Contactless payments were originally introduced in Austria in 2013, followed by adoption by large Austrian banks which have integrated debit cards with NFC technology. Large retail chains have also rolled out NFC-enabled terminals.
2016 can be expected to further the use of contactless payments mobile phones with NFC-enabled in-store payment options will bid for mainstream adoption. And this would mean, that the strategy will satisfy financial norms set by institutions, merchants, varied consumers, and even technology vendors.
With more than 650 million NFC-enabled smartphones expected to go contactless for in-store payments, one can expect the change to happen with niche adoption this or the next year itself.
Advantages perceived by Retailers
- Contactless transactions have huge potential for greater security, when payments can be used through the SIM-based tokenization capability. The tokenization facility creates a unique code which is dispatched from device to the merchant’s NFC-enabled machine.
- Card information is stored with issuing networks or even stored in the cloud. Since it is token-enabled, a fraudster who might intercept transactions would get access to a single-use token but would not be able to get their hand on card details.
- Using a fingerprint, a retina scan or even the heart rate sensor makes this form of payment more secure. It also uses biometric authentication which will deliver robust security compared to any card swipe or PIN.
One can expect NFC-smartphone transactions to increase steadily over time as more banks and merchants will start accepting such transactions. Contactless mobile payments will mostly coexist with other payment modes.
The future of Contactless Payments
Deloitte predicts that by end-2015, five percent of the base of 600-650 million near-field communication (NFC ) equipped phones will be used at least once a month to make contactless in-store payments at retail outlets. This compares with monthly usage by less than 0.5 percent of the 450-500 million NFC-phone owners as of mid-2014. Contactless mobile payment will not be mainstream by end-2015, but niche adoption will be a major progression from near nil in prior years.
As per Deloitte’s numbers, NFC-enabled devices used for in-store payment will rise as people will soon get familiar with the process. Using mobile phones to make payments is soon going to flood the market trends. A combination of contactless payment modes with smartphones will surely affect financial operations, such as checking balances, transfer of funds, online transactions.
This year will be an inflection point for NFC-enabled phones to start in-store payments and fulfill multiple prerequisites and security measures for mainstream adoption especially to satisfy financial institutions, consumers, technology vendors and the like.
Advantages in Encouraging Contactless Payments
- The core advantage with contactless smartphone transactions is security with its SIM-based tokenization capability
- Card information stored in issuing networks or the cloud thus restricting the tokens to be unusable after one time use.
- NFC-equipped phones can boost and manage high-value transactions and does not have any friction points since it only requires a card or a compatible reader-based device.
- The spending limit can based only on credit or debit card limit but with contactless cards has a payment threshold before additional identification is sought.
- Accepting NFC payment requires the right point-of-sale (POS) terminals which are compatible and quick enough
Adoption of NFC mobile payments will be mostly driven by financial reasons for businesses. For consumers, the reasons are behavioural. But to encourage the use of contactless mode, the overall payment process should be simpler, sleeker or incentive-based in terms of coupons or discounts. Smartphone users who have integrated credit card information linked to their phone, can submit a fingerprint to unlock the phone or authorize a purchase.
One can expect that in the near future, people would be offered a choice, and from the 30 million individuals, some will opt to pay using their phone without depending on contactless cards. A smartphone may also offer a higher payment limit than a contactless card.