Contactless cards are just catching on in the US — years after the rest of the world

For many foreign tourists visiting the U.S., checking out at the register feels like a trip back in time.

Inserting cards, entering pin codes and signing receipts are a thing of the past in countries that have embraced contactless payments. The world's biggest economy, however, is just starting to catch on to the trend.

An estimated 3% of cards in force in the U.S. are contactless, according to a study published in 2018 by consultancy A.T. Kearney. That compares with roughly 64% in the U.K. and as high as 96% in South Korea.

Contactless technology allows customers to pay by tapping their cards directly onto a store's checkout terminal if it includes the contactless symbol, which resembles a wifi logo turned on its side. The cards are a faster alternative to chip and pin payments, similar to "tap and go" transactions through digital wallets like Apple Pay.

One reason contactless has been slow to infiltrate the U.S. is because of the sheer size of the market. The American retail market is fragmented with a larger number of retail banks and stores than a country like the U.K., for example.

"It means that it's much easier to coordinate change for the industry in the U.K.," said Adrian Buckle, head of research at industry group UK Finance, in an interview with CNBC last week.

The U.K. introduced contactless payments on its public transport system in 2014, which was a major catalyst for making the cards popular among British consumers, Buckle said. By the end of 2017 there were nearly 119 million contactless cards in circulation with 78 percent of debit cards and 62 percent of credit cards including contactless functionality, according to U.K. Finance.

"We went from very little usage to very rapid growth in a short space of time," Buckle said.

In the U.S., many shoppers and retailers are just getting used to chip and pin payments, which have slowly rolled out across the country in recent years. As of 2015, merchants and credit card issuers became liable if fraud occurred and they had not enabled chip technology. Kelsey Sheehy, author at personal finance website NerdWallet, said this put "financial skin in the game" for banks and stores to issue and install new chip cards and readers.

Experts expect the shift to contactless in the U.S. could be smoother and faster than chip and pin, because many of the new readers that retailers installed came with built-in contactless technology. Visa estimates 78 of its top 100 merchants by transactions in the U.S. already offer the ability to tap to pay at the checkout.

Last year, J.P. Morgan's Chase said it would start issuing contactless cards to millions of its customers, and Visa expects more than 100 million cards will be in the hands of American consumers by the end of the year.

Banks and card issuers have an incentive to make contactless more widespread. Research from A.T. Kearney suggests that banks could generate an estimated $2.4 billion in incremental card-related earnings over the next five years by introducing contactless cards. Consumers are most likely to use the payment method for small, frequent transactions in categories like groceries, fast-food restaurants and drug stores and pharmacies, the research said.

The introduction of contactless payments could also give a boost to tech companies like Apple that are urging customers to use their digital wallets.

"Although we believe just under half (43%) of global iPhone owners use Apple Pay, that number will continue to grow as more retailers, universities, municipalities, and public transportation systems enable contactless payments and people begin to think of their phone as their wallet," said Gene Munster and Will Thompson, analysts at Loup Ventures, in a February report.

Security will remain one key barrier to adoption in the U.S. Experts say contactless payments are as secure as chip and pin since they use the same card reader technology to transmit transactions. But surveys show some consumers in the U.S. aren't convinced tap and pay is as secure.

"I think that we're a little bit skeptical of these new technologies," Sheehy said. "Old habits do die hard."

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