Not only has the pandemic impacted the way we work, travel, and communicate with family and friends, but it has also affected the way we pay for goods and services. Even though contactless payment technology has been around for a decade, the new norms of social isolation and reduced human interaction have brought contactless payments to the forefront of daily life.
Financial institutions that wish to stay ahead of the game should offer or support contactless payment tools and technologies for their consumers, such as tokenization in digital wallets, contactless EMV, and push provisioning. Consumers now expect and demand seamless rapid payment options without human contact.
Contactless Payment Surpasses Cash/Card Payments
Credit and debit cards had already surpassed cash as the preferred payment method even before the pandemic. During the pandemic, most businesses made it even easier for customers to swipe their cards, process contactless payments, and avoid touching cash that had been touched by numerous hands. As a result, around 27% of small businesses have already noticed a marked difference in the number of customers paying with their smartphones or contactless cards. As the pandemic becomes endemic, we can assume that contactless payments will continue to grow in popularity, as evidenced by the 48 countries that have already increased contactless transaction spending limits.
Contactless Payment and Point-of-Sale (POS) Terminals
Point-of-sale (POS) devices are now ubiquitous, allowing one to scan credit cards and complete transactions with only a few touches. These systems have existed for decades, but they are currently being updated to meet the increased demand for contactless payment solutions.
Customers may now pay with their mobile phones or contactless cards, thanks to evolving POS system designs. As a result, many small businesses have seen a considerable rise in contactless payments due to this new implementation. In addition, public transportation like train and subway stations in various parts of the United States, are adopting contactless payment methods, thus signaling we are moving in a direction where people can travel without using cash or a credit card. For example, the New York Metropolitan Transit Authority (MTA) has already established contactless payment systems in every train station in the Bronx.
Customers are also as stated earlier increasingly paying for their merchandise at retail stores using point-of-sale (POS) terminals. They are not contactless in many circumstances, because one must insert or swipe their card and tap the screen several times to complete a transaction. As POS terminals adapt to changing demands, this is likely to change in the future.
However, these expenditures are not inconsequential for business owners due to additional costs. But contactless technology can help reduce transaction time, improve the customer experience, and positively impact revenue.
Platforms for financing are likewise subject to change. For example, retailers may acquire preapproved offers from several lenders using digital point-of-sale financing services, eliminating the need for paperwork or even signing on a touchscreen. These systems aid sales growth and are set to become industry standards.
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Tokenization replaces sensitive card data with one-of-a-kind identification symbols, or tokens, that retain all the critical information, while complying with security standards. This procedure ensures that a consumer’s card credentials remain untraceable by substituting the card number with a unique token.
The token serves as an encrypted dynamic transaction number that protects the merchant’s account data and prevents vulnerability if the tokenized data is compromised.
Tokenization is particularly beneficial in combating Card Not Present (CNP) fraud, which is left unprotected by EMV (short for Europay, MasterCard, and Visa) protection mechanisms. CNP transactions are already recognizable by most consumers who pay bills electronically, purchase online frequently, or use Apple Pay, Samsung Pay, or Android Pay. Since there is no physical reader to check whether the chip credentials are legitimate, EMV is less effective in this situation. E-retailers may provide the same level of security as EMV by employing a token, with the encrypted token preventing hackers from accessing personal financial information.
EMV and Tokenization
The chip on today’s chip-enabled EMV cards is a microprocessor that securely facilitates transaction processing of a static card credential, using dynamic data.
However, as anybody who has used a chip card knows, something is still missing. The “dipping” of the card takes a long time — you have to sit, wait, and then wait some more. The terminal eventually buzzes to remind you not to forget your card, and the transaction is considered complete.
That isn’t to imply EMV isn’t worthwhile. On the contrary, EMV is an important part of the digitization of payments, since it incorporates digital dynamic data into the transaction process, simplifying payment processing and securing consumer data for card-issuing transactions.
Tokenization and Digital Wallets
Digital wallets include tokenization in the transaction processing of digital payments. Tokenization replaces a static credential — the number on the front of a debit or credit card — with a token credential unknown to the cardholder.
Take a bank customer using Samsung Pay to purchase a cup of coffee. The tokenized debit card in a customer’s digital wallet generates a stored token or dynamic card credential from the mobile device when the cafe asks for payment. The stored token is encrypted and sent to the merchant to complete the transaction.
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Even though both businesses and consumers benefit from the speed and convenience of contactless EMV cards, many consumers are abandoning physical cards entirely. Over a billion individuals worldwide use a mobile payment app every six months. In addition, 29% of Americans prefer to pay using their cell phones. That figure is growing exponentially as well as the need for simple digital wallets.
Push provisioning is a simple method that encourages people to utilize digital wallets by making onboarding easier. Issuers can “push” the token into participating digital wallets or retailers via integrations. Push provisioning enhances digital payment and provides another solution for contactless alternatives.
Push provisioning allows consumers to add their authenticated card information to a digital wallet or another platform directly from their app. As a result, those who are accustomed to the digital environment are significantly more inclined to use mobile payments. As a result, push provisioning encourages activity and increases the likelihood that the card will remain at the top of the wallet.
This approach, which rivals EMV cards in regard to security, also supports NFC (near-field communication) payments, allowing users to utilize a device like a contactless card.
Digital wallet issuers like push provisioning, because of its convenience and security. Consumers like instant accessibility without needing a physical card or laborious data entry, and push provisioning also makes it easier to pay with smartwatches.
Push provisioning is currently limited, partly due to the difficulty in building direct integrations with key participants. However, it has the potential to match the growing demand for contactless payments, speed, and convenience among those new to digital technology.
The Future of Contactless Payments is Here!
While many customers use their smartphones to make contactless payments, others either don’t have one or prefer to use a conventional card. Even in these cases, dual-interface EMV cards with contactless capabilities can boost customer and issuer satisfaction.
EMV chips were first released to increase the security of magnetic strips. Although the United States was slow in adopting them, they quickly became popular globally. According to EMVCo, EMV chips were used in approximately 63% of card transactions in 2019.
EMV cards with no insertion process have become the new standard in several European nations, including Canada and Australia. Dual interface cards allow users to tap or hover their card over the merchant receiver. The transaction process, which previously took a few seconds, is now practically instantaneous as a result of the same robust encryption methodology.
Additionally, as the United States quickly adopted implanted chips, the market is poised to do the same with contactless EMV. According to Visa, 95% of retailers prefer terminals that support contactless payments.
Users experienced in the digital payment industry say that even though several societal practices enforced during the beginning of the pandemic have been loosened, customers are more accustomed to using payment apps, such as Google pay, Apple Pay, Amazon Pay, or using digital/mobile wallets with contactless transactions. These payment options have exploded in the last two years of the pandemic and are unlikely to change.
Similarly, as consumers continue to demand better and more innovative products, and factoring in the continued growth of e-commerce, we’re likely to see a wider range of mobile payment solutions, including more NFC-enabled payment trends (such as wearable payment devices like watches and rings), as well as QR code payment innovations. As a result, the global contactless payments market is forecasted to grow from $10.3 billion in 2020 to $18 billion over the next five years, corresponding to an 11.7% compound annual growth rate (CAGR).
How Can Payoda Help?
While contactless payment technology has advanced significantly in recent years, this appears to be just the beginning of a significant move away from cash. It won’t be long until physical money feels ancient as people increasingly rely on mobile devices and contactless payment options become more interwoven into daily life.
We expect the regulatory push to favor a cashless society, resulting in more traditional branch bank closures globally, and an increasingly greater reliance on contactless payments. Payoda has the knowledge and capabilities to help you reach your goals. Please reach out for a consultation to ensure your company’s contactless payments strategy is properly planned and executed!