Primer: What is Contactless Payment?

A recent survey by Mastercard indicated how 51% of the respondents said they are using cash less often or not at all since the start of the pandemic.

What is Contactless Payments?

Contactless payment is a secure method of purchasing products and services without the need to use cash or swipe a card. Customers can complete a transaction by tapping or waving their card, phone, or other device over a contactless-enabled payment terminal using radio-frequency identification (RFID) or near-field communication (NFC) technology.
Apple Pay, Google Pay, and Samsung Pay are among the popular examples of contactless payment systems. Your smartphone or smartwatch can be used to make a payment by touching it on a compatible payment terminal on these platforms. They employ NFC technology to transmit payment information in a secure manner.

Are Contactless Payments Secure?

Contactless payments are secure. When you touch to pay, your card or device remains in your possession, thereby minimizing the risk of loss and eliminating the necessity for physical contact, which was crucial during the pandemic. Your account information is encrypted by the embedded EMV chip in a contactless card, ensuring that it cannot be stolen. The card stored in your mobile wallet is also tokenized when you pay with your smartphone. This means that the number on your card has been replaced with a random number, ensuring that the merchant never view or store your actual account information. Consequently, the risk of your information being stolen in the event of a data breach is reduced. The biometrics required to authenticate yourself on your device, such as your fingerprint or Face ID, and the cryptograms, or one-time codes, that are generated for each transaction, also ensure the security of contactless transactions with your phone.

Read: Impact of Fintech on Retail Banking Trends

Contactless Payment History

The Seoul Bus Transport Association introduces the world’s first contactless payment card for commuters in 1995.
The initial iteration of the EMV security standard is published in 1996.
In 2004, contactless cards were introduced in the United States for the first time.
2008. Contactless credit cards are now being offered by Visa, American Express, and Mastercard.
In 2011, Google Wallet and Android Pay were introduced, which allow users to make contactless payments using their smartphones instead of credit cards.
In 2015, the United States implemented EMV, which prompted thousands of merchants to transition to near-field communication (NFC) terminals that facilitate contactless payments.
2018. Google Pay is a unified system that combines Google Wallet and Android Pay.
The year 2020. Contactless payment adoption in the United States is on the rise due to concerns regarding COVID-19.

Case Studies: Top 10 Brands Leading the Charge in Contactless Payments

1. Starbucks

Starbucks has integrated contactless payment options through its mobile app, allowing customers to order and pay ahead. This has streamlined the purchasing process, significantly reducing wait times in-store. The app also includes loyalty rewards, encouraging repeat business.

2. McDonald’s

McDonald’s has implemented contactless payment systems in many of its locations worldwide. By allowing customers to pay via NFC-enabled cards and mobile wallets, McDonald’s has improved the efficiency of its drive-thru and in-store transactions.

3. Walmart

Walmart’s contactless payment solution, Walmart Pay, integrates seamlessly with its mobile app. This allows customers to make payments directly from their smartphones, enhancing convenience while shopping.

4. Apple

Apple Pay has set the standard for contactless mobile payments. With its easy-to-use interface and strong security features, Apple Pay has gained widespread adoption among consumers and merchants alike, making it a leader in the contactless payment space.

5. Visa

As a major player in the payment industry, Visa has heavily promoted contactless payments through partnerships with various retailers. Their technology has made it easier for merchants to adopt contactless systems, increasing overall acceptance.

6. Mastercard

Mastercard has focused on expanding contactless payment acceptance worldwide. Their innovative payment solutions, such as biometric cards, aim to enhance security and user experience in contactless transactions.

7. Samsung

Samsung Pay allows users to make contactless payments using their smartphones. Its integration with both NFC and MST (Magnetic Secure Transmission) technology enables it to work with a wider range of payment terminals, increasing its usability.

8. Amazon Go

Amazon Go stores are pioneering a new retail experience that relies heavily on contactless payments. Customers can simply walk in, pick their items, and leave without going through a traditional checkout process, thanks to advanced technology that automatically charges their Amazon account.

9. Target

Target has embraced contactless payments through its mobile app, allowing customers to pay for purchases with their smartphones. The app also offers additional features like shopping lists and promotions, enhancing the overall shopping experience.

10. Adidas

Adidas has integrated contactless payment solutions in its retail stores, allowing customers to make swift transactions. The brand’s focus on technology and customer experience positions it as a forward-thinking leader in retail.

How Contactless Payments Work?

The Technology Behind Contactless Payments

Contactless payments typically involve three main components:

Card or Device: A contactless-enabled card, smartphone, or wearable device equipped with NFC technology.
Point of Sale (POS) Terminal: A payment terminal that accepts contactless transactions, capable of reading data from the card or device.
Payment Processor: A system that securely processes the transaction between the cardholder’s bank and the merchant’s bank.

Transaction Process

Initiation: The consumer taps their card or device on the POS terminal.
Data Transmission: The card’s RFID chip or NFC-enabled device transmits payment information securely to the terminal.
Authorization: The payment processor verifies the transaction with the cardholder’s bank and authorizes the payment.
Completion: The merchant receives confirmation, and the transaction is completed without any physical contact.

Advantages of Contactless Payments

Convenience
Security
Hygiene
Global Reach

Challenges of Contactless Payments

Infrastructure Costs
Consumer Awareness
Limitations on Transaction Amounts

FAQ’s

1. Is it secure to use contactless payments?
Contactless payments are regarded as secure. The protection of financial information during transactions is achieved through the implementation of sophisticated technologies such as dynamic authentication and tokenization.

2. What is the limit for contactless payments?
However, the limit for contactless payments in India is contingent upon the issuing bank or card provider. The Reserve Bank of India (RBI) has established a limit of ₹5,000 per transaction for contactless payments made with cards. Nevertheless, the restrictions may differ for contactless payments that are dependent on UPI or mobile wallets. It is advisable to consult with your bank or credit card provider regarding specific restrictions.

3. What are the different varieties of contactless payments?
Contactless payment methods are available in India in a variety of forms. These consist of NFC-enabled devices, mobile wallets such as Paytm and PhonePe, Unified Payments Interface (UPI) applications like Google Pay and BHIM, and contactless cards.

4. What is the method of contactless payment usage?
Contactless payment can be implemented by touching or waving the card or device in close proximity to a contactless-enabled terminal. The transaction is conducted wirelessly using NFC technology, which enables secure communication between the terminal and the card/device.

Conclusion

Contactless payments represent a significant shift in the way we transact. With their convenience, security, and hygiene benefits, it’s no wonder that consumers and businesses alike are embracing this technology. As we look to the future, innovations in security, integration with IoT, and the expansion into emerging markets will continue to shape the landscape of contactless payments. The case studies of leading brands illustrate the potential and success of this technology, setting the stage for even greater adoption and innovation in the years to come.

After understanding the evolution, advantages, challenges, and future trends of contactless payments, businesses can better position themselves to thrive in this rapidly changing financial ecosystem. Whether you’re a consumer or a merchant, the future of payments is undeniably contactless.

Read: Fintech Marketing: Top 10 Power Strategies to Accelerate Growth

Thanks for reading!