Contactless payment methods like tap-to-pay make transactions quicker, easier and more secure. Here’s how tap-to-pay benefits your customers and your business.
The explosive growth of cloud computing and mobile technologies over the past two decades has had a greater influence on the global retail environment than anyone could have predicted. A notable example is contactless payment technology, which has now become so ubiquitous that it is hard to believe that it’s only been with us for a brief time.
Also sometimes referred to as ‘Tap to Pay,’ contactless payments use radio frequency identification (RFID) and near-field communication (NFC) technology to make transactions a whole lot quicker, easier and more secure. These advantages coupled with the effects of COVID-19 and a desire for consumers to avoid in-person contact has led to a steady growth in global consumer demand for contactless payment options at checkout.
Join us as we take a closer look at how contactless payments work, just how secure they are, and what can it bring to your business:
A Brief History of Contactless Payments
The first recorded instance of contactless payments was in 1995 when the Seoul Bus Transport Association began testing its revolutionary ‘Upass’ cards for commuters. This was followed shortly thereafter by Mobil in 1997 with their ‘Speedpass’ contactless payment system.
It was not until 2002, however, that Philips teamed up with Sony to develop the NFC standards we know today. Two years later Sony, together with Nokia and NXP Semiconductors, set up the NFC Forum to spread the use of the technology. It was in this same year that the United States began to see its first instance of contactless bank cards being introduced.
It wasn’t long before the technology began to catch steam, with the first mobile devices with NFC functionality beginning to appear on sale in 2006. Later, in 2008, Visa, American Express, and MasterCard each began offering contactless credit and debit cards.
In the coming years most, if not all, leading mobile phone brands began offering NFC functionality on their devices. Coupled with advancements in both mobile phone, NFC capabilities and security led to the introduction of the first electronic wallet in the form of the ‘Google Wallet’ – an app that effectively enabled you to replace your bank card with your phone. This app was further supplemented by Android Pay in 2015 and three years later was unified into a single system named Google Pay. It was also around this time that Apple and Samsung launched their own competing contactless payment systems in the form of Apple Pay and Samsung Pay, respectively.
In 2015 the EMV (Europay + Mastercard + Visa) technology standard was introduced into the United States. This prompted thousands of merchants, not just in the US but around the globe, to switch over to NFC-capable terminals. However, it was not until COVID-19 hit that the adoption of contactless payment truly grew.
Understanding NFC Technology and Tap to Pay
Near Field Communication (NFC), as the name implies, is a method of wirelessly transferring data between devices that are in close proximity to each other. While it works similarly to Radio-Frequency Identification (RFID) technology, it is limited to data transfer between devices that are no more than four inches apart. It also does not require device discovery or manual syncing, unlike most other available wireless technologies. It is this very same simplicity that makes NFC so versatile. In fact, one of the more common uses for NFC is in identification cards used to access restricted areas, office buildings and private garages. It is this same technology that forms the very basis for Tap to Pay.
Whenever a contactless payment is initiated, usually with a phone or card placed close to a point-of-sale (POS) system, the NFC technology goes to work. Using a standardized radio frequency, the payment device and point-of-sale system quickly and seamlessly communicate with each other. Using a randomly generated token, which we will get into shortly, it securely completes the entire transaction in seconds. It is this very speed that is its greatest advantage, taking a fraction of the time to complete transactions in comparison to any other payment system currently in use.
But Just How Secure is Tap to Pay?
While the idea of contactless data transfers or paying through a mobile device can make some people uneasy, NFC technology, and by extension Tap to Pay, is extremely secure. NFC payments are, in many ways, far more secure than any other payment system currently available on the market.
Unlike most magnetic-stripe cards, which have all your data right there on the back of the card, NFC transactions are dynamic. It also uses two layers of protection in the form of the mobile device together with data encryption.
Moreover, whenever a contactless payment is initiated, only “virtual data” is transferred to the terminal. Your card or bank information is never exposed and even the data that is transmitted is often immediately encrypted using Payment Card Industry (PCI) validated methods.
Let us take Apple Pay as an example. The app uses tokenization to safeguard your information. When your card details are entered into the phone and sent to the issuing bank, a series of tokens (effectively randomly generated numbers) are generated and sent back and programmed into your phone. It is these tokens that are used when communicating with a POS terminal when initiating a contactless payment. Even if these tokens are cloned, they have no discernible information and are effectively useless to fraudsters. Moreover, Apple Pay requires Touch ID to carry out a transaction ensuring that even if the device is stolen it cannot be used to make any payments.
Other payment systems on the market such as Google Pay, Samsung Pay and even your Tap to Pay bank cards utilize similar security measures to keep your data safe.
The Most Popular Contactless Payment Systems
There are effectively three types of contactless payment methods available to the average consumer:
- Debit and Credit cards
While not as common in the United States, NFC enabled bank cards are becoming the norm in most countries around the globe and have largely replaced cash transactions.
- Mobile wallets
Mobile wallets are effectively a convenient replacement for your physical bank card. Unlike most tap-to-pay bank cards, mobile wallets often incur transaction fees. Regardless, it is often the preferred payment system among customers given that most rarely leave home without their smartphones. The three most well-known mobile wallets are Apple Pay, Google Pay and Samsung Pay.
More recently Apple also introduced Tap to Pay on iPhones. The new capability will enable merchants across the US to use iPhones to seamlessly and securely accept Apple Pay as well as contactless credit and debit cards and other digital wallets through a simple tap on their iPhones. Better still, it does this without the need for any additional hardware or payment terminals. As a result, this technology has the potential to be a real game-changer for contactless payments in the United States.
Smartwatches and other similar wearables work as either an extension of your mobile phone or even as a more convenient replacement, working similarly to mobile phones and featuring many of the same security features.
How Does Accepting Tap to Pay Benefit Your Business?
For the average consumer, speed and convenience can go a long way in improving their checkout experience. This in turn ensures customer satisfaction and boosts store loyalty. With Tap to Pay, customers can complete transactions in significantly less time than EMV chip cards. For smaller transactions, contactless payments can skip the entire sign and PIN process, making transactions even faster.
That is not all. Customers are far more likely to think the merchant is reputable and begin shopping if they support Tap to Pay. The cost of entry is also lower than many businesses expect.
As it stands, the biggest hindrance to contactless payments has always been a reluctance to change. Deeply entrenched habits of pulling out a physical card to pay as well as security and trust in the system have prevented many from making the switch. COVID-19 has however served as a catalyst to speed up the acceptance of contactless payments and mobile wallets. This means that merchants that offer the service are far more likely to draw in customers.
Another often overlooked aspect of NFC payments is the fact that the system lays the groundwork for the next generation of payment technologies. By investing in contactless payments now, businesses are effectively future proofing themselves.
With all these benefits combined, your business will be better trusted, your customers’ data will be protected, and they will remain happy and satisfied with every tap.
One of the many features of the XY Retail platform is the ability to seamlessly integrate contactless payments, mobile POS and tap-to-pay into their retail stores, along with many other clienteling tools that improve the customer experience. Contact us today to learn more.