Growth in contactless payments was greatly accelerated by the global pandemic, and today they are increasingly becoming a preferred payment method.
Last year, Visa’s global networks handled an estimated $13 trillion in contactless transactions. That staggering figure means retailers still relying on traditional payment methods are getting left further and further behind. Today, it’s not a nice-to-have, but a must-have that consumers expect.
But what exactly do we mean when we talk about “contactless” payments?
Contactless means a lot more than just tap-enabled credit and debit cards these days.
The primary use-case people are familiar with is payments that are made using near-field-communication (NFC) technology embedded into credit and debit cards, in which people tap their card on a payment terminal.
NFC capability is also an increasingly popular feature on smartphones, which enables smartphones to make tap payments through mobile wallet services like Apple Pay and Samsung Wallet.
However, perhaps a bit confusingly, peer-to-peer (P2P) mobile payment apps like PayPal and Venmo also function as mobile wallets, and are generating huge transaction volumes.
So “contactless payment” is an umbrella term encompassing tap-enabled credit and debit-cards, tap-enabled smartphone payment services like Apple Pay, and P2P payment services like Venmo.
Because of the unsecured nature of contactless payments — consumers don’t have to sign or enter a PIN — the payment limits on contactless payments are typically pretty low. (Although payment limits were raised early in the pandemic to facilitate social distancing.) Contactless payment limits in the United States and Canada are roughly similar when exchange rate is factored in: $250 CAD in Canada compared to $200 USD in the United States.
It’s possible that contactless payment limits may go higher, given that contactless payment fraud is a very small portion of overall contactless payments. British banking body UK Finance found that out of the £66.5 billion spent in the first half of 2021, only 1.1% of payments (£7.6 million) were fraudulent, which it calls “a tiny proportion” of overall transactions.
The biggest trend to watch? Mobile wallets.
More than 2.8 billion mobile wallets were in use at the end of 2020. Additionally, a 2022 study by McKinsey found that more than two-thirds of Americans expected to have a digital wallet within two years. That same study found that the share of consumers intending to use three or more digital wallets within two years grew from 18% in 2021 to 30% in 2022.
Mobile wallets are also driving a lot of spending. As of February 2023, reporting from Datareportal showed that 30% of B2C eCommerce transactions in the United States were attributable to digital and mobile wallets. As for P2P mobile wallets, it’s predicted they will generate more than $1 trillion in transaction volumes in 2023.
So, what are consumers looking for in a mobile wallet service?
Consumer sentiment on that front is decidedly mixed. When asked what types of companies from which they would want a digital wallet, 54% of consumers said they would prefer a digital wallet provided by a bank. Slightly less more than half that number (28%) said they would digital wallets provided by a smartphone or other device manufacturer. The remaining 18% was split between retail wallets (12%) and telecom wallets (6%).
However, while desire for wallets operated by retailers was in the clear minority, that same study showed that many consumers are interested in retail bonuses:
- 43% said they would be interested in store loyalty rewards.
- 26% said they would be interested in one-time deals.
Another up-and-coming trend: smartphones being used as retailers’ payment terminals.
This technology has different names, depending on who’s talking about it. Visa, as well as some other smaller payment service providers call this tap-to-mobile (TTM), while those in the retail sector typically refer to it as mobile point-of-sale (mPOS).
Whatever you call it, the benefits for small and mid-sized businesses (SMBs) are obvious, as the only thing required to accept contactless payments is an app on an NFC-capable smartphone. However, TTM/mPOS isn’t just for SMBs. The technology is starting to be seen in large food and retail chains as well (including my local Starbucks).
Contactless payments aren’t the future of retail. They’re today’s reality.
As contactless payments continue to grow, retailers need to adapt and provide customers with the payment options they want. If you’re not already offering contactless payment options, now is the time to make the switch.