5 minute read
4 ways consumers are using contactless payments
From baby boomers to Gen Z, contactless payments are quickly becoming the norm as nearly 8 in 10 consumers now use this method of payment. And 48% of consumers won't even shop at stores that don't offer contactless payment options. Up to 10 times faster than other forms of payment, contactless payments are seen as more convenient and secure, safer, and easier to use.
For businesses seeking to offer their customers the best checkout experience, or simply grow their business, we provide a deeper look at popular types of contactless payments around the world. Here's what you should know to stay on top of this digital payment trend to meet customers' expectations.
What's a contactless card and how does it work?
Already mainstream in markets including Australia, China, Canada, and the UK, contactless cards–also called tap to pay or tap to go–are now taking off in the US. The State of Retail Payments study reported that contactless card use increased from 40% adoption in 2019 to 58% adoption in 2020.
How exactly do contactless cards work?
Instead of the traditional swipe, consumers hold their debit or credit card on or near a payment terminal enabled with near-field communication (NFC) technology. The card transmits a short-range radio wave to the device and, voila, a contactless transaction takes place. (Oversimplified for brevity here, learn more about NFC in our digital wallets blog, since digital wallets also rely on the same NFC technology as contactless cards.)
But contactless card usage does come with some restrictions. A contactless payment limit, for example—also known as a cardholder verification method (CVM) limit—is the maximum amount of money customers can pay before they are prompted for a signature or PIN verification. Financial institutions put these limits in place to protect consumers from fraud. To ensure regulatory compliance and deliver a smooth customer experience, your business needs to stay current on contactless limits. We've created a guide to help you.
What's a digital wallet and which one should I accept?
Digital wallets are virtual payments stored on a mobile app or computer that can be accessed by customers easily and quickly online or in-store. Users can store different sources of funds inside their digital wallets. From credit cards and debit cards to prepaid cards, wire transfers, or bank accounts—almost every payment option you can imagine can be stored inside a digital wallet.
Similar to using a contactless card, smartphone or smartwatch users can wave their mobile device near NFC-enabled POS devices to make in-store purchases. Read our practical guide for accepting digital wallets. It's easier than you may think.
Popular digital wallets
Digital wallet service providers span the globe and provide different payment options depending on the platform. Some of the most popular digital wallets include:
- Alipay: With over 1.3 billion active users as of March 2020, Alipay is the world's biggest payments platform. Based in China, Alipay provides third-party financial services, including wealth management, microloans, and insurance. It can be used on a mobile device or a computer and doesn't require a Chinese bank account to get started.
- Apple Pay: The number of global iPhone users who activated Apple Pay grew almost 20% in 2019, reaching 507 million by September 2020. Apple Pay makes up between 5-10% of the global mobile payments market, and dominates the US market with 92% of mobile wallet transactions. Apple Pay allows users to make payments in person, on iOS apps, and on the web using Safari, but is only available on devices that Apple owns or supports. Users can also add debit cards through Apple Cash, which is then accessed by the Apple Wallet for use at stores that accept Apple Pay.
- Google Pay: With 150 million users in 30 countries as of late 2020, Google Pay has transformed from a simple payment tool to a full-blown financial management service for US customers. These services include plans for a digital-first bank account directly within the app. The redesigned Google Pay Android and iOS app focuses on users' activity, such as Google Maps, and relationships with friends and businesses via Gmail and Chat. With 3% of US mobile transactions, Google Pay is one of the few digital wallets that offers cross-border person-to-person (P2P) payments.
- Samsung Pay: With approximately 5% of mobile transactions in the US, Samsung Pay touts itself as the only service that lets customers pay at any POS where credit cards are accepted, but it doesn't support iOS devices. It does allow P2P payments, but customers have to buy a prepaid credit card called Samsung Pay Cash to use this function. Unlike other digital wallets, Samsung Pay relies on both NFC and an older technology called magnetic secure transmission (MST).
- WeChat Pay: Based in China and owned by Tencent, WeChat Pay is a payments product embedded in WeChat that allows users to send each other money, pay bills, or pay for goods and services directly through the messaging platform on mobile or web. More than 20 million users make purchases every day through WeChat Pay, and 200,000 new users sign up for this payment service daily.
Why are businesses using QR codes?
Businesses wanting to offer contactless POS payments without investing in NFC-enabled devices can add software that generates Quick Response (QR) codes.
"QR code payments will be the most-used digital commerce mechanism in terms of volume throughout the next five years," according to Juniper Research, "accounting for 27% of all digital commerce transactions in 2024."
QR codes are also being used in tandem with digital wallets. For instance, a growing number of restaurants use QR codes for customers to scan their menus and pay for orders from their mobile apps. And some digital wallet and online payment providers like Alipay and Google Pay provide QR codes on their websites to make it easier for users to add new services to their mobile devices. Even Facebook appears to be getting into the game, testing QR codes for use with peer-to-peer (P2P) payments in its app.
What's coming in peer-to-peer payments?
P2P payments appeared in the late '90s via PayPal on eBay and Craigslist. Mobile phones helped accelerate their use around the world. For example, by 2013 two-thirds of mobile users in Africa sent money back to their villages through M-Pesa, the largest mobile service in Kenya. Since 2015, Mintos has led the European P2P market, with a loan-based business model, whereas Venmo and Zelle–the top P2P payments providers in the US–allow users to link directly to their bank account to send money to friends and family.
By 2023, eMarketer estimates that "more than $1 trillion will transact via mobile P2P apps."
Facebook Messenger allows people to send each other payments via linked bank accounts or PayPal, but the social media app stopped providing services to the UK and France in 2019 and now only serves US customers. And digital wallets like Google Pay and Alipay offer P2P payments for US consumers to send money to friends and family, sometimes even across borders.
But don't assume Gen Z and millennials are the only generational cohorts sending payments to peers. According to a March 2019 Zelle report cited in Forbes, more than half of new P2P users are aged 45 and over. And even though P2P payments are still nascent in their use for business, you can expect more applicability in the near future. In 2022, for example, Amazon will begin accepting Venmo in the US on its website and app.
As consumers continue to adopt new and varied payment methods, being able to accommodate NFC technology will become increasingly important for businesses–both big and small. If you need support enabling secure contactless payments, explore our POS options or contact us today.
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