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North American NFC Payment Deployments March On

Home Depot, Sports Authority and other major retailers begin deployments this summer, though the slow steady growth of contactless payment applications is hampered by discussions over interchange fees.
By Claire Swedberg
Jul 28, 2009A cluster of contactless payment deployments this summer are pointing to some growth in the industry, in which credit and debit payments are made with cards enabled with Near Field Communication (NFC) RFID technology. This progress includes the adoption of contactless payment systems at such stores as Sports Authority and Home Depot in the United States, and M&M Meat Shops in Canada. Obstacles remain, however, that must be addressed before there can be a broad deployment over a majority of merchants, including the question of a transaction fee for PIN-based contactless debit card payments that could cost merchants money they would not have otherwise spent if a customer paid with cash or a traditional magnetic-stripe debit card.

This summer, Sports Authority and Home Depot have announced contactless deployments, using MasterCard's contactless PayPass program, while M&M Meat Shops is accepting Visa contactless payWave cards. Additionally, electronics retailer Best Buy, which had been trialing a Visa contactless payment system at some of its stores, has pulled away from its commitment to deploy contactless technology in its stores nationwide. The retailer, which did not respond to requests for comment, has objected to Visa's blocking of debit transactions that normally require a PIN, which means each transaction requires the merchant to pay a credit card transaction fee that, in a debit transaction, would otherwise be circumvented.

That may not be the end for Best Buy's and Visa's contactless plans, speculates Bruce Cundiff, director of payments research and consulting at Javelin Strategy and Research, a Pleasanton, Calif., market research firm. He describes Best Buy's withdrawal from the contactless program as a temporary setback, and says he thinks Visa and Best Buy can continue to work on finding a solution. "Best Buy is a very important merchant, and one of the first high-profile national merchants that got behind NFC technology," Cundiff notes, adding that he expects Visa will continue working to make a contactless payment solution palatable for the retailer.

"There is a constant interplay between retailers and credit card companies and issuers regarding interchange rates," says Jonathan Collins, a principal analyst at ABI Research. Best Buy's failure to move into a full-scale deployment, he explains, "is another aspect of that dialogue." While contactless transactions serve to shift cash payments into card purchases, the interchange rates merchants pay for each transaction create an additional expense for those retailers for payments of under $25. Although card associations and issuers view contactless payments as an important new revenue stream, he says, "they can't get to it without retailers deploying contactless terminals at their points of sale—and to do that, retailers want assurance that any interchange fees will either be lower than that for higher transactions, or offset by increased sales."

Collins predicts the debate will continue between merchants and card providers over interchange rates. "As contactless rolls out," he states, "there will be solutions and agreements that will have to be developed to the satisfaction of all parties in order for contactless to grow quickly and successfully."

In the meantime, Home Depot has begun deploying MasterCard's PayPass system at 1,974 of its 2,242 retail locations across the United States. This includes 20,000 Ingenico contactless readers at point-of-sale (POS) terminals throughout those stores.

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