A Complete Guide on Contactless Payments

Cash payments are slowly yet steadily being replaced by alternate payment methods, first by credit and debit cards, and now by contactless payment modes. There are several benefits for contactless payment methods, that have led to their immense popularity at for retailers, grocery stores, restaurants and more.

According to experts, the global value of contactless payments is currently estimated to be nearly USD $2 trillion, and is expected to triple in value by 2024. In Australia, card payments bypassed the popularity of cash in 2016. By 2019, the Reserve Bank of Australia (RBA) reported that nearly 83% of all point of sale transactions using a card were contactless.

The COVID-19 pandemic has further fueled the popularity of contactless payment methods, which are more hygienic as compared to other forms of payment. Although the recent sudden growth of contactless payment modes can be attributed to the pandemic, the prevalence of these easy to uses payment methods are here to stay.

What are Contactless Payments?

Also known as tap-and-go payments, contactless payments are where a device is tapped against a payment reading surface to carry out a transaction. A combination of radio frequency identification (RFID) and near field communication (NFC) technologies are used for fast and secure payments. A contactless payment transaction involves a card or smartphone that emits RFID frequencies that are received by a nearby payment reader by means of NFC.

All that is required is placing the smartphone or payment card close to the reader or POS system, and the RFID and NFC complete the payment. Unlike credit/debit cards that need to be swiped, or cash that needs to be handled, contactless payments take place entirely without contact.

Contactless payments are generally carried out through credit or debit cards with a chip embedded, or from mobile phone apps such as Google Pay or Apple Pay. Other items can also be used for contactless payments, such as smartwatches, stickers, or wristband – anything that can emit the RFID waves.

How Contactless Payment Works

To support contactless payment, the merchant accepting the payment need to have point of sale systems supported by an eftpos machine that specifically accept contactless payments. When the payment is requested from the merchant end, the customer brings close their contactless payment device. Information is transmitted through the device to the recipient and payment is complete. There will typically be a beep or a green light signaling that the transaction has successfully taken place.

History of Contactless Payment

The technology used in contactless payments has been around since the 1990s. The first contactless payment system was offered by the transit authority in South Korea’s Seoul in 1995. Customers could pay for bus trips instantly with the UPass contactless payment system. In 1997, US-based gas station brand Mobil launched their own contactless payment system.

Over the years, the market for contactless payments has grown erratically. While some businesses launched their own contactless payment systems, there were not many universal contactless payment options. In comparison to commercial establishments, governments were quicker to use contactless payment systems in the form of tokens, especially for transportation.

In 2007, the first versions of contactless credit cards were launched by BarclayCard. In the same year, PayPass launched a trial of the first NFC-enabled phone. From 2010 onwards, the pace of adoption of contactless payment methods evolved rapidly, with many countries setting up local pay wallets. Apple Pay was announced in 2014. In 2016, the applications of contactless payment modes expanded and were incorporated with wearable technologies.

With the COVID-19 pandemic in 2020, multiple banks increased their limits for contactless payments, thereby supporting their usage further.

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• COVID-19 and the Future of Retail

Types of Contactless Payment

There are broadly 3 types of contactless payment options available, depending upon the type of device the customer uses for payment.

1. Cards: Nowadays, many debit/credit cards have in-built chips to facilitate contactless payment. To make a payment, the customer can directly tap the card on the payment reader to complete the transaction. Cards are compact and easy to store, but also risky as they can be stolen.

2. Tokens: All kinds of tokens and stickers can be fitted with chips to support contactless payments. These tokens are often provided by the business or service provider directly and the token can only be used for its designated purpose.

3. Smart devices: Smartphones can be used for contactless payments after downloading the relevant apps or loading your credit cards to the wallet apps on your mobile. Using a smartphone adds another layer of security to payments, and reduces need for carrying a bulky wallet. Drawback is that if your battery is running low, payments can be difficult. Although smartphones are the most commonly used smart devices for making payments, some smart watches can also be used.

Benefits of Contactless Payment

There are several benefits of contactless payments that have led to its rapid growth in the past few years.

• Efficient

Contactless payments are more efficient for the customers as well as for the business owners. For customers, there is no need to worry about carrying enough cash or bringing debit/credit cards. Many options for contactless payment are available through mobile apps. In general, customers are almost always carrying their smartphone when shopping, so they do not even need to carry any additional items or wallets to make a purchase.

For business owners, the hassles of storing cash, providing change, swiping cards, and processing payments can all be avoided with contactless payments. Also, as the eftpos systems can be directly connected with their POS systems, businesses can receive automated reports of transactions taking place throughout the day.

• Hygienic

A major concern as a result of the coronavirus pandemic is hygiene and health safety. Contactless payments remove the need of dealing with cash or even touching cards which carry the potential of transmitting illnesses. The tap-and-go payment mode also reduces the need to sanitise cash and payment processors. Many businesses are now preferring contactless payments to reduce human interactions and risk of spread of the virus.

• Fast Transactions

A contactless payment transaction can be completed in less than 15 seconds and are twice as fast as traditional credit/debit cards. There is minimal processing required and no handling of cash or cards, resulting in speedy checkouts and fast turnovers. Fast transactions are great for customers and businesses, and serve to improve the overall shopping experience.

• Easy to Use

Contactless payments are straightforward and easy to use. With contactless payment cards, there is no need to remember any pin numbers, as with a single tap payment can be completed. If you are using a contactless payment mobile app, then you can use fingerprint authorisation or facial recognition to grant access for the payment.

For customers, getting a contactless payment device is also easy. Many debit/credit cards are now equipped with chips for contactless payment. Most smartphones can download and operate dedicated contactless payment apps.

• Security

Initially, a common concern many people had was over the security of a contactless payment method. Afterall, if only a tap is required, couldn’t anyone steal the device and start spending? Contactless payment apps feature additional security measures such as passwords or codes to access the account, making it safer.

In contrast to traditional credit or debit cards with a static magnetic identification strip, a contactless payment card has a unique key generated for each authentication. This key is never transmitted, but used to verify each payment, increasing the safety of each transaction. All transactions are further protected by data encryption. In case of any loss, you can block the card like any other card.

• Boosts Profits

The speed, hygiene, security and flexibility of contactless payments encourage customers to spend more and shop more frequently. With faster checkouts there are less lines and waiting times, so that more customers can complete purchases in the same amount of time.

Meanwhile, businesses save on costs for hiring and training multiple cashiers. Also, as the usage of cash drawers and card payment processors is reduced, businesses can also save on maintenance and repair costs.

Disadvantages of Contactless Payment

Apart from the benefits, there are a few drawbacks of contactless payments.

• Limits

Based on the bank or payment service provider, there may be a limit on the total value of transactions. Breaching the limit can be cumbersome and involve additional authentication and passwords. However, as the popularity of contactless payments is increasing, especially due to COVID-19, payment providers are increasing their limits.

• Acceptance

The number of shops and businesses accepting contactless payment options is increasing, but there are still many businesses that do not currently support it. Facilitating contactless payments involves a very small investment for businesses, to setup the infrastructure to complete transactions.

Conclusion

The popularity of contactless payments had been growing at a slow and steady pace. The COVID-19 pandemic and need for greater hygiene and social distancing have significantly boosted the growth of contactless payments. Although supporting these tap-and-go payment modes will require an initial investment on the part of businesses, the benefits are multi-fold.

More customers than ever before are turning to contactless payment options. Banks and payment providers are also expanding their offerings for customers and business owners alike, to support this trend. A contactless payment system boosts efficiency, saves time, increases profits, and is safe.

At POS Plaza, we understand the importance of having an effective and good quality point of sale system. Our team of experts can help you find the best point of sale solutions for your business.