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I wanted to take this opportunity to discuss the state of the contactless payment card market in the US and expand upon a recent insight authored by Group Director John Devlin – US Cap on Debit Fees Impacts Both Bank Card and NFC Markets.

From the latest market data which we collect from card and IC manufacturers, it has become apparent that 2011 contactless payment card shipments in the US have dramatically dropped when comparing against quarterly shipments achieved in 2010. The drop in shipments has primarily been driven by two overriding factors:

The Durbin amendment was passed in July 2011, capping interchange fees. As a result MasterCard and Visa responded, pulling their discretionary discounts allowed on low-value transactions, giving merchants no incentive for accepting cards for low value transactions, directly affects contactless payment cards.
As a result of an uncertain US economy many credit card companies dropped card promotions, which directly affected demand.
Any possible move to EMV (present or future) could see further hits to pure contactless numbers with banks potentially redirecting or deferring investment away from pure contactless cards in favour of dual interface chip cards offering both contact and contactless capabilities.
Falling shipments became apparent in Q2, before the Durban amendment was passed, but as a result of speculation surrounding the amendment and the state of the economy at the time. Many IC and smart card vendors thought this would be a short-term dip with a recovery expected in Q3. Q3 came and shipments remained lower than Q3 2010. Now deep into Q4 we can only speculate how final year shipments will compare and if any sort of recovery has taken place. ABI Research remains skeptical and believes the dip in shipments will continue into 2012 with a possible recovery being seen mid-year.
The US is the world’s largest payment cards market and any drop in shipments (even by a few percent) could mean millions in terms of units. The affect created by these two drivers are being watch very closely by both smart card and IC vendors and is a clear example of how a new or up and coming technology can be affected by legislation and a sensitive/recovering economy.
ABI Research’s Security & Identification Research Practice will be continually tracking and keeping a close eye on developments in the US payment cards market. Look out for an Insight in early Q1 where I hope to provide an update on shipments and any amended forecast data along with ABI Research’s view of the market and likely outcome.