Contactless payments are surging in popularity as concerns around the pandemic drive people to abandon cash and explore less germ-prone payment options. Here’s more on the future of contactless payments.
Contactless payments are not new; however, adoption of this payment method lagged prior to 2020 as U.S. consumers felt no compelling reason to move away from the familiarity of payment cards. Certainly, digital wallets like Apple Pay were able to lasso some early adopters, but the bulk of consumers were content with the status quo — until now.
In the wake of the pandemic, more and more shoppers have embraced — and even demanded — contactless payments as a way to avoid touching surfaces ostensibly rife with germs. Some experts predict that contactless payments will rise by as much as 15% as a direct result of the pandemic. Other sources note that the global contactless payment market will balloon from 10.3 billion this year to 18 billion by 2025 — a CAGR of 11.7%
The basic premise of contactless payments is that consumers can transact in real-time with the tap of a card. It promises fast, seamless payments that consumers can make at their convenience. Increasing numbers of devices, terminals, and other contactless payment technologies are increasing to match consumer demand.
Contactless payments have benefits for merchants as well. Point of sale (POS) terminals that are contactless-capable can reduce wait times for customers at check out, improving the overall customer experience. The economic impact of the pandemic has pushed many retailers to modernize physical stores while also improving the online experience.
Technology investments are increasing across the board as merchants adopt emerging technologies like big data analytics, cloud computing, and contactless to boost their credibility in the market. Contactless POS terminals are a natural progression that can help retailers speed up the checkout process and keep customers happy.
Key Predictions About Contactless Payments
While the pandemic and its economic ramifications have done much to change the payments landscape, contactless payments are expected to see additional growth and activity in the near term.
Some expect that contactless payments could overtake cash and credit card payments. It’s not entirely far-fetched to think that people will opt for touch-free payments instead of cash. Ultimately, this may lead to increased processing fees for the merchant, which will likely be passed on to the consumer as more expensive goods. Whether or not those increased costs become too big a hurdle for merchants and their customers remains to be seen.
Europe has been aggressive in promoting contactless payments, and Mastercard notes that 75% of all Mastercard transactions in Europe are contactless. Many countries abroad have set limits to contactless transaction amounts to help curtail fraud that is keen on targeting this newer payment method. Given the rising popularity of contactless during the COVID-19 crisis, several countries are increasing those limits to alleviate the challenges of shopping during a pandemic. In order to continue the fight against fraud, most countries require consumers to tap in their PIN code if they go over the maximum limit for contactless.
The other benefit to contactless payments over other methods is security. Chip and PIN are considered very secure, but contactless payments have even stronger security measures because they require the person to be in possession of the mobile device used to pay. Not only must a person possess the device but they must be able to unlock it, which typically requires a password or biometric data — a more sophisticated security mechanism than the simple password or PIN method.
Contactless payments inherently allow for multifactor authentication by requiring a person to present multiple elements of proof that they are who they say they are (via something a person is, something a person knows, and/or something a person has). These additional security measures apply to secure wallet technologies that can be used for contactless payments, but card-only contactless payments still face the risk that the person holding the card may not be an authorized user. Yet, Visa boasts the ability to keep global fraud rates on contactless payments at under “one-tenth of one percent.”
Another prediction is that contactless will be more widely adopted in the US. Currently, contactless is largely available in major cities, leaving those on the outskirts less familiar with the technology. What’s more, the cost of updating or upgrading POS terminals to systems that can accept contactless payment is expensive. Without a mandate, US retailers have been slow to adopt the technology.
One of the regulatory bodies that have the power to push contactless in the US is the Payment Card Industry (PCI) Security Standards Council. At the end of 2019, it issued a new standard along with a validation program. This enables retail technology vendors to offer contactless solutions that have been tested and proven to guard against data breaches, which should give retailers more peace of mind.
One thing is certain: the momentum towards mainstream contactless adoption continues to build, with eMarketer estimating that contactless payment transactional value will top $161.41 billion in the US by next year. In the meantime, retailers, banks, and consumers can expect the swell of activity around contactless to continue. Preparing for this technology as a major payment method will be necessary to keep pace with the quickly changing landscape.