No touching: the growth of contactless payment

The contactless payment tailwind

eWallets have seen strong growth in China and other Southeast Asian countries, and while European and US consumers have so far proved reluctant to relinquish cards, this may be something that will change as we seek to limit exposure to the coronavirus. Indeed, Dan Schulman, CEO of PayPal, recently announced a surge in demand for his company’s secure digital payment services, including its US-based Venmo digital wallet app.

Banks still have time to capitalize on this trend. They will need to move fast, though: big tech already has a head start in this space. As Jukka Yliuntinen, Head of Digital Payment Solutions, G+D, explained in a recent article,² these firms are in a strong position because they determine how their devices and services are designed to make and protect contactless payment transactions.

"They can impact the user experience much better than anyone else," he said, adding that these firms also have access to a vast amount of data that helps deliver a finer-tuned customer experience.

Voice payments are another payment method that could receive a boost. Unlike smartphones, NFC-enabled wearables such as the Apple Watch can be used to make a payment without needing to touch a POS terminal or the wearable device. It’s also possible that contactless payment apps that allow you to pay for petrol without leaving your car – and, eventually, fully integrated in-car payment functionality – may become more popular in future as people avoid exposure to the virus.

Addressing security concerns

Of course, all these contactless payment methods will need to demonstrate they are secure and reliable to protect against fraud – and they need to deliver the speed and convenience that consumers expect. In fact, with the right technologies in place, retailers, banks, and other firms that receive or provide contactless payments can indeed provide protection from fraud while offering customers a safe and efficient payment journey. Tokenization, which replaces sensitive data with a non-sensitive equivalent such as a unique string of numbers, is one means of achieving this. Another is biometric security, which is fast becoming a key part of the contactless payments process.

In essence, biometrics use an individual’s physical or behavioral traits to identify them. Biometric fingerprint and face ID technology, for example, is now a standard part of many smartphones, and is used to authenticate Apple Pay transactions. Behavioral biometrics goes a step further by identifying a person by their unique behavior when they interact with their smartphone – for example, how they hold the device or how they type. This paves the way to a truly frictionless experience if implemented correctly.

Juniper Research forecasts that mobile biometrics will secure $2.5 trillion in mobile payment methods  by 2024.³ Another glimpse of the future can be seen in China, where Alipay’s smile-to-pay technology allows customers to link an image of their face to a digital payment system or bank account and make a purchase simply by posing in front of point-of-sale machines equipped with cameras. The system has already been rolled out in 100 cities, and while it has sparked data privacy and security concerns, its supporters believe the convenience outweighs the risks.

Such frictionless payment systems tap into the fact that customer experience is one of the key differentiators when it comes to the innovation of payment methods. One Accenture survey, for instance, has found that about 70% of millennials and GenZ are interested in both digital payments and the type of management services that offer more control of personal spending.

The potential for innovation

Invisible payment, which completely eliminates the need for the consumer to initiate or authorize a payment, is arguably the endpoint of many of these trends. Since 2018, Amazon Go stores have allowed customers to shop without having physically to make a payment. Beacons and computer vision detect when items are removed from the shelves; when the customer leaves the store, the items they have with them are automatically charged to their Amazon account.

It remains to be seen whether consumers will in the long term embrace the option of invisible payment. However, it’s undeniable that many people are currently trying forms of digital payment that they may continue to use after the crisis. Indeed, despite the current financial uncertainty, McKinsey notes that “the [payment] industry’s stability will play an invaluable role in rebooting the global economy, and the potential for innovation can support functioning economies as a ‘new normal’ emerges.” So after years of promise, the payments industry may finally be on the fast track to the future.

Published: 17/07/2020