The Ultimate Guide to Contactless Payment
Along with social distancing, contactless is the name of the game in 2020, and payments are no exception. Cash is losing popularity to plastic, and even credit cards are phasing out in favor of touch-less payment options that avoid the need to utilize keypads or physically exchange credit cards.
With new ways of doing things, questions always arise. In this ultimate guide to contactless payments, we’ll focus on what it is and the history of contactless payment technology, how the process works, contactless payment utilization around the world, the different systems available, why they are useful, safe, and secure, adoption trends, as well as what to expect in the future.
What is contactless payment?
Contactless payment enables purchases to be made without touching a keypad or having to physically hand over your credit card to make a payment. A contact-free payment can be made through a mobile wallet on smartphones and smart watches, or with credit or debit cards that have contactless technology. The technology that makes contactless payment possible is radio frequency identification (RFID) technology or near-field communication (NFC). Many retailers, restaurants, and vending machines globally accept contactless payment.
The History of Contactless Payment Technology
Contactless payment technology has been available since the 1990s. However, it has really only gained popularity in the past decade with banks, credit card companies, retailers, and merchants around the globe.
When Contactless Payment Technology Got Started
When it comes to contactless payments, there were a handful of pioneers in the mid-to-late 1990s. The world’s first contactless payment card was launched by the Seoul Bus Transportation Association in South Korea. Known as UPass, it provided riders an easy, contactless way to pay for bus trips.
Shortly after, in 1997, Mobil made Speedpass available to enable users to purchase gasoline with a prepaid key fob. In 2001, FreedomPay, one of the very first true mobile payment platforms launched with McDonalds as its premier partner. Similar to Mobil’s Speedpass, FreedomPay allowed customers of the fast-food chain to pay for their food by waving a fob at the register rather than pull out cash or a credit card.
How It Changed Over Time
Since contactless payments began to hit the marketplace, the technology and expanded use cases have increased exponentially. The use of contact-free payments are no longer limited to fuel purchases, transportation fare, or fast food. Major credit and debit card companies are also utilizing contactless technology for customers, which lends to increased transaction speeds and enhanced security.
How Do Contactless Payments Work?
Contactless forms of payment utilize debit or credit cards, or another payment device equipped with either near-field communication or radio frequency identification. In the case of RFID, a small antenna of sorts is actually built-in to the credit card EMV chip that gives off radio waves to securely connect to a reader with zero contact. The purchaser simply needs to tap the payment card in close proximity to the point of sale terminal (which also must be equipped for contactless) to purchase goods or services. If a customer is utilizing a mobile phone or Apple Watch to pay, then they are likely using NFC to securely exchange the data.
Are Contactless Payments Safe and Secure?
Many newcomers to contactless payments often question its security. In short, contactless payments are secure. The technology behind contactless payment works the same way as the chip and the personal identification number (PIN) system. Contactless cards come with an extremely secure system and require cards to be in extremely close proximity to the contactless card read for the transaction to go through—making it close to impossible for the transaction or corresponding bank account to be compromised.
Further, each time a contactless card is used, unique transaction information is generated. If for some reason data was stolen, it wouldn’t be usable for a future purchase as the data will no longer be applicable.
Different Types of Contactless Payment Systems
If you’re looking to get started with contactless payments, there are several options available. Some of the most popular choices include contactless payment cards and various virtual wallets. Depending on your smart device operating system of choice, there is likely an option available, with Apple Pay, Google Pay, and Samsung Pay being the most widely used.
Contactless Payment Credit Cards
Today, most major credit card issuers such as American Express, Mastercard, and Visa offer contactless credit card options or plan to in the very short term. Contactless card users don’t have to insert their chip card into an EMV chip reader or swipe the magnetic stripe on the back of their card to make a purchase. The cards utilize NFC technology and work on a tap-and-go basis. Many credit card companies are issuing contactless-enabled cards automatically for new users or to replace existing cards once they expire.
The majority of devices from Apple have the Apple Wallet app, which allows users to save debit and credit card information to their device—typically their iPhone or Apple Watch. Through Apple Pay, users can make purchases online, via apps, in person at a card reader, and even send money to friends or family with a text message system.
Google Pay offers a user friendly, efficient way to make online or contactless payments using a smartphone or android device. Once a credit or debit card is added to the Google Pay account, the account owner can pay at in store payment terminals using their phones, pay on websites or in apps, and also send money to friends and family (this feature is limited to the U.S. and India only).
Similar to Apple Pay, Samsung Pay lets users keep their card number and other payment information stored to an app on their mobile device that can be used at merchant terminals. With Samsung Pay, an account owner needs to swipe up on the home screen of their Galaxy phone to approve a payment through a secure, fingerprint identification system.
When and Where Contactless Payments are Useful?
Contactless payment options can be useful to both cardholders and merchants for various reasons. The first, and most obvious is to avoid physically touching unclean surfaces—cash, credit card keypads, pens—or transferring germs from one person to another.
Merchants like tap-to-pay or contactless options as they can expedite checkout for customers, with faster payments, better security (thanks to less cash), and happier clients.
How Contactless Payments are Growing Throughout the World
Industry research anticipates a sharp increase in the demand for mobile and wearable devices between 2020 and 2025, with Europe leading the pack.
As highlighted in the Impact of COVID 19 on Global Contactless Payment Market report, “Some of the growth factors in the global contactless payment market include private and public investments, a growing number of fintech organizations, increasing cases of cyber thefts, and others. Moreover, the COVID-19 pandemic raises the demand for cashless and online.”
While the use of contactless payments is on the rise, adoption rates vary across industries, geographical regions, and country-to-country.
The Growth in the USA
The United States is a laggard when it comes to contactless payment adoption, but that is expected to change in the next five years. According to research, globally, the contactless payment market size is expected to grow from USD 10.3 billion in 2020 to USD 18 billion by 2025, at a Compound Annual Growth Rate (CAGR) of 11.7% during the forecast period.
Further, according to Mastercard Contactless Consumer Polling, more than half (51%) of Americans are now using some form of contactless payment, including tap-to-go credit cards and mobile wallets, like Apple Pay.
Growth and Impact During COVID-19
Fears over the transmission of COVID-19 have made consumers and businesses think about how transactions are conducted—distance is the name of the game, and contactless is preferred.
According to The Points Guy, there is an upward trend in contactless payments that correlates to the coronavirus outbreak:
- Mastercard saw a 40% increase in contactless transactions globally in the first quarter of 2020.
- Visa highlights that nine of the top 10 U.S. banks now participate in tap-to-pay, with more than 175 million contactless cards in the U.S., more than any other country in the world.
The Future of Contactless Payments and Credit Cards
The future of contactless payments is bright with all sources indicating an up and to the right trend line for adoption, with the global Coronavirus pandemic being a major catalyst. It is anticipated that in addition to replacing cash, contactless options will also surpass traditional credit card payment methods.
Let’s face it, we’re a society with a need for speed, security, and currently, a way to avoid the transfer of germs. Contactless payments checks all of the boxes and is here to stay.
If you have questions about contactless payments or would like to learn more about our favorite options in the marketplace today, consider scheduling some time with the TravelBank team. We would love to hear from you.