Contactless payments were originally introduced in Austria in 2013, followed by their adoption by large Austrian banks that have integrated NFC-enabled debit cards. Large retail chains have also launched NFC-enabled terminals.
latest developments
2016 can be expected to increase the use of mobile contactless payment phones with NFC-enabled in-store payment options that will push for widespread adoption. And this would mean that the strategy will meet financial standards set by institutions, merchants, various consumers and even technology providers.
With more than 650 million NFC-enabled smartphones expected to be contactless for in-store payments, one can expect the shift to happen with niche adoption this or next year.
Advantages perceived by Retailers
- Contactless transactions have great potential for increased security, when payments can be utilized through SIM-based tokenization capability. The tokenization facility creates a unique code that is sent from the 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 could intercept transactions would have access to a one-time-use token, but would not be able to access card details.
- Using a fingerprint, retina scan, or even heart rate sensor makes this form of payment more secure. It also uses biometric authentication which will provide strong security compared to any card or PIN.
One can expect NFC smartphone transactions to increase steadily over time as more banks and merchants begin to accept such transactions. Contactless mobile payments will mostly co-exist with other modes of payment.
The future of contactless payments
Deloitte predicts that by the end of 2015, five percent of the 600-650 million base of near-field communication (NFC)-equipped phones will be used at least once a month for contactless payments in retail stores. This compares with less than 0.5 percent monthly usage of the 450-500 million NFC phone owners in mid-2014. Contactless mobile payment will not be widespread by the end of 2015, but niche adoption will be a significant progression from almost zero in previous years.
According to figures from Deloitte, NFC-enabled devices used for in-store payments will increase as people soon become more familiar with the process. The use of mobile phones to make payments will soon flood the market trends. A combination of contactless payment modes with smartphones will surely affect financial operations, such as balance inquiry, fund transfer, online transactions.
This year will be a turning point for NFC-enabled phones to start paying in-store and meet multiple prerequisites and security measures for widespread adoption, especially to satisfy financial institutions, consumers, technology providers and the like.
Advantages of promoting contactless payments
- The main advantage of contactless smartphone transactions is security with its SIM-based tokenization capability
- The card information is stored on the issuing networks or in the cloud, which restricts the tokens so that they cannot be used after a single use.
- NFC-equipped phones can drive and manage high-value transactions and have no friction points, requiring only a card or reader-compatible device.
- The spending limit can be based on the credit or debit card limit alone, but with contactless cards you have a payment threshold before additional identification is required.
- Accepting NFC payment requires the correct point of sale (POS) terminals that are compatible and fast enough
The adoption of NFC mobile payments will be mainly driven by financial reasons for companies. For consumers, the reasons are behavioral. But to encourage contactless usage, the overall checkout process needs to be made simpler, more elegant, or based on incentives in terms of coupons or discounts. Smartphone users who have embedded credit card information linked to their phone can submit a fingerprint to unlock the phone or authorize a purchase.
One can hope that in the near future, people will be offered a choice, and out of the 30 million people, some will choose to pay using their phone without relying on contactless cards. A smartphone may also offer a higher payment limit than a contactless card.
