If the word ‘Speedpass’ gives you a twinge of nostalgia, that’s because it was one of the first widely-adopted contactless payment systems brought to us by Exxon Mobil in the late 1990s. Although we’ve come a long way over the last 20 years since pre-paid gas station key fobs, we still haven’t reached peak adoption rates for contactless payments. However, the trend towards contactless technology has been accelerated by the COVID-19 pandemic and we may have reached a tipping point for touch-free solutions.
Let’s look at how contactless technology has evolved over the years and what we can expect to see in the near future.
Although “contactless payments” can refer to a number of different touchless options, the most common is near-field communication (NFC) technology. From the consumer side, contactless payments (sometimes referred to as tap-and-go or tap-and-pay) are a way for customers to pay for products or services using a credit or debit card — enabled with an NFC chip — at the point of sale.
While not all credit cards come equipped with NFC technology, the chances are that the mobile device in your pocket does. These days, using the mobile wallet feature on your iPhone (Apple Pay) or Android device (Google Pay, Samsung Pay) is the most common way to make a contactless payment.
From the merchant side, business owners can accept contactless payments just like any other credit card transaction. The only caveat is that they need a payment terminal equipped with NFC technology to accept contactless transactions.
The short answer is yes; contactless payments are secure. In fact, they are more secure than traditionally swiped credit card transactions at the point of sale.
With traditional magstripe cards, all of the sensitive card data is statically stored on the back of the credit card in the black magnetic strip. This data never changes and can easily be read by someone with malicious intent.
Do you remember way back in 2015 when card issuers started replacing our magstripe credit cards with ones that had a tiny EMV chip on the front? This push resulted from the 2015 Fraud Liability Shift, where in-store counterfeit fraud liability shifted to the party — either the card-issuing financial institution or the merchant — that has not yet adopted chip technology.
With EMV chip cards, the card data is dynamic, meaning a unique one-time-use token is exchanged between the card’s chip and the payment terminal. This token does not contain any sensitive card data, so even if the transaction is compromised, the token cannot be used to make another purchase.
This added layer of dynamic protection is the same process used for contactless transactions.
Like we previously mentioned, pre-paid gas station key fobs were our first look at contactless payments. A few years after its debut, Exxon Mobil had about six million U.S customers enrolled using a Speedpass key tag.
This tap-and-pay concept intrigued many of the payment card issuers, and they began rolling out smartcard technology with a microchip and antenna built into a standard payment card.
American Express (ExpressPay), MasterCard (PayPass), and Visa (Visa payWave) all entered the contactless card arena by 2004. Additionally, major credit and debit card issuing banks such as MBNA, Citibank, JPMorgan Chase, and Key Bank began issuing cards with contactless capabilities to large portions of their customer base.
Although the card issuers were excited about this technology upgrade, merchants were less enthusiastic about it. To process these types of transactions, merchants had to upgrade their POS terminals. An expense that many business owners were hesitant to undertake on a vague promise that contactless payments would make a noticeable difference in their bottom line.
This catch-22 created a problem on all sides of the equation. If merchants weren’t willing to upgrade their payment terminals, customers couldn’t try the tap-and-pay method or experience the promised benefits of speed and convenience.
If customers were indifferent to the tap-and-pay option over existing payment methods, merchants had no incentive to invest or prioritize the necessary POS hardware upgrades. And if customers couldn’t use their new contactless card, issuers didn’t have much incentive to replace their existing cards with more expensive contactless cards.
Old habits are hard to break, and this sluggish adoption rate of contactless payments went on for another decade! It wasn’t until 2014 with the debut of Apple Pay and the U.S. push for EMV migration that brought a renewed interest in contactless payments.
Although there have been incremental increases in adoption for contactless payment acceptance over the years, the real tipping point is just starting to happen now.
An April 2020 survey of 361 companies by the Strawhecker Group and the Electronic Transactions Association found that 27 percent of U.S. small businesses have seen an increase in customers using services like Apple Pay to facilitate no-touch payments.
With an increasing demand for sanitary conditions and avoiding non-essential contact, we can expect to see a sharp rise in contactless payments.
Thanks to better infrastructure and network alignment around contactless payments, the barrier to entry for merchants and consumers alike is significantly lower than it was just a few short years ago.
These days, many of the EMV payment terminals deployed are also capable of accepting NFC payments, meaning merchants don’t have to waste their hard-earned money on new equipment upgrades.
Technology is another big factor making it easier to use and accept contactless payments. Quick Response (QR) code payments are a fast-growing alternative to NFC transactions.
For example, our QR Pay solution allows customers to pay their bill by scanning a unique code with their smartphone. The code can be printed on a paper bill or receipt or displayed on the payment terminal’s screen. The customer then completes the transaction through the mobile web browser on their phone via our secure mobile payment web page. Customers can use Apple Pay, Google Pay, or manually enter their card information.
As we continue to navigate our current and post-COVID world, there’s no doubt we’re going to see a rise in contactless payments adoption from small business owners and increased usage among consumers.