Payment technology evolves rapidly, and innovation in the industry has revolutionized with the inception of contactless payments. Gone are the days of swiping your credit card at retailers, coffee shops, restaurants, and other businesses. Now it seems that touchless payment options have become the standard payment technology of the future. Contactless payments are those processed through your mobile device or NFC technology. These mobile payments allow transactions to go through faster and safer, saving you time and worry. Read on to learn everything you need to know about contactless payments, how they work, and how to decide if they’re right for your business.
What is a Contactless Payment?
A Contactless payment is a type of payment processing that takes place without the contact of a card in a reader. These payments occur between a customer’s smartphone or credit card and the point-of-sale system. These payment options are possible because of near-field communication technology, called NFC for short.
These NFC transactions use a specific radio frequency identification (RFID) that allows a card or smartphone to connect to a payment reader that’s nearby. Generally, the devices must be 10 centimeters or less from one another.
The history & future of touchless payments
Radio frequency identification (RFID) enables the ability to identify things through radio waves. NFC is a type of this RFID technology. RFID technology has been around for decades.
We have used forms of RFID for scanning products in grocery stores and for luggage on baggage claims. In fact, South Korea launched one of the world’s first contactless payment systems in 1995. Known as UPass, it offers a fast and easy way for riders to pay for bus trips.
However, the U.S. market has been slower to adopt contactless payment options. Despite this, the adoption rates have recently started to increase due to contactless payments offered by companies like Apple (Apple Pay), Google (Google Play), and Samsung (Samsung Pay). Additionally, the COVID-19 pandemic has increased the rate and speed of U.S. retailers and banks leveraging the technology.
How Does Contactless Payment Work?
Contactless payment systems use debit cards, credit cards, or smartphones that have RFID technology to interact with payment devices. Customers don’t need to swipe, enter their personal identification number (PIN), or sign a receipt. Contactless pay POS terminals have a special symbol to identify the machine as one that uses the technology. This symbol looks like a wifi logo that’s been turned on its side.
Here is how touchless payment systems work:
- The merchant’s POS system prompts the customer for payment
- That customer brings their card near the contactless pay symbol on the terminal
- The terminal transmits the data electronically and uses the information on the card’s chip to communicate with the bank
- The system accepts the tap by giving the customer a signal (beep, green light, or checkmark)
- The transaction is approved
As mentioned, many smartphones have this NFC technology built-in and can use the feature through a payment app like Apple Pay. There are also other types of smart devices that use this technology, including smartwatches and fitness trackers.
Processors and banks generally limit transaction sizes on contactless payments. The amount for contactless transactions depends on the county and bank. Some merchants set lower limits on their contactless payment systems, while others allow large transactions.
Payment terminals that use contactless payment systems are also called “tap-and-go” and “tap-to-pay.” For this reason, contactless payments are the most hygienic payment option for in-person transactions. This is because there is no direct contact at the point of sale. No passing the card between the customer and merchants, typing into keypads for PINs, or using styluses on the POS.
Are contactless payments secure?
Touchless payments use a one-time, unique token that’s sent to the payment terminal for every transaction. This token does not actually contain any card details or payment information. This means if there was a compromise on the purchase, a thief couldn’t use the token to make other purchases.
This layer of protection uses the same system as EMV cards. The difference is that contactless payments are about twice as fast. If you use a mobile wallet on a smartphone, there’s almost always an additional layer of security. For example, a user may also have to use a fingerprint, PIN, password, or facial recognition to complete a transaction.
Contactless Payment Systems vs Contactless Payment Cards
Contactless payment systems is a term describing a no-touch method of making purchases by using debit or credit cards, or a mobile wallet (i.e., Apple Pay or Google Pay). Whereas, contactless payment cards are specifically referred to as debit or credit cards that use these no-touch methods for making purchases. They differ from chip-in cards but are not standard for each bank. One way to discover if a card is a contactless payment card is by looking for the touchless symbol described earlier.
What are Examples of Contactless Payments?
Financial institutions like banks offer contactless payment options. Other companies have also jumped on the bandwagon to offer their own versions. In addition to contactless payment terminals, below are some examples of touchless payment methods.
Mobile wallets
A mobile wallet allows you to store credit, debit, gift, and ID cards digitally so purchases can be made using a smart device. Apple Pay is an example of a mobile wallet. The majority of Apple devices (smartphones, smartwatches, tablets, etc.) come with the Apple Wallet app pre-installed.
Users can store their credit or debit card information on a device like an iPhone to purchase things in stores. Mobile wallets can also be used for online purchases or used through other apps.
Payment apps
Payment apps work very similarly to mobile wallets. A payment app allows users to pay for goods and services and send money to friends, family, and vendors. The user’s bank account information and credit cards are stored on the app securely. There is no need to have the payment card physically on hand to make these purchases.
PayPal, Venmo, Cash App, Zelle, and G Pay are all examples of payment apps. These are all forms of mobile P2P payments.
Should You Use Contactless Payments for your Business?
The coronavirus pandemic has certainly had an impact on payment technology, pushing consumers to switch out their cards and cash for contactless payment. In 2020, touchless payment systems increased to 67% of U.S. retailers. With consumer behavior shifting to using this technology, it demonstrates the need for businesses to adopt the technology faster.
More and more large retailers have begun implementing card readers that are programmed with NFC technology to accept payments. These allow for contactless payments via app or card. As a business owner, it’s your decision whether you’d like to present your customers with this ability. We can say that payment trends seem to indicate this is a worthwhile investment.
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