Gen Z, Millennials and Gen X prefer frictionless experiences in all aspects of their lives and have embraced contactless payments. Baby boomers also prefer this payment method in many cases, but they are often confused by the lack of standardization in contactless payment technology.
Unlike credit card terminals, the contactless payment experience is not as standardized, which creates friction and confusion. As merchants continue to improve the consumer experience and satisfy their customers, where and how they want, they will need to prioritize accepting payment methods like Apple Pay and Google Pay — making sure they use them as much as possible in-store. May be smooth.
In a recent PaymentsJournal podcast, Suresh DakshinaDaniel Keyes, co-founder of Chargeback Gurus and senior analyst for merchant services at Javelin Strategy & Research, discusses how the pandemic has prompted more consumers to try contactless payments, and the security advantages they offer both consumers and merchants.
The Importance of Enabling and Simplifying Contactless Payments
payment log The Importance of Enabling and Simplifying Contactless Payments
Contactless payments are a popular way to make purchases without physically touching your card or exchanging cash. There are a variety of contactless payment methods, including swiping cards, scanning QR codes, and using mobile devices to access digital wallets such as Apple Pay or Google Pay.
Although contactless payments have been around for some time, the pandemic has accelerated adoption as many consumers avoid touching payment terminals. “Contactless payments have become more common during the pandemic, and transaction volumes have really skyrocketed,” Dakshina said. “Now, it’s become a way of life.”
Case agreed that the pandemic hastened the inevitable.
“Just before the pandemic, contactless payments started to catch on in the U.S., but not as much as overseas,” Case said. “People don’t want to change the way they pay because they’re so fixed. Writing needs something important to happen to drive adoption. The pandemic is happening because it forces people to consider this convenience option.”
Safety and comfort drive adoption
As with any payment method, security is paramount. With contactless payments — unlike swiping a card or entering a card number at a payment terminal — the merchant doesn’t see the credit card number, and transaction details are encrypted. This significantly reduces fraudulent activities in retail stores, especially credit card swiping and the like.
“Contactless payments are truly secure because the data on the credit card is transmitted through encryption,” Dakshina said. “That’s the most protection you can get. It’s very challenging to crack contactless payments.”
While merchants know how secure contactless payments are, consumers may still have some uncertainty. “If you use a mobile wallet, people feel like someone might be able to hack into your phone,” Case said. “But it’s still very safe. There’s room for education there.”
Mobile wallet adoption has reached a fairly high percentage among young consumers, a large proportion of whom only use digital wallets and refuse to carry credit cards.
“I saw a guy walk into a smoothie shop and ask the owner if they accept Apple Pay. The owner said no, and the customer said, ‘I don’t have a credit card. If you don’t accept Apple Pay, then I can’t do business with you. There are tons of Consumers don’t want to carry credit cards and want to use digital wallets to pay for their transactions. Businesses, especially retail stores, can capitalize on the younger generation who support card-not-present payments,” said Dakshina.
What’s more, merchants have an additional financial incentive to accept contactless payments.
“Contactless payments are considered a card-present transaction and provide security for merchants, as in the event of fraudulent disputes, the responsibility rests with the card issuer,” Dakshina said.
Case noted that older consumers may be intimidated by the inconsistency in the contactless payment experience across brick-and-mortar stores.
“If you swipe your credit card, the experience is pretty much the same every time, even if you use a chip,” Case said. “But when you click (to pay), there are so many different terminals with different readers that you’re not sure what you’re clicking, especially if it’s a mobile or a card.”
But since older consumers have been paying this way, any intimidation they might initially feel about contactless payments will be lessened.
Contactless payment trend among young people
Dakshina noted that younger consumers are flocking to frictionless experiences where they can get what they want with fewer steps. They want a seamless experience in every aspect of their lives.
“I’ve seen apartment complexes targeting younger consumers. Their apartments can only be accessed with keypads instead of traditional keys,” Dakshina said. “Younger generations don’t want keys because they can lose them and (create) friction. The world is starting to adapt to the needs of the younger demographic, which are often untapped.”
Merchants traditionally don’t target younger consumers — at least not yet. But this group has a lot of spending power, and they expect merchants to meet them where they are and accept their preferred payment methods.
“Businessmen (need to) adapt to these technologies because that’s the demographic they want to attract, the people entering the workforce,” Dakshina said. “They’re the ones who are willing to spend money on things they love.”
According to Keyes, merchants should prioritize acceptance of mobile wallets. “Accepting Apple Pay and Google Pay is a good benchmark,” he said. “The next step is to make it clear that you accept these payment methods and make it easier to use them in-store.”
Contactless payments are popular around the world
The adoption of contactless payments is growing globally, but usage varies depending on where you are. For example, China and Europe have made progress in streamlining the checkout process by using mobile wallets that allow users to add items to shopping carts and pay with their phones before leaving the store.
India is also moving towards a cashless society, with more and more people using mobile payment apps instead of credit cards or cash.
“In India, more and more people are sending payments through peer-to-peer apps,” Dakshina said. “In our office, young people don’t carry credit cards because they use mobile wallets for transactions. They don’t carry cash anymore. Even street vendors accept contactless payments.”
In contrast, the United States has been slower to adapt — although that is changing.
More sophisticated point-of-sale technology will ease the transition, Keyes noted.
“Ultimately, every merchant in the United States will soon accept contactless payments,” he said. “This will keep costs low for small businesses that don’t want to invest in any big end products.”
“Contactless is only going to grow in popularity. It may become a default option, or even an exclusive option, at some merchants, just as some places used to accept cash instead of credit cards.”
Dakshina agrees, says contactless payments will continue to grow in the US
“Payments are the lifeblood of any merchant, and you have to make it seamless for your customers to do business with you,” he said. “Reducing friction in the customer experience always leads to more revenue.”