Rapid digitalization has resulted in a world where consumers are constantly connected, and consumer expectations are constantly changing. Consumers demand secure and faster seamless payment solutions, compelling merchants around the globe to accept the concept of ‘digital payments.’ This concept operates across channels such as e-commerce, in-app payment, and point-of-sale (POS) with contactless payment.
Contactless payment is a payment method that offers consumers the convenience of making payments without swiping a payment card, wherein users can tap their respective contactless-enabled payment devices onto a contactless-enabled reader to complete the transaction. Further getting into the technicality of its operations, the chip and antenna in the payment device enable the secured transmission of payment details via a wireless medium to a contactless reader, which is either integrated within or connected with the merchant’s POS system. In the scenario of a low-value payment, the customer is notified with a ‘payment received’ notification in no time. The contactless capability of a user is denoted by the universal ‘Contactless Indicator’ present on all contactless cards.
Mass Market Uptake of Contactless Payment
Our analysis suggests several factors, at a micro or macro level, influence the growth of the contact payments market; for instance, mandates associated with contactless payment. Mandates made by companies such as MasterCard, Visa, and American Express have given contactless payment momentum for rapid adoption not only in the U.S. but also around the globe. As a result, more than 50% of the payments in face-to-face transactions across several countries globally are contactless.
In scenarios where mandates are absent, the adoption of contactless technology significantly depends upon the benefits outweighing resistance to the market penetration by key stakeholders, namely merchants, issuers, and consumers. Insights associated with how contactless payment technology adoption benefits key stakeholders and drives growth are briefly discussed below.
The adoption of contactless payment technology would help issuers be competitive in the marketplace and retain existing customers. Some of the other benefits include the following:
Further analysis indicates issuers around the globe are focused on capitalizing opportunities so as to migrate cost cash transactions over to branded payments mediums, which include both mobile as well as card solutions. A study conducted by MasterCard reflected that an approx. increase of 30–40% in total spends in 2017 was observed post contactless adoption in the U.S. Similarly, a survey conducted by Visa in Europe estimated that issuers observed an increase of approx. 18–20% in transactions post the implementation of contactless technology.
Most of the new POS terminals introduced in the market required for EMV payments have contactless capabilities in-built. As per our analysis, an approx. of 90–95% of all the new terminals that are being deployed attain contactless capabilities. However, procuring the certification that enables the capability of contactless is a simple process that many large retailers are already seeking benefits of.
Merchants that operate at a smaller scale, for whom an uptick in cart abandonment or longer lines leads to customer dissatisfaction, are studied to depict higher adoption of contactless payment methods. For instance, drugstores, convenience stores, and fast-food restaurants exhibit high adoption of contactless payment methods for ease in operations and improving face-to-face customer experience. Globally, about 55–65% of all the face-to-face transactions occur at contactless-enabled merchants.
One of the key drivers for the adoption of contactless payment is consumer preference. Nowadays, consumers demand convenience, ease, and security while making transactions. With the concept of contactless payments establishing strong grounds, consumer expectations for instant gratification or speed in payments is reinforced in a daily basis. Studying the global scenario, the adoption of contactless payment methods is expected to reach an approx. of 85–90% by the end of 2023.
Asia-Pacific and South America are expected to register prominent growth in the coming years, primarily on account of technological advancements in the infrastructure of payments. For instance, South America, despite laggard tendencies, is among the early adopters of EMV chip standard, which was prioritized by issuers and acquirers from 1999. Further analysis reveals that Brazil reached 100% migration to EMV contact cards by 2015, whereas countries such as Argentina and Colombia are projected to reach 100% migration by the end of 2021.
EMV technology was a trend in the past, and the current trend is that of POS technology. To date, Brazil stands out among other countries in South America when it comes to adapting to changing trends. Following Brazil, Chile, Colombia, Costa Rica, and Peru are in full-swing transitions to contactless payments, and our analysis concludes that about 55–60% of the POS terminals installed in the region are currently contactless ready.
With contactless POS penetration attaining maturity, the issuance of contactless-enabled credit and debit cards is the next wave of contactless payments in the region. Currently, it is in the early stages as a handful of banks have invested in NFC-enabled mobile wallets and issued contactless-enabled debit and credit cards. Some bankers and issuers are studied to be still in the stage of defining their contactless strategy, which is reflecting minimal uptake in the region. As per our analysis, in the present time, less than 2% of the credit and debit card volume in South America is spent using the contactless payment method.
Increasing technological advancements and rising customer expectations are encouraging key retail players to modify their traditional payment and billing solutions and adopt sophisticated contactless payments. Manufacturers are developing advanced solutions for integrating different functions of retail stores, such as staff management, sales and order management, and warehouse management. Furthermore, retailers are choosing POS systems that can efficiently handle functions, such as employee management, gift cards, and loyalty services.
Efficient and quick check out is a crucial aspect of the customer experience in grocery stores. POS systems with integrated scales, touch screens, and automatic discount applications are thus observing widespread adoption in these outlets. Accurate and precise inventory data is another vital aspect of the sector. Many groceries are perishable with limited shelf life, which makes it imperative to identify and track the slow and fast-moving items for procurement forecasts.
Additionally, POS terminal vendors are focusing on developing solutions based on business size and requirements. For instance, Retail Pro International (RPI) offers POS solutions in three business categories: chain store, a global enterprise, and small business. Such business-specific solutions help enterprises efficiently run business functions with the integration of cost-effective technologies.
Impact of COVID-19 on the Contactless Payment Market
From the time of the COVID-19 outbreak in March 2020, there is a growing awareness among the general public to avoid physical contact and practice social distancing, as the virus survives on hard surfaces for about 72 hours, which makes it risky to use PIN pads and touch-screens at the point-of-sale (POS). When studying a regular routine of an individual, it is fair to say that in a typical day, he/she would make several transactions at different locations, such as a gas station, grocery store, café, and restaurant, which exposes the payer to the threat of infection. The current payment systems aren’t prepared to face the risks of COVID-19.
With an aim to cope with the mentioned scenario, merchants operating in the market are adopting technologies that help reduce the need for customers to interact physically with POS terminals. They are leveraging the concept of ‘tap-to-pay’ or ‘contactless payment,’ which uses short-range wireless technology to make a secured payment between payment-enabled devices or contactless cards and the checkout terminal. This technology not only offers a fast, easy, and secured payment experience at checkout but also reduces the need for physical interaction with the POS terminal.
Contactless Payment Market Segmentation
By Industry Vertical
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