In recent years, contactless payment, a.k.a. ‘tap to pay’ transactions have seen a rise in popularity among consumers. This novel digital payment system lets people make transactions by simply tapping their cards or phones at compatible POS systems, doing away with the need to swipe cards.
With a whopping 150% growth between 2019 and 2020 in the US alone, contactless payment transactions are only likely to expand their territory. Predictions have already been made that the global contactless payments market will reach quadruple its current value by 2026.
In this article, we will go over the ins and outs of contactless payments and see why this technology has the promise of becoming the new norm of digital payments.
How Do Contactless Payment Transactions Work?
Contactless payment systems function through the use of NFC—a type of radio frequency identification (RFID) technology that has so far been used for things like scanning luggage at airports or items in a grocery store.
It’s not only BFSI organizations that support contactless payments; third-party apps like Google Pay and Apple Pay have also enabled ‘tap-to-pay’ transactions. Users can connect their credit or debit cards to such e-wallet apps and then easily use them to make contactless payments through their smartphones or wearable devices.
Are Contactless Payment Transactions Secure?
It has been reported that the primary reasons behind consumers hesitating to choose contactless payments are concerns over security and failed transactions. However, contrary to this popular notion, contactless payment transactions are highly secure. In order to mitigate the risk of accidental contactless payments, NFC requires a tiny distance between the phone or card and the POS terminal, for making a successful transaction.
What’s more, during each contactless transaction, your digital device or card sends a unique one-time token to the POS terminal. Already used by traditional debit and credit card chips, this technology ensures that the token is devoid of any information related to the card or bank account details and cannot, in any way, be used for making additional transactions.
As an added layer of security, mobile wallet transactions require a final confirmation from the user before the payment goes through. This can be in the form of a personal identification number (PIN), a password, or even through fingerprint or facial recognition verification systems.
How Ready Are Consumers to Embrace Contactless Digital Payments?
You might be wondering whether it’s too soon to consider such up-and-coming technologies, especially when it comes to the delicate matter of monetary transactions. Let’s take a look at some digital and contactless payment statistics to better understand which way the tides are flowing.
Digital Payment Trends in the US
When it comes to in-app or browser-based online transactions, physical store checkouts with smart devices or QR codes, and direct person-to-person P2P transactions, in 2021, 82 percent of American consumers were reported to use some sort of digital payment system. Although these numbers have been high for quite a while, with 72% in 2016 and 78% in 2020, the continual growth indicates the high likelihood of omnichannel digital payments eventually taking over the market completely.
This rate did take a dive due to the decreased penetration of digital payments during the first few waves of the Covid-19 pandemic. Although transitory, online spending on things like ride-hailing apps or restaurant payments took a hit for a while. However, on the other hand, more people staying at home meant more online spending for ordering things remotely.
In light of these developments, around 73% of merchants agree that newer forms of digital payment systems are key to their growth.
Contactless Payment Trends in the US
About 58% of American buyers are now more inclined toward contactless payments than they were pre-pandemic.
With almost every smartphone now bundled with its own digital wallet app—Apple Pay, Samsung Pay, etc.—consumers have latched onto this easy-to-use and reliable mode of making payments and are only likely to continue. Around 51% of people have made payments through mobile wallets and ‘tap-to-pay’ cards. Encouraging digital wallets has been a no-brainer for merchants as well because most in-person POS terminals readily accept mobile wallet transactions.
Overall, 80% of buyers in the US have used contactless payments at some point, with about 82% viewing it as the ‘cleaner’ method of making payments. It’s also worth noting, that 80% of contactless payment purchases have been for transactions under $25. This indicates that consumers are already using it for their everyday needs.
And why wouldn’t they! 67% of retailers already offer their customers at least one type of contactless payment, with 81% of them planning to make it a permanent option.
Contactless Payment Trends Around the World
Things are not very different at a global level either. 46% of global consumers have been reported to opt for a card offering contactless payments, in place of their top-of-wallet cards. During the pandemic, 79% of the global Mastercard users used contactless payments, while 60% of Visa users outside the US have made “tap-to-pay” transactions.
It’s quite clear that global consumers have already started jumping on the ‘contactless’ bandwagon. The payment habits consumers formed during the pandemic are here to stay. Users are not likely to turn away from this fast and highly secure mode of payment; and so, business & fintech apps must follow suit and make it easier for users to adopt and use this technology. The day when all other payment methods are rendered obsolete does not seem very far away.
Develop new-age Fintech apps incorporated with Contactless Payment technology.