In 1964, Bob Dylan wrote "The Times They Are a-Changin'" as a political protest song. And (in my totally unbiased opinion) it remains as one of the greatest songs of all time.
Although Dylan meant the song to address the political changes of his time, the lyrics can also be easily applied to consider the technological changes of ours. Like politics, technology very often forces us to adapt or be left behind.
Every major retail bank in the country is jumping on board this new payment system...
J.P. Morgan, Chase, Bank of America, Citigroup, Wells Fargo, PNC, Capital One, U.S. Bancorp...
You name it, they're adopting it. And soon, you probably won't even have much of a choice to adopt this technology yourself.
And no, I'm not talking about bitcoin or cryptocurrency. This is actually going to simplify your life a bit and, according the proponents, will keep your information safer than ever.
“There’s a revolutionary change going on in how credit cards are used.”
— The New York Times, Feb. 5, 2020
I'm talking about contactless payment, otherwise known at tap-and-go. You've probably already seen this at your grocery store or fast food joint, but the statistics say you're probably not using it yourself yet.
As the name suggests, contactless payment doesn't require physical contact between a credit card or smartphone and a point-of-sale device. Consumers simply wave a card or smartphone over a POS device and transactions are complete — no need to swipe or sign.
As mentioned, you've probably already seen this; over 80% of fast food outlets have already begun accepting tap-and-go at the register. And over 90% of drug stores and pharmacies have adopted the technology.
But also as mentioned, it's likely you're not using tap-and-go yet. At the end of 2018, only 0.18% of POS transactions in the U.S. were contactless. Around the rest of the world, it's a much different story.
According to Visa, about 50% of its credit card sales outside of the United States are completed using contactless payment. Meanwhile, Mastercard says 25% of its customers are using the technology worldwide. But a rapid American adoption to the technology is taking place as we speak.
The New York Times reports:
Visa says more than 100 million of these cards have already been issued in the United States, and estimates there will be 300 million by the end of 2020.
That's why investors are scrambling to position themselves in this growing market. One such investor, Chris DeHaemer, managing editor of the Bull and Bust Report, says companies involved in the tap-and-go payment market are primed to sweep up billion of dollars in profits.
"The possibilities are mind blowing," he says. "Their business model is based on collecting a cut of every digital transaction that comes through their system. My calculations lead me to believe that’s somewhere between a 1% and 2.5% cut on every single transaction."
Let's do some math...
Let's just use DeHaemer's lowest estimate of what companies will be collecting as their "cut": 1%. The Federal Reserve reports the total value of non-cash payments in 2018 equaled $97.04 trillion. That means if tap-and-go payment systems were used by 100% of the U.S. population two years ago, businesses that collect transaction fees from the technology would have raked in $970 billion.
At 2.5%, they would have brought in $2.4 trillion!
Starting to see how big tap-and-go payment systems could be? Heck, I'm not sure if there is a bigger opportunity anywhere else in the market.
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