Enjoying the Wonder of Contactless Payments

Contactless payments have built-in protection to ensure that the same transaction doesn’t occur twice by accident

Contactless payments have achieved or entered the path of achieving mainstream adoption across much of the developed world over the past decade. But there are downsides to this new technological innovation that require consideration. Like any invention contactless payments has both its upside and its downsides, but the former far outweighs the latter, as you will see below. But before we dive into the pros and cons, let’s define what exactly contactless payments are.

Enjoying the Wonder of Contactless Payments

What are contactless payments

Contactless payment systems are based on near field communication (NFC) and radio frequency identification (RFID) technology. They come in different forms including credit and debit cards with Wi-Fi enabled EMV chips, smartphones, key fobs and other electronic devices such as wearables (e.g. FitBit trackers).

More than half (53%) of global transactions at point of sale will be contactless by 2025, according to a report by Juniper Research. Contactless is already the preferred choice of payment in many European and developed countries in East Asia, while the U.S. is gaining ground after years of lagging behind.

How contactless payments are a positive

There are a few, key ways in which contactless payments clearly benefit consumers and merchants.

  • Speed

Completing contactless transactions takes mere seconds and a fraction of the time of exchanging cash or even swiping regular magstripe cards. Faster processing times and less cash handling, cuts down the size of line-ups at point-of-sale terminal. This ensures the smoother functioning of businesses and helps prevent the loss of impatient potential customers. While not a matter of hours, the reduction in checkout friction caused by a switch to contactless should not be understated.

  • Security

Contactless payments have built-in protection to ensure that the same transaction doesn’t occur twice by accident. The payment method relies on uniquely generated numbers (what is referred to as tokens or sometimes dynamic data) for each transaction and encryption so that if intercepted the underlying debit or credit account number cannot be determined. A low limit is also usually set by default above which the customer must authorize purchases by keying in their PIN code.

Contactless payments have built-in protection to ensure that the same transaction doesn’t occur twice by accident
  • Overall customer experience

Contactless payments’ effortless transactions help increase the volume of sales at stores. The quicker customers are served by cashiers the less likely they are to abandon sales. While credit cards were already available pre-contactless payments, NFC technology also helps put another nail in the coffin of cash for everyday use. Removing the constraint of how many bills you are carrying helps boost the amount people are willing to spend. Stores that create a smoother checkout experience also typically win greater customer loyalty than competing stores that do not.

  • No added fees

Luckily for merchants, not only do contactless payments increase the efficiency of their checkout experience but they do not require an additional processing fee. Businesses pay the same fee applicable for a transaction with a regular credit card.

  • Hygiene

A small but important plus in the time of Covid-19 is an obvious benefit of contactless payments: they require no contact between the customer and the cashier and/or payment surface. The less contact you have, the less likely you are to catch a nasty illness. According to an April 2020 survey by Mastercard of 17,000 consumers in 19 countries, 82 percent said they view contactless payments as “the cleaner way to pay.”

Drawback to using contactless payments

Well, at this point, contactless payments must sound like the best thing since sliced bread. So what’s the downside?

  • Theft

One problem with contactless payments is that if the card or device is lost or stolen it can be used without PIN authorization. Many banks offer zero-liability cards, which should cover most of these instances, but you still need to report if the card or device is lost immediately.

  • Low limits

All issuing banks have a maximum limit on contactless cards after which they require the cardholder to enter their PIN to authorize the transaction. In some countries, some banks allow personal limits lower than the bank maximum to be set by cardholders. Regardless, the card limits are generally low. For example, in the UK, they were just raised to GBP 100  from a previous GBP 45 on Friday, October 15. Elsewhere in the world, the limits are typically even lower. That means you shouldn’t expect to make medium or large-sized purchases without the inconvenience of entering your PIN. You could say it’s a small price to pay for added security against thieves, but it’s still an inconvenience.

  • Battery trouble

If you’re using a mobile phone or a wearable as your contactless payment device, you now have to factor in battery levels into your shopping plans.

If you’re using a mobile phone or a wearable as your contactless payment device, you now have to factor in battery levels into your shopping plans

Sure, most of the time you can go around wallet-less. But at some point, you’ll probably be stuck without a method of payment if your screen goes dark, whether because you forget to recharge or some other cause of power failure.

  • Limited Acceptance

Last, but not least, contactless payments still aren’t accepted everywhere. Coverage varies store by store and country by country. That means we still haven’t reached a future without physical wallets. You’ll still encounter plenty of places in this world that will require cold, hard cash or at least a card to swipe.

To learn more about this and other payment trends, check out the Justt blog. For merchants looking to address their chargeback problems, contact us at Justt.

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