ride hailing provider.

As I’ve said before, transit integration is a major driver of a broader digital wallet adoption, and we’re going to keep up this push to help users leave their wallet at home in more and more instances.

Source: Seeking Alpha

While iPhone and Apple devices are wildly popular in the US, a recent study reported a low adoption rate of 9% of Apple Pay among Apple-device owners. It’ll be interesting to see how transit helps with the adoption of Apple Pay and, as a result, contactless payment in the US. In Omaha, to the best of my knowledge, there is no contactless payment at Walmart. Adoption at such a chain that attracts traffic like Walmart will definitely increase the use of tap-to-pay.

US seemed to have a bigger cash transaction on credit card than the rest of the world

While studying the reports from Visa and Mastercard, I noticed something quite interesting. The US seems to withdraw more cash from credit card each time than the rest of the world. The figures from Visa and Mastercard are pretty similar, signaling a true pattern. The following data is from Visa and Mastercard in the quarter ended Jun 30, 2019.

 Cash Volume ($ billions)Cash Transactions (millions)Average Cash Ticket
US1415$933.33
International49223$219.73
Source: Visa
 Cash Volume ($ billions)Cash Transactions (millions)Average Cash Ticket
US1010$1000.00
International41190$215.79
Source: Mastercard

Amazon Secured Credit Card for those with low credit profile

Amazon partners with Synchrony to offer a secured credit card to those who have a low credit score. Normally, a low credit score results in a rejection of a credit card application at a financial institution due to default concern; which, in some real-life cases, can lead to significant trouble. With the Amazon Secured Credit Card, potential customers put in an amount of money that serves as collateral and their credit limit. Customers then gradually build up credit profile by being financially responsible before graduating to a better credit card.

I think it’s smart of Amazon to implement this initiative

They can tap in a new customer segment

It’s hard to imagine that folks with low customer score can be Prime members and Amazon’s profitable segment. Yet, after years of exploiting the higher customer tier, Amazon will likely need to widen the customer pool for growth and more than 11% of the population in the US is a sizable segment to appeal to.

This will increase switching costs and customer loyalty

Amazon Secured Credit Card comes with 5% cash back on purchases like the ordinary Store Card. A pretty competitive cash back rate on every purchases. Convenience, a variety of choices and generous cash back can definitely encourage purchases on the Seattle-based company’s website.

More customers and purchases mean more vendors and advertisers

Vendors who wish to appeal to low-credit-score customers will want to get on the e-commerce platform if there is enough demand. Advertisers will be willing to pay to put their products, services or brands in front of the new customer segment, in addition to the existing customer base.