A contactless payment system uses devices equipped with radio frequency identification technology to make secure payments.
This system is fast and convenient, making it easier for consumers to complete purchase transactions and get on with their lives. Studies show that this technology also encourages consumers to spend more money.
When reviewing different ways to increase sales, business owners should consider accepting contactless payments.
How a Contactless Payment System Works
When making a contactless payment, consumers use a debit card, credit card, smartcard, or key fob featuring an embedded antenna and chip that stores their information. They wave the fob or card over a special reader located at the point of sale and the transaction is processed quickly.
In the UK, a PIN or signature is not required for purchases less than £20, making the transaction even faster. The ease of making these small transactions leads many consumers to spend more money over time.
Contactless Payments Becoming More Popular As Statistics Show
Contactless payment technology has been in use since the mid 1990s and has since increased in popularity. In the UK, major retailers including McDonald’s, Subway restaurant, Boots, and Lidl offer contactless payment abilities. EAT joined them in 2008 becoming the first restaurant chain to accept these payments.
Barclaycard began offering contactless cards in the UK the same year and other major financial companies including Lloyds Banking Group now offer them. Retailers use a “contactless wave” icon to indicate their acceptance of contactless cards. Consumers with cards that also feature this icon are able to use the cards at participating retailers.
As of May 2014, there were approximately 32.5 million cards with contactless payment technology in the UK and more than 147,000 contactless payment terminals. The popularity of these systems has spread to the telecommunications industry with near field communication between smartphones.
Bringing two devices within close proximately establishes radio communication, enabling data exchange, Wi-Fi sharing, and contactless transactions. The first mobile phones featuring Visa Paywave or MasterCard Paypass certification were released in October 2011 and others soon followed.
Are Contactless Payments Secure?
When making payments, consumers want their personal information to remain secure. Contactless cards feature several security measures designed to put customers at ease. The technology runs on the reputable chip and PIN network used for debit and credit card transactions.
In addition, there is a payment limit for every transaction and a contactless card can be used a only limited number of times before a PIN must be input. Contactless transactions using debit and credit cards are protected by the fraud guarantee that applies to standard transactions.
What Are the Benefits?
Convenience is one of several benefits of contactless payment technology. Consumers do not need to worry about having enough money in their wallets when making purchases. This means no more traveling around to cash machines. If transactions are under £20, a PIN will not be required other than during a periodic security check.
Since contactless technology shortens transaction time, consumers spend less time waiting in line. They do not need to worry about carrying an additional card because the technology can be included in their standard credit, charge, debit, and prepaid cards.
Businesses also benefit from contactless systems. This technology results in less cash to handle, reducing transaction errors, chance of theft, and trips to the bank. Transaction fees are less expensive than traditional Chip and PIN and transactions are faster, reducing lines at the checkout counter.
If a contactless card is lost or stolen, the seller does not incur chargebacks. Contactless transactions appear on bank statements, making reconciliation a simple process. Perhaps most importantly, contactless systems increase income potential because consumers need not limit their spending to the amount of money they have in their wallets.
Contactless Payments May Replace Cash
According to a recent article in The Guardian, card payments may take over cash within the next decade. Value of cash transactions is expected to decrease from 21 to 14 billion by 2022, while the number of mobile and card payments will increase, with values of card transactions rising from 10 to 17 billion. Contactless technology will drive this trend, according to research by the Payments Council. As consumers change the way they spend, businesses should adapt their accepted payment methods.
Consumers who embrace newer technologies are causing traditional forms of payments like cheques to become obsolete. The value of cheque transactions is expected to decline by more than 50 percent, from 848 to 341 million, by 2022. The Payments Council planned to phase out this payment method by 2018, noting terminal decline.
However, pensioner groups protested, forcing the Council to reconsider. Though cheques may be around for a while longer, they are far less popular than they were just 13 years ago, when they represented four billion in purchases.
Contactless technology is ideal for small purchases of everyday items including food and personal items. Since contactless cards can also be used for large expenditures, many consumers are replacing their traditional debit and credit cards with contactless versions. Financial companies that offer cards with this technology are reaping the benefits of an increasing customer base.
Contactless systems are not expensive for retailers to install and maintain. Contactless capability can often be incorporated into PIN pads or payment terminals. When processing a transaction of £20 or less, contactless functionality is used and if the transaction exceeds this amount, the same card can be used for a Chip & PIN transaction.
Transactions feature competitive pricing and since the cost of fraudulent transactions are not passed back to the retailer, liability is reduced. Retailers using contactless systems may continue to offer cash back via chip & PIN.
Contactless payments represent futuristic technology available today. Retailers and consumers now have added flexibility that speeds transactions without sacrificing security. Consumers who are in the market for a new credit or debit card should explore the financial companies that offer contactless cards.
With the ability to make low value payments without needing to provide a signature or PIN, they can streamline their lives.