A Fly in the Contactless Payments Ointment

We recently talked about how contactless payments are becoming the new trend in credit card payment technology in the United States, after watching it take off in Asia and Europe. Contactless payments — also called “tap and go” thanks to the near-field communication (NFC) chips — is a big change from the current method of “dipping” (inserting chip cards into readers).

As of this past April, roughly 3% of cards in the U.S. are contactless, as are 64% in the UK and 96% in South Korea.

But not everyone is interested in hopping on the contactless payment bandwagon, and merchants are wondering what Visa will do about it.

JCPenney Stopped Accepting Apple Wallet, Contactless Payment

A Square contactless payments system, using an iPhone and American Express on an Apple Wallet app.Back in April, retail giant JCPenney turned off contactless acceptance because of a conflict between contactless payments that use the EMV chip card standard and the older magnetic-stripe data (MSD) standard that they were still using.

According to a June 2019 article on DigitalTransactions.net:

MSD technology essentially converts mag-stripe track data into a format usable with the first generation of contactless cards. JCPenney’s contactless turnoff was a reminder for many about the difficulties of retrofitting the U.S. for a new type of payment.

U.S. merchants began replacing their mag-stripe-based point-of-sale terminals with new devices that could process chip cards as a result of the card networks’ October 2015 EMV liability shifts. But some merchants eschewed the option of EMV-based contactless payments and chose terminals that could read only EMV contact chip cards in which the card is inserted, or dipped, into the device.

The reason for choosing the non-contactless payment devices was because they often cost half as much as the dual-interface devices, and JCPenney was trying to save money. However, they and other merchants will either have to embrace the new technology or be late to the contactless payments party, to their own detriment.

That’s because Visa set an April 2019 deadline for all U.S. terminals to support the new EMV standard and to retire the MSD machines. JCPenney’s response was to completely drop acceptance of mobile wallets instead.

Given the resources and lead time associated with meeting the new mandate, JCPenney chose to suspend all contactless payment options until a later date,” JCPenney said in statement. “Customers still have the ability to complete their transactions manually by inserting or swiping their physical credit cards at our point-of-sale terminals in stores, an option employed by the vast majority of JCPenney shoppers.”

And while there are likely other merchants who have joined JCPenney in dropping acceptance of mobile wallets and refusing to comply with Visa’s new standards, no one has been entirely sure whether Visa had penalized the fading retailer or any other merchants who had rejected EMVs and missed the deadline.

As Marianne Crowe, VP of the payment strategies group at the Federal Reserve Group of Boston, told Digital Transactions, “My sense is it’s probably more than we originally thought. I don’t think a lot of people knew about the difference” between the MSD and EMV contactless standards.

Despite JCPenney’s resistance to contactless payments, digital wallets are going to surge far beyond the current usage rates, which means you’ll be getting calls — if not outright requirements — to use them in your own business. To learn more, just visit our website or call us at (800) 408-0095.

Photo credit: Mybloodtypeiscoffee (Wikimedia Commons, Creative Commons 4.0)