Forget the Chips: Can Payments Go Completely Contactless?
The following is a guest post (contributed article) by John Rampton, founder and CEO Due.
Online and mobile payments technology is changing how the world makes purchases in-stores and across the Internet. With more financial institutions and companies seeking a standardized and secure method for conducting transactions around the world, new technologies have appeared, including what is known as contactless payment systems.
At the same time, EMV has also presented a potential solution with a special chip that is activated when a credit or debit card is inserted into a new type of card reader. Like all technology that has more than one option, there are those that predict that one type will supersede the other in the race to gain the most acceptance among consumers and businesses. In the payments technology competition many believe that the future is about completely contactless payments rather than chipped cards and chip card equipment. Let’s look at the current state of contactless payments to see if there are any signs of what the future might bring.
What are Contactless Payments?
First, it’s important to understand what defines a contactless payment system. The contactless payment system includes smartphones and mobile devices that use radio-frequency identification, Samsung pay technology known as MST, or near field communication (NFC) to transmit payment details from smart cards, key fobs, or actual cards.
The technology uses an embedded chip and antenna so that the customer can wave their card, mobile device, smartphone, or key fob over a reader at the POS terminal and complete the payment. This process does not require that the customer type in any information, swipe their card, or insert an EMV card into the reader.
Advantages to Going Contactless
Speed is an advantage for both the merchant and the customer with some claiming contactless payments are twice as fast as traditional payment methods. That’s because there is no signature or PIN verification required.
Those using these contactless payment methods are also enjoying additional convenience that they transmit to their perception of the overall customer experience, increasing their enjoyment factor and encouraging return visits. Starbucks is a prime example of how contactless and on-demand are working together to potentially replace the need for any other types of payment systems. Recognizing the typical consumer’s short attention span, Starbucks and other quick serve restaurants are working toward fulfilling the on-demand preferences where orders are placed in advance, contactless payments are used, and they skip the line to pick up the order when they arrive so they can get right back to their day. Having to swipe or insert an EMV card would add precious seconds to the transaction that consumers no longer want to waste on such a process.
Going a step farther with contactless payments, Starbucks links their contactless mobile payment system to their loyalty program so that every order is logged and goes toward rewards like free or reduced items that can be instantly applied to the next order from their app. Who wouldn’t want to do this?
Concerns and Risks Associated with Contactless Payments
Fraud is the main concern with contactless payments, but the contactless payment systems are quickly adding more layers of security to reassure users. This includes payment limits and tokenization features that disguise real names and card account numbers.
Developments in security also include innovative solutions that bring EMV and contactless together to yield the best of both payment system worlds. For example, many banks are offering a chip-enabled debit card with contactless payment capability. This means consumers can have a card that can make quick and secure payments while still providing access to cash and other types of purchases. This allows consumers to decide if they want to insert their card in a chip reader, wave it at a payment terminal, or swipe it plus still use it at ATMs.
The Smartcard Alliance released a white paper in 2016 that further discussed how these technologies might come together as a way to increase adoption and evolve the world of convenient and highly secure payments to a new level. This is because the white paper noted that while more consumers are migrating to Samsung Pay, Android Pay, and Apple Pay to illustrate the growing interest in contactless payment processes, retailers are struggling to determine the best approach for changing over their payment processing equipment when so many consumers are used to pulling out cards to pay.
Trends in Contactless Payments Usage
What’s becoming quite popular are what are known as contactless smart cards that are used as stored-value cards, which means you can continually top them up with money through an online or mobile account to transfer money onto this card.
They can also store non-currency value data like for a monthly pass so a physical card no longer has to be carried in your wallet and pulled out for use. The best example of contactless smart cards include those known as transit system fare cards like the Oyster card used in the UK. Gas brands like Mobil offer Speedpass, which was a precursor to the contactless payment industry. Now, numerous restaurant chains and retailers are catching on along with banks, credit card brands, and other types of businesses.
While the technology is not fully developed yet to its true potential nor has other technology caught up to help retailers deal with the influx of on-demand preferences, the future looks bright for completely contactless payments all over the world.
About the Author
John Rampton is an entrepreneur, investor, online marketing guru, and startup enthusiast. He is the founder of the online invoicing company Due. John is best-known as an entrepreneur and connector. He was recently named #2 on Top 50 Online Influencers in the World by Entrepreneur Magazine and a Blogging Expert by Time. He currently advises several companies in the San Francisco Bay area.