ANSWERED: What Is Contactless Payment? (+5 Reasons You Need To Know)
In modern retail, 51 percent of U.S. adults use some form of contactless payment.
And that figure is only continuing to rise over time. Furthermore, 57 percent of consumers are more likely to shop with retailers offering contactless options.
Contactless payments are a great place to start if you’re looking to improve the checkout experience, increase customer satisfaction, and enhance your sales. Whether it’s convenience, speed, or cleanliness, it’s fast becoming the way to purchase items in brick-and-mortar stores as well as online.
In this article, we're going to decode contactless payments for you. We'll take a deep dive into what they are, the technology behind them, the various benefits they offer, and why they are more than just a passing trend.
ANSWERED: What Is Contactless Payment?
Convenience is key to the modern shopper’s experience. And contactless payments offer an easy, hygienic way to pay for their goods. But what exactly is contactless payment?
It’s a secure method of payment using a debit card, credit card, smartcard, or other payment device, such as a mobile phone. In scientific terms, contactless payment uses radio frequency identification (RFID) technology and near-field communication (NFC) to transmit payment data over very short distances.
Related Read: The Importance of Mobile Pay and Contactless Payments
Customers simply tap or wave their payment device near a point of sale terminal to complete their transaction. It’s simpler and fast than inserting their card into the terminal and entering their PIN.
If you want to speed up queues and checkout times, make payments more secure, and future-proof your business, offering a contactless payment option is essential. If you don’t embrace this trend, you could miss out on transaction speed and convenience, lose customers, and lag behind industry standards.
To stay competitive, consider integrating contactless payments now.
How Do Contactless Payments Work?
Let’s dig a little deeper into how contactless payments work. If you’re worried about implementation and security risks, you don’t need to be!
As mentioned above, contactless payments use radio frequency identification (RFID) technology and near-field communication (NFC).
You need an NFC reader (your POS terminal) and an NFC transmitter (a customer’s credit card or mobile device) for contactless payments. The NFC chip inside the card or device creates a secure, encrypted connection with the reader when they are brought within a few centimeters of each other.
RFID is similar but uses radio waves instead of NFC to transmit information over longer distances. Both technologies allow quick, contactless payments.
5 Benefits of Contactless Payments
Adopting contactless payments has numerous benefits for customers and businesses.
Speed and Convenience
In any retail environment, speeding up the checkout process and making things more convenient for your employees and customers is the goal. Contactless payments take seconds! They also provide real-time visibility into cash flow. Transactions appear instantly, also allowing you to update inventory faster.
Contactless payments allow for remote transactions. You can take payments anywhere — self-checkout kiosks, for example — without staff assistance. Convenience is key, and with a simple tap or a wave, customers won’t need to fuss with cash or wait for change.
Contactless payments might be the safest way to pay! First, if customers use their mobile device, they have to verify the payment using their fingerprint or facial recognition. Second, NFC payments work over a short range, limiting the possibility of data theft or interception.
Third, payment data is encrypted, which scrambles the data to prevent unauthorized access. Next, sensitive payment details are tokenized during transmission — credit card numbers are replaced with transaction-specific tokens — which are useless to fraudsters.
Last, contactless payment systems have additional safeguards built in. For example, there might be a transaction amount limit, or some might require a PIN after a certain number of transactions.
Related Read: The PCI Compliance Checklist
These protections ensure contactless payments are safe and secure for customers and your store.
Contactless payments limit physical contact. Cash exchanges many hands before landing in your cash register, and customers will feel safer knowing they don’t need to handle it. PIN terminals are also a breeding ground for germs, with many customers entering their PIN throughout the day.
Going cashless creates a clean, sanitary environment for staff and customers. With no cash exchange, there are fewer opportunities to transmit or be exposed to bacteria and viruses.
Contactless cards and digital wallets work in most places throughout the world, meaning businesses can tap into the global marketplace. It’s also great for tourists and international shoppers! They can use their contactless payment devices to pay instantly without needing to exchange money.
Your business can tap into the tourist market by accepting contactless payment, because they’re more likely to spend in stores that offer convenient contactless options.
Rewards and Cashbacks
Most major contactless card providers (including Visa, Mastercard, and American Express) offer cardholder rewards programs and cashback for contactless transactions, so accepting contactless payments helps your customers collect more rewards!
Rewards encourage customers to use contactless payment methods. Tap-and-go is easy; add rewards on top and customers have an incentive to choose contactless. Rewards work in your favor, too, and attract repeat customers.
Related Read: 5 Customer Loyalty Program Ideas to Run This Year
Setting Up Contactless Payment
Modern POS systems designed for flexibility can easily integrate contactless payments. You’ll likely follow these steps:
- Confirm your POS system’s capabilities: Does your POS system support contactless integration? Modern, cloud-based systems often have this built-in or available as an add-on.
- Acquire new hardware: You will need to get new contactless credit card terminals if your current hardware isn’t NFC-enabled. Your POS provider can suggest compatible hardware.
- Install the hardware and software: Your POS provider can help integrate your hardware and software, usually with minimal disruptions to your business.
- Test the system: Ensure you test contactless payments across all of your POS terminals and devices. Test the tap-and-go functionality, transaction speed, and data security.
- Train your staff: Contactless payments are simple, but your employees will need guidance on operating the new hardware and processing transactions.
- Promote it to your customers: Let your shoppers know that you now accept contactless payments! Try in-store signage, email newsletters, and your social media profiles.
The Potential Drawbacks Of Contactless Payments
The benefits of contactless payments outweigh the negatives, but considering potential drawbacks is still wise.
For example, if a customer loses their card (or it’s stolen), someone could use it for unauthorized purchases. Customers will need to deactivate the card and set transaction limits to protect themselves.
While transaction limits are good for security purposes, they may be inconvenient when customers want to make larger purchases. It’s good practice to communicate transaction limits to customers and offer alternatives for purchases over the limit.
Upgrading POS hardware and devices to enable contactless payments can incur upfront costs, but increased revenue can offset these costs.
Last, you might experience technical problems as you integrate new technology. You can overcome these challenges by working with POS providers who offer excellent customer service and support.
What Is Contactless Payment? Next Steps
Contactless payment adoption is rapidly accelerating — it’s here to stay. And retailers who don’t embrace contactless options won’t experience increases in sales volumes and transaction sizes, leaving them behind the curve and out of touch with consumer preferences.
The best way to integrate contactless payments is by choosing a POS system that seamlessly incorporates the software and hardware. Work with a provider who focuses on helping small businesses succeed for a smooth rollout.
At POS Nation, we work with thousands of small retailers looking for a modern, feature-rich, and intuitive POS system. Slow checkout lines and inconvenienced customers are a thing of the past, and with our POS hardware and software, you can accept multiple forms of payment and provide an excellent shopping experience for your customers and employees.
To learn more about what to look for in a POS system for your retail operations, download our free Retail Point of Sale System Buyers’ Guide today!