The following is a quick primer on contactless payments, what they are, recent drivers of acceleration, and what might happen next. We hope the following answers some questions and just as importantly, spurs more questions as to how you can use these technologies to better engage with your customers.
What Are Contactless Payments?
Contactless payments are made up primarily of two (2) technologies
- Credit card payments via Near Field Communication (NFC, tap n pay)
- Mobile payments via QR code and/or NFC
In both cases above, NFC is a clear technology driver of contactless, tap-n-go/tap-n-pay capabilities. Established in the 2002-2003 timeframe, NFC is a close contact or “proximity” form of Radio Frequency ID (RFID).
Drivers of Change
Because NFC is a wireless data communication protocol, increases in wifi and data communication speeds has helped facilitate ease and consistency of the NFC payments. Additionally, encryption and tokenization are used during NFC payment transactions. The most well-known form of NFC payment is probably Apple’s “Apple Pay”, using Apple’s smartphone wallet technology.
Unlike NFC payments which can be accessed via a NFC credit card or through a smartphone’s digital/mobile wallet, QR code payments are accessed or delivered solely on mobile devices. A QR code can be generated as a payment identifier (static or dynamic) and scanned for payment at POS, or can be served up by the POS or ecommerce system as payment due, where the user scans the QR code with a mobile application like PayPal (provided the POS/ecommerce system accepts the mobile payments application - in this example, PayPal). This method of payment is the dominant form of mobile payments in China, due to ease of acceptance.
Why Contactless?
Contactless payments have benefits for both consumers and retailers including:
- For Consumers
- Can use Smartphone or NFC credit card
- Faster and Easier than EMV chip
- Safer (health and payment technology)
- For Businesses
- Safer (health and payment technology)
- Better user experience
- No additional cost
Mobile vs. Contactless Cards for Payment at POS
For business considering where investments should be allocated, let’s look at some stats:
- Current use favors contactless card
- Familiarity with handling credit card
- Perceived speed (Federal Reserve Board (FRB) Phila 5/2020)
- Perceived convenience (FRB Phila 5/2020)
- Perceived security (FRB Phila 5/2020)
- No spend limits
- But current trends favor mobile
- COVID kick-started acceleration
- US # of users increased 29% 2020 to over 92M (emarketer 5/2021)
- Estimated % growth Y vs Y thru 2025 to over 125MM and over 50% of all smartphone users
- Avg annual spend per user up 10.1% 2020, estimate 23.6% 2021 to $2,439.70 (emarketer 5/2021)
- Mobile applications drive deeper and more frequent engagement and encourage usage through messaging, promotions and rewards
How To Increase Usage?
While recognizing we have rapid trend growth in mobile payments, 4 in 10 smartphone users have used a contactless payment at least once (statista 2021). eMarketer-Insider Intelligence (3/2021) expects greater than 1 in 2 smartphone users will adopt mobile proximity payments by 2025.
So how do you accelerate usage and take advantage of this huge mobile opportunity? Reward and incentivize -
- With the correct incentive or environment, consumers can be persuaded to use contactless tap and pay more frequently
- Of the respondents, 59 percent agree that additional rewards or incentives would encourage them to use the feature
- Federal Reserve Bank of Philadelphia, May 2020
How IMS Can Help
From mobile wallets, mobile shopping carts to completely integrated rewards, mobile apps, F&B and Retail POS systems, IMS has the tools, technologies, and experience to help you take advantage of these latest trends.
