Contactless forms of payment, namely the tapping or waving of a debit/credit card over a special kind of terminal, have been around for more than a decade. But, the technology has been in the headlines recently for one major reason: the COVID pandemic. In March of 2020, the World Health Organization issued an official statement in which they encouraged the use of contactless payments for the purpose of minimizing human-to-human interactions. When you wave a card over a free-standing machine at a convenience store, for example, two important things happen: there is zero physical contact between you and any type of machine, and no physical cash or coins trade hands between you and the clerk.
Why do consumers need contactless forms of payment, even in addition to needs arising out of the current global virus? Some key players in the world financial markets refer to the acronym, FESH, which sort of sounds like “fish,” buy rhymes with the word “mesh.” The letters stand for the central benefits of contactless transactions. They’re fast, easy, secure, and hygienic. Of course, there are other advantages, for consumers, banks that issue credit/debit cards, and merchants. Any discussion of why buyers need contactless payment methods is incomplete unless it examines how banks and merchants also gain from the widespread adoption of this popular form of payment.
Why Consumers Love to “Pay With a Wave” Instead of With Cash, Swipes, or Chips
It’s a fact that the vast majority of consumers prefer contactless payment, especially after they’ve tried it just once.
- F stands for Fast: At least until some version of brain-wave-reading technology comes along, contactless payment is the fastest way to pay for anything in person. Compared to using cash, even when the customer has exact change, waving a card over a terminal is by far the quicker method. Even ATMs are coming into the contactless universe as many of the world’s mainstream banks and credit unions have already adopted remote card-readers at millions of automated teller machines.
- E stands for Easy: Contactless commerce is the easiest way to buy or sell anything. However, it’s important to know the exact meaning of “contact” in order to fully comprehend the easiness factor. Many people assume that “contactless” payment means no physical contact between the merchant and the consumer. That is incorrect. The “contact” referred to in the term “contactless” pertains to two things: physical contact between buyer and seller, AND physical contact between the buyer and any type of machine, register, or device. In any case, based on consumer preferences since the COVID pandemic arrived, people universally prefer to pay in this safe, fast way.
- S stands for Secure: The financial community has had several years to perfect the rings of security around contactless payment, and so far the results have been encouraging. In fact, most experts agree that using a contactless card carries no more risk of fraud, hacking, or misuse than using standard credit or debit cards that have to be swiped or inserted into a terminal.
- H stands for Hygienic: The need for germ-free payments between two people who occupy the same physical location is what started the recent surge in the use of contactless paying. When you hand a currency note, coin, plastic card, or anything else to a store employee, there’s a high probability that microscopic substances on your body can be transferred to the store worker. And when the cashier makes change or prints a receipt, you stand to receive micro-organisms from them. From a medical and public health perspective, that kind of interaction is high-risk during a pandemic. Whether it’s influenza, COVID, a form of meningitis, or something else, contact between strangers for the purpose of routine commercial transactions can mean very bad things.
How Do Merchants and Issuing Banks Benefit?
When consumers demand more contactless payment options, they do so for many reasons, including speed, convenience, and medical safety, to name a few. But, it’s easy to lose sight of the fact that banks and merchants have plenty to gain from this efficient, trending payment technique. How do card-issuing institutions and sellers come out ahead? Here are the four main ways:
- Issuing Banks see customer loyalty rise when lots of their users adopt contactless payment. Because of the super-fast, and highly convenient way that contactless transactions work, buyers tend to associate this positive experience with the name of the institution on the card. From a marketing standpoint, this factor is a huge win for banks and other institutions that issue cards.
- Merchants like the fact that contactless transactions help lines move faster and thus make customers happy. No one likes to wait in line, so anything that speeds up the payment process is a win-win for buyers as well as sellers.
- Banks love anything that encourages the use of plastic rather than cash. When you use a card issued by XYZ bank to pay for groceries, the bank gets part of the transaction fee. If you use cash, they get nothing. This is one of the reasons that card-issuing banks and other institutions in the plastic-payment pipeline are going all out to promote contactless payment.
- Sellers have another reason to prefer no-contact payment methods: Clerks working late-night shifts can remain in a secure booth and not have to worry about threats from unruly customers or criminals who enter the establishment. Pawn shops and jewelry stores have used security booths for decades but always had a problem with transacting business quickly and accurately.
How Many Payment Options are There?
Even in establishments that accept contactless payment, it’s usually only one of many options. Study your local convenience and grocery stores to see the variety that’s already in place. For example, a typical convenience/fuel store in a large urban area might feature a small terminal on the customer-facing side of a plexiglass partition that allows users to wave-to-pay (contactless), insert their card into a chip-reading slot, swipe the card along a magnetic slit on the side of the machine, pay by handing a debit or credit card to the clerk, or simply use cash and coins.
Note that most convenience/fuel locations sell most of their gasoline at the pump, meaning that buyers need not even enter the store. They just swipe or insert a CC into a pump-mounted device, fuel their vehicles, and drive away. Of course, if they want to buy snacks or other items, they must enter the store and perform another transaction.
What Does the Future Look Like for Contactless Payment Methods?
Is there a next level of technology beyond contactless cards? The answer is yes, but there’s a big caveat that goes with the answer. For example, the U.S. military experimented with wallet-reading beam technology decades ago and the system is already in use in some places, but not for retail transactions. Wallet-reading devices send an infrared beam around a person’s body in order to read any enabled cards or chips the person is carrying.
If beam technology ever reaches the point where it’s safe and cost-effective for retailers, expect to see some form of it within the next decade or so. It’s quite similar to contactless techniques but with a twist: the seller would simply aim the infrared beam at you to extract funds from your enabled card. Of course, the system is fraught with security and safety issues, but so are all prospective forms of technology. Somehow, the scientific and financial communities always seem to work out a solution.