Touchless Payment Systems

By Bethanie Parker (Guest Article)

Touchless or contactless payment systems - How much it will change our financial outlook

“People are saying that this year you’ll finally stop swiping your credit card”

The global pandemic has not only affected the lives of the entire human race, changed the way people used to meet each other, communicate, work, eat, and travel, but also changed how people use their money to pay for any items or services.

Before the pandemic, making payments without swiping the card, a.k.a “contactless payment system”, was a new, unique method which was getting popular among the young generation in the United States. But currently, this method is considered the most likable way to make payments. Touchless or contactless payment methods have now become one of the paths to achieve financial excellence. People are adapting to the technology more than ever, as the Centers for Disease Control and Prevention (CDC) also suggested using contactless payment systems in every transaction you make, if possible.

As per a report in March 2020, the contactless payments growth rate had increased in Nordic countries since December 2019. According to an AMEX survey, US citizens have shown a significant transition of attitude about this new technology. The number of consumers using contactless payment in stores was increased by 11% in April 2020.

As per a report in Sept, 2020, provided by the Small and Medium Business Reopening Report - “A sizable share of consumers who had not experimented with contactless payments before the pandemic are now making their first forays into using the technology. A late-March survey found that 30% of Americans made their first mobile wallet and contactless purchases during the early stages of the public health crisis.”

But growing the habit of using contactless payment can’t be conveyed to the common so easily. Liz Karl, vice president of the Payments Consulting Group, American Express, explained - “For contactless payments to really become widespread in the U.S., we need a few factors to come together: strong interest from both merchants and consumers; enablement of the technology, particularly across smaller merchants; and a trigger that sparks a lasting change in how people pay. COVID-19 has created an environment where those factors are coming together to make contactless adoption more widespread in the U.S., and that contactless is nowhere to stay.”

She also noted that - “over the last several months, there’s been a spike in interest from U.S. merchants looking for no-touch payment options due to health concerns from the pandemic, and U.S. consumers say they are significantly more likely to use contactless payments than before the outbreak.”

Now, one question has arisen after the economy is slowly having its pace.

Are we going to use cash or credit cards again like before in the coming years, or 2020 is the year when we will finally stop swapping cards and use only the contact less payment method in future?

We can not come to a certain conclusion without analyzing few predictions for the future of contactless payments.

Predictions on contactless payment system

Contactless payments might overtake cash and credit cards within the next three to five years

48 countries have increased the spending limits on contactless transactions already. According to a recent study from market research firm Global Market Insights, the contactless payment market will experience growth over the 2020 to 2026 period, from its current market value ($40 billion) to over $100 billion by the year 2026. It was predicted that in the UK, around 36% of total payments will be made through NFC (near-field communication) technology powered contactless cards by the year 2027.

If consumers want to spend more than the limit (was less than $50), they will need to enter a pin. The average contactless limit increase after Covid-19 was 131%. The U.S., which currently has a limit of $100. Countries that preferred cash payments, like Germany, are now having half of the overall purchases as touchless.

Mobile wallets will make physical wallets obsolete

The adoption of proximity mobile payments is expected to increase rapidly. A study conducted in March 2020 by RTi Research reported that 30% of consumers used touchless payment methods for the first time during the pandemic.

A recent report by Juniper Research predicts that “the global original equipment manufacturer (OEM) market, like Apple Pay, Samsung Pay, and Huawei Pay, will triple in value in the next four years from $333 billion in 2020 to $1 trillion in 2024”.

Big brand mobile devices are already available with touchless payment apps, pre-installed. Using these apps a consumer can easily make payments to their credit card debt, pay premiums to get insurance coverage, make payments directly to stores while shopping, pay for medical debts, and pay for other expenses smoothly. Mobile payment systems now use QR code technology to process payments faster with proper security.

Non-profit financial organizations, which provide financial help to consumers and offer debt consolidation services or debt settlement programs, are also providing online payment services. The funds are likely to be transferred via direct bank transfers.

Point-of-sale payments and financing will be evolved

Point-of-sale (POS) terminals are devices where customers make payments at retail stores. In many cases, they are not entirely contactless because people may need to insert or swipe cards and tap the screen a couple of times to process a payment. This system is also changing as POS hardware adapts to changes in demand.

A recent study reports that 27% of small business survey respondents have seen an increase in customers using their mobile phones or contactless cards to pay. It is not cheap for retailers to initiate such systems promptly, as it would require investments. But using contactless systems will also help retailers reduce transaction time, increase revenue, and shorten counter queues.

according to a March 2020 report, the global contactless payments market size is expected to increase from $10.3 billion in 2020 to $18 billion in 2025, which leads to an 11.7% compound annual growth rate (CAGR).

Financing platforms will also change in the future. Digital point-of-sale financing platforms will provide retailers to get pre-approved offers from multiple lenders, in less paperwork, or even signing on a touchscreen.

Financial companies will still face challenges

First, not every consumer has access to touchless technology. About 25% of Americans don't have a credit or debit card, and approximately 8.4 million households don't have a bank account.

Touchless payment technology is fast and convenient, but it is also traceable and comes with merchant fees that are charged to the customers.

But companies like Square and PayPal also offered checking-account capabilities without having a bank account.

As we are facing a global pandemic, contactless, or touchless payment systems have increased and are likely to rise more in the future. It can be said that soon, we will only depend on contactless payment methods and forget about using cash or cards.