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Serge Beck, CEO & Founder, writing for Forbes Technology Council
As cards displaced cash, contactless payments are displacing card payments—though they have yet to achieve complete worldwide ubiquity.
Many markets have hit a 90+% adoption rate, with the UK (93.4%), Australia (95%) and Singapore (97%) leading the charge.
Over 87% of U.S. consumers now use contactless payments, and this market is projected to grow at a 19.1% CAGR until 2030.
Contactless Payment And Its Rise In Popularity
Contactless payment is a payment method that utilizes radio-frequency identification (RFID), near-field communication (NFC) or quick response (QR) codes to process transactions. It allows users to make payments by simply tapping or waving their card, smartphone or wearable device over a contactless-enabled reader. This removes the need for physical contact with the payment terminal, making it a convenient, fast and hygienic payment method.
Contactless payment comes in various forms, including cards, mobile wallets (e.g., Google Pay, Apple Pay), mobile apps (e.g., PayPal, Venmo), and wearables (e.g., Fitbit, Apple Watch). The versatility and convenience have made it attractive for consumers who can easily forget to bring their wallets or mobile phones—as long as they have their wearable device, they can still make payments.
For RFID payments, the card contains a small chip and antenna that emits a signal when brought into the range of an RFID reader. The reader then captures the payment information and processes the transaction. For NFC payments, the card or device must be tapped or held within a few inches of an NFC-enabled reader. The reader then receives the payment information and processes the transaction.
Evolution Of Contactless Payment
Before we take a look at the benefits and challenges of contactless payments, let's explore how this method has evolved over the years. The first contactless payment occurred in South Korea in 1995 using a prepaid travel card called the Upass card for Seoul bus transport. The concept gained traction in the early 2000s, but only a few merchants and retailers adopted it. In October 2005, France experimented with immediate contactless payments using a Samsung NFC smartphone in collaboration with Philips Semiconductors.
In the mid-2000s, Europay, Mastercard and Visa (EMV) contactless cards emerged as a common standard for secure payments. For quick transactions, consumers could wave their cards or devices over readers at point-of-sale terminals.
From the 2010s to the 2020s, contactless payments expanded globally, with major financial institutions and multinational corporations offering them to customers. In Australia, 4 out of 5 credit card purchases were contactless by 2019 The UK alone had over 142 million contactless-enabled cards and 147,000 terminals. The Covid-19 pandemic pushed contactless payment adoption, with many markets seeing a surge in usage.
Benefits of Contactless Payment
The first and most apparent benefit of contactless payment is its convenience. Users can complete a transaction without the hassle of fumbling for cash or
swiping a card with just a tap or wave. Its speed and ease of use satisfy the modern consumer's desire for efficient and hassle-free experiences.
Contactless payment also offers enhanced security compared to traditional payment methods. Thanks to tokenization and other security features, it’s less susceptible to fraud and theft, making it a more secure option for consumers.
Also, contactless payment promotes hygiene and can help reduce the spread of germs. It is viewed as a much more sanitary option as no physical contact required. For merchants and banks, contactless payments bring faster transaction times, reduced cash handling and increased customer satisfaction, leading to repeat business and positive word-of-mouth.
U.S. Adoption Rate and Market Trends of Contactless Payment
The U.S., formerly behind in contactless payment adoption, has also shown a considerable increase in usage. In 2020, 19% of in-store transactions were contactless, up from 7% in 2019. 51+ % of consumers in the U.S. have used or are willing to use contactless payments.
As of January 2022, 85% of transactions at grocery stores, 39% at pharmacies, 38% at retailers, and 36% at restaurants in the US were contactless. However, the transit industry lagged at only 9%, possibly due to the transition to remote work and quarantine during the pandemic.
By 2024, the U.S. will circulate over 110 million contactless-enabled cards. Large retailers and transit agencies, such as Walmart, Target, and the New York City Subway, primarily drive the growth.
Contactless Payment Challenges And Concerns
Contactless payments have raised concerns over privacy and security. Some fear hackers could steal personal information, while others have concerns about the lack of proof of purchase or receipt in some transactions.
Another challenge is infrastructure and technology. Merchants need contactless-enabled readers to use contactless payments, which can be costly. Some older devices need the necessary technology to accept contactless payments. Merchants and consumers may also need help with the complexity of integrating contactless payments into existing systems.
But like any other technology, continuous innovation, increased security measures, and proper education and training for consumers and merchants can address these challenges.
How Tech Leaders Can Address Contactless Payment Challenges
To tackle the issues and worries surrounding contactless payments, tech leaders can take several practical steps:
• Prioritize Privacy: Integrate privacy measures into the development process of contactless payment systems. This includes minimizing data collection and ensuring that personal information is encrypted and anonymized.
• Robust Security Protocols: Focus on creating advanced security features, such as tokenization and dynamic data authentication, which generate unique codes for each transaction, making it difficult for fraudsters to replicate or misuse data.
• Comprehensive Training: Establish training initiatives for merchants and consumers focused on the benefits and security of contactless payments. This can include workshops, online courses, and informational resources to demystify the technology and enhance user confidence.
• Continuous Improvement: Encourage ongoing assessments of security measures and prompt updates to software and systems to protect against emerging threats.
• Collaboration: Work closely with banks and payment processors to ensure that all stakeholders are aligned in their security practices and that consumers know their rights and protections regarding fraudulent transactions.
The Future Of Contactless Payment
Digital wallets are expected to account for nearly one-third of the U.S.'s e-commerce transaction value by 2025. By 2027, we can expect contactless payment transactions at $10 trillion globally, from $4.6 trillion in 2022. Investment in the contactless payments ecosystem and embedded banking will grow contactless transaction value over the next 5 years.
Contact payment will continue to be integral to retail, pharmaceuticals, travel and education sectors. New technologies like wearables, biometric authentication and
voice-activated payments will continue to emerge, and native apps will have basic banking features.
The widespread adoption of contactless payments will also drive innovation in related sectors, such as financial security, digital identity verification, artificial intelligence and even urban planning with smart cities.
