If the future is cashless, the catalyst may well be contactless transactions.
What are contactless payments?
A contactless payment is a proximity-based transaction which is facilitated by bringing two compatible payment technologies together.
The named is derived from the fact that customers are not required to insert or swipe a bank card (ie “no contact”). Instead they can pay by holding their card just in front of the payment terminal. For most people, contactless payments are referred to as ‘tap and pay’ or ‘tap and go’ payments.
Contactless payments are fast becoming the payment technology of choice around the world, owing large thanks to the growth and uptake of contactless EMV bank cards, NFC technology and mobile wallets such as Apple Pay and Google Pay.
By allowing customers to tap and pay in-store, this digital payment technology has improved the customer payment experience and has drastically reduced checkout times in-store.
Near field communication (NFC) is a proximity-based communication protocol that allows two electronic devices to communicate with one another by bringing them side by side.
Used in popular technologies such as Apple Pay and Google Pay, this short-range wireless technology makes it easy to conduct transactions, transfer digital media, and connect electronic devices with just a touch.
NFC is already available on most phones and operating systems and is set to play a major role in re-shaping the payment ecosystem.
Already, over two billion NFC-enabled handsets have been distributed globally, with this expected to reach almost 50 billion by 2025.
Popular NFC-based mobile payment technologies include mobile wallets such as Apple Pay and Google Pay.
These technologies allow customer to tap and pay with their smartphones, saving them the effort of carrying around their physical wallets. In this scenario, the phone substitutes for a bank card, transmitting data from the secure NFC chipset contained in the smartphone to the payment terminal during the transaction process.
To make a transaction, users need only have an NFC-enabled device and upload their bank card to their Google Pay or Apple Pay application. These systems work for all cards from participating banks. This is true for cards that don’t have contactless capability, which means customers can effectively go contactless even in the event that their existing card does not support it.
The project global transaction value of mobile wallets is expected to reach 3.1 trillion USD by 2022.
Contactless bank cards
Contactless bank cards account for the majority of tap and go payments around the world.
The technical name for these cards is dual interface EMV cards. The dual interface refers to the fact that these cards provide two methods of communication. Firstly is the chip – which can be inserted directly into the payment terminal. Second is the contactless component, which is allowed to work via an “antenna” used for tap and pay payments.
EMV refers to the data security and communication standard upon which these cards are designed. EMV is the leading technical, security standard globally and is overseen by EMVco – a global consortium of major card scheme companies, lead by Europay, MasterCard and Visa.
Needless to say – it takes two devices facilitate a payment. Merchant-side enablement represents the acceptance side of the payment interaction and is a mandatory part of facilitating contactless payments.
Payment terminals are equipped with NFC technology. By embedding EMV processing and support for Apple and Google wallets into payment terminal devices, customers are able effortlessly use their contactless cards and mobile wallets to pay in-store, on transportation, at vending machines and more.
The global outlook
In Australia, which leads the contactless revolution, tap and go payments accounted for over 90% of point of sale transactions in 2018.
Similar trends are occurring in Canada and the United Kingdom, which also have high use and adoption of EMV. In these markets consumers pay conveniently with tap and pay, for services, goods in store and when travelling on public transport systems.
While the United States has notoriously lagged behind in its adoption of EMV, major changes are afoot, with the majority of newly issued cards being contactless.
The adoption of contactless technologies, underpinned by NFC and EMV, is set to redefine the technology landscape for payments, offering a new ecosystem to support fast, secure, proximity-based, digital transactions.
These trends are set to accelerate in developing and developed countries alike, as the implementation of mass transit systems, introduction of duel interface EMV and rollout of infrastructure for cashless economies continues to gather stream.