Communications of the ACM
Consumers Increasingly Touch on Contactless Payments
"Customers are switching to touch-free transactions because of the real or perceived benefit that touching fewer surfaces will reduce the risk of spreading the coronavirus, said Panoramic Research's Mark Broderick.
Credit: news.cuna.org
Contactless payments, which can be initiated via a smartphone, have been slow to gain traction in North America and Europe, according to research conducted in the fourth quarter of 2019 by comScore. The research found that just 16% and 14% of smartphone buyers in these regions used contactless payments through their phones, likely due to a lack of financial incentives or perceived benefits of switching from traditional mag-stripe or chip-and-pin cards to no-touch modalities.
That may be changing due to the COVID-19 pandemic, though shifting shopper demographics have also been driving a steady, if measured, progression to contactless payments, says Mark Broderick, research director of Tampa, FL-based payments consultancy Panoramic Research, who estimates mobile and physical card contactless payments at the point of sale have increased by more than 50% from a year ago.
"The pandemic has actually been an agent of change for contactless payments at the point of sale, with more consumers using tap-and-pay on their cards and mobile apps than ever before," Broderick says. "The incentive is not financial; consumers are not receiving an increase in rewards or more cash back. Rather, customers are switching to touch-free transactions because of the real or perceived benefit that touching fewer surfaces will reduce the risk of spreading the coronavirus."
No-touch or contactless payments can take many forms, but generally require the merchant to have terminal hardware and point-of-sale (POS) software that supports standards-based near-field communication (NFC) wireless communications, Wi-Fi, or the ability to support QR codes. On the customer's side, a payment card equipped with a chip allowing contactless communication with the reader, a smartphone equipped with an NFC-enabled or Wi-Fi chip, or a QR-code reader is required to enable contactless payments. The software required to handle the back-end transaction of funds can either be closed-loop (allowing payment within a restricted list of payment apps, stores, and funding sources), or open-loop (allowing the use of payment apps and mobile wallets that can be used at multiple merchants).
Recent research indicates the pandemic's impact on contactless payments been significant. Within the U.S., a survey published in August 2020 conducted by Forrester Research on behalf of the National Retail Federation (NRF) found that since January, contactless payments have increased for nearly 70% of retailers surveyed, while 19% of retailers indicated that contactless payments accounted for more than half of in-store transactions. COVID-19 also is spurring the use of contactless payments among those who had previously not used them; among U.S. consumers, 19% of those surveyed by Forrester Consumer Technographics said they made a digital payment in a store for the first time this May, with 62% using their smartphone to accomplish it.
Acceptance and use of contactless payments also have been on the rise over the past few years within the U.S. Target, Walmart, Kroger, and many other major retailers have made significant investments in their payment systems in recent years, but many did not accept contactless payments until recently, according to Broderick.
"Target began accepting Apple Pay and other NFC payments in January 2019," Broderick says. "The retailer, which is a mainstay for Millennial shoppers, likely shifted its stance on NFC due to pressure from these younger consumers that were more inclined to adopt mobile and contactless payments."
Currently, about two-thirds of U.S. retailers have point-of-sale terminals with contactless payment capability, according to the joint Forrester/NRF survey, and 56% of retailers accept digital wallet payments from mobile phones, up from 44% last year.
However, despite the increased convenience for customers who carry a device that can support contactless payments and are seeking to limit human-to-human contact, contactless payments can create challenges for merchants who choose to accept them. The research from Forrester and the NRF points to high fees (often 0.3% higher than the standard credit card processing fee of 2.5%) for processing transactions via contactless/online, as the top concern (67%) for retailers accepting contactless payments, followed by cybersecurity and data privacy risks (65%), increased fraud (63%), and increased chargebacks of disputed purchases (61%).
While retailers as a group may be smoothly rolling toward a contactless payment world, the road for small, independent retailers that do not have a massive IT staff on call to troubleshoot issues is significantly bumpier.
The Second Mouse Cheese Shop, an independent retailer of gourmet cheese in Pleasantville, NY, handled the onset of the pandemic like many small businesses. When the initial coronavirus restrictions on indoor shopping were enacted, customers had to phone in their orders and provide a credit card number for payment, according to Ivy Ronquillo, the store's proprietor. Store workers manually entered the credit card number into a payment terminal, then filled the order, leaving a bag containing their order with the customer's name on it at the front of the store. This process ensured that ordering, fulfillment, and payment could be conducted with no customer-to-worker contact.
Now that some restrictions have been lifted, Ronquillo says the cheese shop is supporting contactless payments for customers who choose to pick up and pay for purchases at the shop. "My POS system has always accommodated Apple Pay, and that was one of the selling points of the system I chose to invest in," Ronqillo says, noting that the store uses a POS system made by Revel Systems, and a payment terminal from Ingenico.
"I will say, though, that it doesn't work well," Ronquillo says, despite Apple Pay's support for multiple credit cards. "AmEx never goes through, and the other major credit cards are hit and miss. It's frustrating for both parties, especially when a customer walks in without their wallet."
Perhaps most frustrating is that as of now, Ronquillo says, transactions still require customers to approve the purchase by pushing a button on the terminal. "I've reached out to [Revel Systems] to ask them how I can improve the efficiency of these transactions, and I'm awaiting an upgrade, though that would need to be completed at night, during off-hours." Ronquillo says. "Our temporary solution: a big tub of Purell next to the credit-card swiper."
The cost of upgrading or purchasing new payment terminals that can accommodate NFC capability also can be prohibitive, especially for small stores trying to survive in a less-than-ideal business environment, says Randy Vanderhoof, executive director of the Secure Technology Alliance, an association dedicated to driving adoption of smart card technologies. Further, "the time it takes to get your hardware and software upgraded is potentially disruptive for business," Vanderhoof says, and merchants often wait until their current POS system has reached the end of its lifespan, rather than trying to upgrade mid-cycle.
Keith Kirkpatrick is principal of 4K Research & Consulting, LLC, based in New York City.
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