Credit cards have evolved in recent years, first utilizing a magnetic strip and then upgrading to include an EMV chip. Each new iteration was designed to make payments both easier and more secure, without requiring customers to make a significant behavior change. Now, contactless technology is revolutionizing credit cards once again — but at a greater scale than ever before.
Simply put, contactless payments enable a customer to make a payment without inserting their card into a physical terminal or card reader. Instead, these payments may involve waving the card near the terminal, being read at a distance using near-field communications (NFC), or using a virtual copy of the card saved to a digital wallet. In the case of mobile wallets, these new payment methods make purchasing more convenient than ever.
NFC technology and contactless payments have been around for several years now, so why is the industry only just embracing this new approach? More importantly, is this a long-term shift or a fleeting trend? The data suggests that contactless payments are here to stay.
The Future is Touchless
The move towards contactless is undeniable. Data shows that the rate of adoption accelerated rapidly during the pandemic, with Statista finding that contactless debit penetration in the US tripled from 11% in 2019 to 30% in 2020. This was predominantly due to the fear of infection and the uncertainty of whether COVID-19 could be transmitted through exchanging cash or other physical payments. Contactless technology provided a way to pay safely and securely, at a time when both attributes felt scarce.
Yet it has also provided unparalleled convenience, which has led many shoppers to make permanent behavioral shifts. A recent study from Visa found that consumers have embraced contactless for the long term: 65% of those surveyed said they would prefer to use contactless methods as much as, if not more than, they were currently. Only 16% said they planned to revert to pre-pandemic payment methods.
Offering contactless payment support is table stakes now that nearly half of the consumers (47%) say they won’t shop at a store that does not have contactless payment methods. With such universal public adoption, businesses are responding. The same Visa study reported that 82% of global SMB owners had made updates to their operations, up from 67% in the summer of 2020, to meet the increasing demand for digital payments.
With both consumers and companies introducing contactless at scale, it seems likely that this technology will become a permanent fixture in commerce.
Contactless is the Fuel for Payments Innovation
When contactless payments first emerged in the market, the technology presented companies with a choice: innovate and lead or stagnate and fall behind. For many smaller institutions, the cost of upgrading credit cards to support NFC was simply too high at more than $2 per card — particularly if they had already invested in the EMV chip, which could cost as much as $6 per card.
Now, as global adoption has pushed down the cost for NFC by 50%, contactless cards can be produced for under $1 each. Even with this additional expense, many financial institutions realize that inaction could cause more financial harm than reissuing due to the growing consumer expectation for contactless service. Not only that, the simple act of reissuing a card can create a new opportunity to connect with customers and remind them of other innovative services that the company is providing, or simply reinvigorate inactive users.
Banks can use contactless payments to support a range of applications. For example, customers may opt to pay by mobile wallet or even via wearables. Future options may include the ability to attach a contactless payment to a car or other vehicle, enabling customers to automatically checkout when they pass through a drive-through or curbside pick-up station.
This could prove to be a huge competitive advantage for banks and payment companies. The businesses that support contactless will be able to take advantage of these new services as soon as they launch in the market. They will also be able to participate in the growing global market share of contactless payments; Precedence Research forecasts that this will surpass $4.6 trillion by 2027.
For consumers, the opportunities are equally exciting. Without the need to carry a physical card, it will become much easier to make purchases on the go. The ability to pay through a text prompt will also make the E-commerce checkout journey much simpler, by eradicating the account verification steps that usually occur with a digital purchase. As new wearables emerge on the market, these may also become more appealing thanks to their multi-purpose applications. Particularly for younger generations, contactless may soon become the default way to shop.
