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With contactless payments on the rise; accounting for nearly half of all debit card payments in the UK in July 2019, retailers are increasingly asking what the benefits and disadvantages of contactless payments are. In this article, we will break down the advantages of the new age’s ‘cash’.
Contactless payments are card transactions that can be made via debit, credit, smartcards - such as prepaid oyster cards and gift cards - and phones using the scalable NFC and RFID card emulation.
Facilitated by a chip that sits within your typical credit or debit card, a contactless payment system uses near field communication, that was developed from radio frequency identification (RFID), to function. As the use of NFC developed, contactless functionality has been upscaled into other devices - as mentioned - alongside wearable items and accessories that make payments.
In 2017, the number of contactless payments in the UK totalled 5.6bn transactions, with 78% of the 116 million cards that year being contactless-enabled. On average, one in four card payments are paid for by contactless each month, with services and goods being paid for by contactless over 647 million times in 2019.
A contactless payment is made by holding your card or devices within close proximity of a pin pos terminal or NFC card reader to make a payment and complete a transaction. Also known as a Tap and Go service, customers can actually be as far as 4cm away from a terminal when making a contactless payment.
Once the contactless payment has been made, the NFC reader will issue a payment to the acquiring bank from the card issuer’s bank. As NFC readers are programmed to read one NFC chip at a time, only the closest chip will be read first, dispelling any worries that two or more cards could be charged mistakenly.
When contactless payments were first introduced to the UK in 2007, many people questioned how secure they were. However, contactless payment technology uses the same encryption as Chip & Pin, which means paying with contactless payment is safe and secure. The chip technology protects users from any fraudulent purchases through encryption and dynamic data technologies. Credit and debit card issuers also perform security checks from time to time which asks you to enter your pin and verify a contactless transaction.
In addition, the use of contactless payments via smartphones and mobile wallets makes use of tokenisation to substitute your card data, so you don’t need to worry about your card being cloned or account details being stolen in the case of phone theft. In these instances, it is likely that two-factor authentication is also required to make a payment.
In a study conducted by the UK Cards Association, there has yet to be a confirmed report of monetary theft via a contactless card whilst it remained in the cardholder’s possession.
From a customer perspective, the main benefit of contactless payment methods is the flexibility and ease of use. Paying with contactless is also faster and easier than paying by cash or by Chip & Pin, which leads to a faster checkout experience and an overall better customer experience. The speed of payment is also beneficial to retailers, as faster transactions will cause shorter queues which allow for less staff on checkouts and improved operational efficiency.
Contactless payments are a safer and more secure payment solution compared to carrying cash. Many card issuers will set a transaction amount limit for contactless payments to prevent your card from being used to make large fraudulent purchases. In addition, many card issuers will perform security checks occasionally and ask you to enter your pin and verify a contactless payment.
In addition to being faster and more secure, Contactless payments also allow customers to enjoy a flexibility of payment devices. Contactless payments aren’t restricted to just cards. In fact, the NFC technology within contactless readers means customers can make use of mobile phones, smartwatches, a range of contactless cards, mobile wallets and even key fobs, letting them pay in a way that suits them.
Many of the loyalty programs offered by stores are connected with the contactless payment device that you use to pay. This allows customers to enjoy discounts, special offers and reward schemes with the use of contactless payment. In addition, businesses can benefit from the added customer retention, thanks to the ease of these loyalty programmes.
Despite the many benefits of using and accepting contactless payments, there are still some concerns for both customers and retailers. Issues with limited acceptance and technical limitations created a barrier to both customers and retailers initially. However, the number of retailers that now accept contactless payments has increased significantly, especially during the pandemic, when contactless payments were heavily encouraged.
The large increase in contactless payments is largely thanks to the public transport system. However, due to the methods in which the London Underground system operates, card clashes are common occurrences when a passenger fails to tap in and out with the same card. This means they are charged twice the maximum daily fare.
Spending caps on contactless payments can be considered a limitation of the service. While these caps are actually another security measure to protect against unlimited spending via contactless should a card end up outside of the cardholder’s possession, some consider this an unnecessary limitation. However, spending caps have been increased in recent months.
There are also security concerns that some cardholders have about the lack of PIN authorisation when making a payment. The fear is that if a card was lost or stolen it could be used to make fraudulent payments. However, many banks offer a 100% fraud guarantee, ensuring that any fraudulent transaction on your card will be quickly resolved. Despite this reassurance, some are still wary of using contactless payments.
Contactless payments are only as old as the generation most popular for using them, Millennials. In the disuse of cash, the easy reach of smartphones to facilitate contactless payments for use almost everywhere including the public transport system; that has since gone on to take apple pay, demonstrates the evolution of a service that originated in the 1990s and first became available in the UK in 2008 for retail purposes via the EAT restaurant.
With so many benefits to both customers and retailers, it is no surprise that businesses are increasingly offering contactless transactions to their customers. Whether it be by credit card or debit card, the trend of abandoning cash and switching to contactless is on the rise and all too convenient, with no compromise on security.
Total Processing is a leading payments provider, capable of processing solutions that facilitate apple and google pay, as well as NFC technology enabled terminals across the e-commerce and point of sale industries - with IVR due in Q1 2020.
Sources:
https://www.investopedia.com/terms/c/contactless-payment.asp
https://usa.visa.com/pay-with-visa/contactless-payments/contactless-cards.html
http://www.theukcardsassociation.org.uk/contactless_consumer/ContactlessSecurity2015.asp
https://www.bbc.co.uk/news/business-50015312
https://globalnews.ca/news/2295763/tap-and-pay-cards-its-fast-and-convenient-but-is-it-more-secure/
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