Retailers like Amazon.com Inc. and Walmart Inc. that invested in contactless payment technologies during the COVID-19 pandemic stand to benefit in 2022 as more U.S. consumers warm to cashless options.

The value of global contactless transactions is forecast to reach $6.5 trillion by 2024, up from $2.5 trillion in 2021, according to Juniper Research. While Apple Inc. and Google LLC dominate much of the space in terms of sheer scale, retailers have an opportunity to offer their own contactless payment services incorporating discounts and customer loyalty programs to consumers, analysts said.

"The real opportunity for the merchants is to intertwine their own contactless payment experiences with loyalty, rewards, promotions and perhaps provide additional incentives for the customer to use that payment instrument," said Jordan McKee, research director with 451 Research. By contrast, Apple and Google "don't have as many levers to pull to really elevate that value proposition."

Most consumers who tried contactless payments for the first time during the pandemic plan to continue using them, according to a 451 customer survey conducted in October 2021. Only 8.9% of first-time users said they will not try contactless payments again. While some 44% of surveyed customers are still holding out on the technology, the stickiness seen with first-time users suggests this group still represents an opportunity for growth, especially in U.S. cities, McKee said

Contactless growth spurt

A Federal Reserve study on U.S. noncash payments in 2019 and 2020 showed that Big Tech-driven digital wallets and retail-affiliated contactless payments grew rapidly in the first year of the pandemic. The study, released in December 2021, found that the number of contactless card payments increased about 172% year over year to 3.7 billion transactions in 2020, despite declines in in-person card payments overall.

Contactless card payments accounted for about 4.63% of all in-person payments in 2020, up from 1.70% in 2019, according to the Federal Reserve.

Big Tech's scale

One of Big Tech's biggest advantages in the contactless payment space is scale: Apple has embedded Apple Pay into hundreds of millions of devices around the world, and Google can embed Google Pay on any device running the Android operating system, McKee said.

Apple and Google's digital wallets rely on near-field communication technology, which enables users to make payments by holding a contactless card, mobile device or wearable over a card reader screen to initiate payment at any merchant where it is accepted. Retail wallets such as Starbucks and Walmart Pay rely on proprietary barcodes and QR codes in stores as opposed to near-field communication.

According to 451 Research's most recent "disruptive technologies" survey fielded in January 2021, PayPal had the most widely used digital wallet among respondents who used digital wallets to make online purchases at least once over the previous 90-day period, at 72.3%, followed by Apple Pay at 27.2%, Amazon Pay at 27.2%, and Google Pay at 23.6%.

McKee noted that PayPal has a head start of over a decade on its competitors and has been able to fuel consumer adoption due to widespread acceptance among merchants. PayPal is also an agnostic platform that allows consumers to use it on any device or operating system, another factor that has helped it scale growth, McKee added.

Retail's potential

Neither Amazon nor Walmart responded to inquiries about their plans for contactless payments in 2022, but retail experts said both are well-positioned to take advantage of growing interest in the technology.

Amazon, for instance, could incentivize further usage of its contactless payment service at both its own physical stores, which include Whole Foods Market Inc., as well as with other merchants. Amazon's in-store payment option for use at Amazon Books and Whole Foods can be accessed via the Amazon app.

One tool for Amazon to encourage usage would be via licensing agreements for its Just Walk Out technology, which allows customers to skip the checkout line. Instead, customers scan or tap a credit card to enter the store and select the items they want to purchase in a virtual cart. When customers exit the store, Amazon automatically charges their cards for items purchased.

Hudson Nonstop and CIBO Express Gourmet Markets already offer Amazon's Just Walk Out technology at some locations in U.S. airports.

Implementing Just Walk Out requires investing in upgraded ceiling cameras and shelf weight sensors. Merchants already making those investments to offer the tech could be persuaded to embed Amazon Pay into their own branded credit card solutions as an extension of such partnerships, said Mark Shmulik, a managing director with AB Bernstein whose U.S. internet coverage includes Amazon.

"Their play here could be in the physical world," Shmulik said. "If you outfitted enough stores with Just Walk Out tech, it creates the network effects needed for payment tied to Amazon Pay to effectively take off."

Shmulik didn't have a hard estimate on how many U.S. retailers would be willing to deploy Just Walk Out, but said larger companies with stronger financial wherewithal would adopt the technology first, while smaller retailers are more likely to add Just Walk Out as the equipment becomes cheaper over time. Retailers in high-traffic areas such as major cities would also find the tech appealing and worthwhile to deploy, Shmulik said.

Walmart, meanwhile, has room to expand usage of its Walmart Pay digital wallet, which is part of the Walmart app. The company began offering customers no contact services for payment, pickup and delivery options in 2020, including allowing in-store customers to use their smartphone to scan a QR code using Walmart Pay instead of touching a screen at check out.

Michael Baker, a managing director with D.A. Davidson, said the company has an opportunity to incentivize customers to use Walmart Pay as part of its still nascent Walmart+ membership program. More immediately, however, Walmart must ensure it has the capacity needed to provide free delivery service included with memberships before pushing Walmart Pay as a preferred payment method for the program, Baker said.

"It's certainly something that we could envision them incorporating as part of their membership and providing some incentive for customers to use it because it is in keeping with Walmart's strategy to drive revenue from alternative platforms, which generally drives much higher margins," Baker said. "I think they view it as 'this is where the consumer is going,' and Walmart wants to be there."

Target Corp., Walmart's smaller rival, is also investing in technology aimed at improving the customer experience. While Target already offered digital wallet and contactless payment options well before the pandemic, it updated its Drive Up fulfillment services in 2020 to allow even less contact, with shoppers verifying their order via a personal ID number on an app shown through a car window. Target declined to respond to inquiries about its plans for contactless payments in 2022.

Arun Sundaram, senior equity research analyst with CFRA, also pointed to flexible in-store checkout options facilitated by Target's mobile wallet.

"Customers can use Target's mobile wallet to check out anywhere in the store as long as you are with a Target employee who can scan the barcode using a hand-held device," Sundaram said. "This is just another way for customers to check out quickly and safely."

451 Research is part of S&P Global Market Intelligence.