Jeffrey Stephen Parker
Jun 1, 2020

Contactless Payments Still Require Too Much Touch for Hotels

The last several weeks have been amazing, surreal even, for everyone. I’m amazed by the human spirit, by the people that have come together to stay apart, by the people that get up every day to put themselves in harm’s way to save lives. Thank you! We will get through this, we will persevere, we will be better for this global shared experience.

Contactless Payments Still Require Too Much Touch for Hotels

Jeffrey Stephen Parker
Jun 1, 2020
Payment | technology

The last several weeks have been amazing, surreal even, for everyone. I’m amazed by the human spirit, by the people that have come together to stay apart, by the people that get up every day to put themselves in harm’s way to save lives. Thank you! We will get through this, we will persevere, we will be better for this global shared experience.

Technology will lead the way, it must.

We’ve trained millions of users to be comfortable with remote technologies for VOIP, video conferencing, document collaboration and real-time messaging, all in just a couple of weeks. We lifted and shifted a largely office-based business culture to virtual in weeks. Not months, not years – a couple of weeks! This is a Copernican revolution in technology adoption. Radio, TV, PCs, all took generations to become commonplace. This shift makes the iPhone adoption rate look anemic.

Society has, virtually overnight, become technologists.

This quantum leap in technology adoption will lead our guests to demand we leverage other technologies to help them avoid contact with people and surfaces that could infect them. In many cases, like video conferencing, these technologies have already been deployed but have stalled adoption curves, with just 1% of travelers using them and just 1% of those demanding them. Many will demand these new technologies. Hotels that are prepared will benefit, hotels that aren’t will become listings at the bottom of Trip Advisor.

The first item I see as critical to protect guests is payments moving to near field communication (NFC) tap or contactless transactions. Guests will no longer think of contactless or NFC tap as a gimmick. They’ll see it as one less opportunity for exposure.

I’m focusing on two methods of contactless payments: NFC tap from a card with an embedded chip or a paired device (watch, smart device) and e-commerce payments.

Let’s face it, the credit card terminal with its keypad, pen and screen is heavily touched, and it’s difficult to clean per CDC recommendations (using a sanitizer with 70% alcohol) without ruining the device and voiding its warranty. To this end, I reached out to some friends in the industry to get a better grip on the barriers.

Question 1: What do you see as the current roadblocks to moving to a truly contact-free – or at least tap & go – payment infrastructure in hospitality?

  • Consumers don’t have contactless cards in their wallets yet.

Like EMV or chip cards, getting NFC cards into wallets is going to take some time. Banks aren’t sending replacement cards until a client requests them or the card is about to expire. It could be two or three years before it’s common for all the payment cards in your wallet to be ready for contactless use.

  • Banks aren’t allowing some cards to be part of payment wallets.

Many banks are allowing some card types to be tied to hardware (Fitbit, Apple Watch, iPhone) but others aren’t. The situation is even murkier with debit cards. My bank, which is a large regional bank, still doesn’t allow me to connect my cards to Google Pay or Fitbit.

  • Consumers aren’t pushing for contactless. They aren’t even pushing for EMV. Lack of guest demand is a huge factor. One franchise company said it was hard to get owner adoption for contactless payment when guests aren’t demanding it. Tap and pay is still a novelty to most guests (at least it was in the old normal).

Americans are still accustomed to handing a card to a clerk or server, that card disappearing for a while, then getting it back with a receipt to sign. There’s no way customers will allow a server to take their phone or watch to complete a sale.

  • Signature capture is still required for large card present transactions.

Once a charge hits a certain threshold, the card brands require a signature. These limits are being adjusted as the security improves and adoption increases, but right now average hotel transactions require a signature. It doesn’t make sense to push for Tap-N-Pay solutions if guests still have to touch the terminal to sign.

  • Deployment costs are high. Operators are concerned about costs related to deploying and activating hardware and software. Several merchant services and gateway companies cover the cost of hardware in their solutions, but hotels often need additional networking to deploy them at the front desk or other areas. There’s a real cost in time and money to deploy the infrastructure needed to make NFC tap work. And for full service hotels, we aren’t just talking about the front desk. Contactless payments require the transaction to happen where the guest is. This means bars and restaurants have to be ready for pay at table or seat, and many hoteliers are nowhere near ready for that. It wouldn’t be unusual for some hotels to spend $5,000 to $10,000 or more to be able to take NFC tap payments.
  • Building solutions into the hospitality ecosystems is complex and takes time.

Some providers have active tap to pay deployments in other sectors, but they run into problems with the number of additional certifications and integrations it takes to bring the solution to hospitality. This industry’s complex model of authorizations is largely to blame. In the past, it’s taken years to build a solution, have the product validated and certified with hardware and software and then deployed at a single PMS or POS, let alone with many property management systems. By that time, the hardware has changed, the transport protocols have changed, and the consumer has changed.

Frankly, the move to chip cards happened nearly five years ago, and many hotels still aren’t compliant because of the costs. Even losing credit card disputes isn’t enough to offset the additional hardware, human and installation costs. Couple this with the struggle to cover so many other costs related to the COVID-19 crisis, and it’ll be hard for hotels to get there, even with increased pressure from guests.

This has to change. Industry leaders, like the PCI Security Council, Hospitality Financial & Technology Professionals and Hospitality Technology Next Generation need to work with PMS companies, CRS, Gateways, Merchant Service Providers, hardware manufacturers and card brands to make it happen.

Question 2: Do you see processing fees related to card not present (CNP) transactions coming close to card present soon?

The general commentary I received was a hard no. Card brands have dug in on the additional costs related to fraud. This is an easily defensible position for those brands. This gap might be greater soon, with some card organizations looking to lower card present fees. While this is good for hotels, it will make the move to a full e-commerce solution even less appealing.

One major merchant services provider said they didn’t see rates coming down anytime soon. It’ll require wide adoption of better tools for secure customer identification, like 3D Secure 2.0 (3DS2) to reduce interchange costs related to fraud coverage. Wallets might make some headway here, but currently they’re also bucketed into card not present (CNP) rates.

One brand did see the gap closing in the next year. Another was pushing for fee reduction for franchisees to drive fully e-commerce straight to room guest interactions and not require stops at the front desk to handle payments. While this is good news for major brands, independent hotels don’t have the same buying/negotiating power. Moving transactions completely online is a large increase in expenses for hotels that are already trying to squeeze pennies out of every dollar.

Question 3: Where is the industry as a whole in terms of having the on-premise technology needed to facilitate EMV, which often is a foundation for contactless or tap payments?

While some major brands are still struggling for US adoption, respondents indicated that the US EMV penetration in hotels was around 60-70% at the hotel front desk, POS or both.

Some major brands are ready with EMV franchise-wide today. The relative freshness of the hardware will let them enable contactless NFC soon. But other brands are far behind, with less than 5-10% adoption and lots of pushback pre-COVID-19 on the costs. They expect that pushback to grow as hotels climb out of the recession. Two respondents felt the US hospitality industry is still 18-24 months away from critical mass for EMV at hotels.

Question 4: Are any players in the market poised to push hospitality payments dramatically forward?

While a few names came up, many respondents pointed to Apple and Google and their respective wallets, with broader adoption for both brand’s wrist-based payments. People already have a level of trust with these partners (I even know a few I’d call zealots). Building on these platforms, hotels could jump forward to delivering contactless options for their guests.

I sincerely believe our guests will be looking to push technology to prevent contact, prevent exposure, and prevent having to close down the world to protect people. Hospitality leaders need to be ready for rapid, expansive changes in how we interact with guests and the visible ways we show we’re protecting them. Payments is a high-touch, nearly universal way we can change the experience for them. Hotels that are ready for this shift will be ready to make a difference – and will be rewarded for it.

Jeff would like to thank his friends who contributed to this article. Many asked to remain anonymous, but participants included hotel brands, merchant services providers, hardware manufacturers, and owners. Special thanks to Jeff Bzdawka from Hyatt, Mike Ryan from Ingenico, Kerry Levine and Joe Farwell from Elavon, Jake Buckstead from Fiserv, John Edwards from RLH Corporation.

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