Contactless Payments: Revolutionising Payment Methods

Overview of Contactless Payments

Contactless payments represent a modern method of transaction that utilises a credit, debit, or gift card on point-of-sale systems with the necessary technology. These fast and convenient payment methods are becoming prevalent as more consumers and businesses turn to them.

The term ‘tap to pay’ has become synonymous with contemporary financial dealings. Thanks to technologies such as radio frequency identification (RFID) and near-field communication (NFC), contactless cards allow for seamless transactions.

For businesses, the adoption of contactless payment options streamlines the checkout experience, making it quicker, more user-friendly, and hygienic. This shift can lead to substantial reductions in the costs associated with cash handling and traditional card payments, resulting in improved efficiency and enhanced profit margins.

From an economic standpoint, the growth of contactless payments promotes greater financial inclusivity, while the enhanced speed and ease of transactions encourage consumer spending and fuel economic development.

Contactless payments have experienced impressive growth, particularly in India, where usage has skyrocketed six times over the last three years. This surge can be attributed, in part, to the unique challenges posed by the global pandemic.

A survey conducted by Comviva titled ‘The Future of Payments: From ‘Transactions’ to ‘Experiences” found that contactless payments leveraging NFC and QR code technologies are becoming increasingly popular. Approximately 27% of respondents confirmed that they already provide such payment methods, while a significant 36% have plans to implement them within the upcoming year.

Challenges Facing Contactless Payments

Limited Acceptance of Tap & Pay

Despite the successful adoption of QR code-based payment solutions in the small and micro retail sectors, many smaller retail businesses still hesitate to embrace ‘Tap & Pay’ technology, leading to limited acceptance rates.

Transaction Limitations and Security Concerns

The Reserve Bank of India (RBI) set a maximum limit of INR 5000 per contactless transaction to reduce the risk of unauthorised payment activity. While this precaution aims to enhance security, consumers may feel that contactless payments are less secure due to the absence of a PIN requirement. In truth, the design of contactless payment systems includes sophisticated security measures that prioritise both convenience and safety.

Technical Challenges

A notable hurdle in the embrace of contactless Tap & Pay technology, particularly pertaining to mobile transactions, is that users must possess an NFC-enabled smartphone. Not all consumers currently own compatible devices, creating a technical barrier that is likely to diminish as technology evolves.

International Availability Issues

While the technology behind contactless payments may be largely uniform around the globe, specific mobile wallets may not be accepted universally in other countries. Travellers who depend on their mobile devices for payments might face limitations or inconveniences when attempting to transact abroad using their preferred mobile payment solution.

Safety and Security of Contactless Cards

Contactless cards are generally resistant to prevalent skimming techniques, employing encryption and verification processes to safeguard card information and prevent credit card fraud. The technology in place ensures that sensitive transaction details remain protected, bolstering customer trust in these payment systems.

Moreover, the integrity of contactless payment methods is further reinforced by stringent regulations and guidelines established for payment card issuers and businesses. Such measures are aimed at mitigating risks associated with financial crimes, including money laundering and terrorism, thereby making each transaction significantly safer.

In addition to heightened security, contactless cards offer diverse payment options through various devices, including smartphones and smartwatches. This flexibility empowers consumers to select the payment method that aligns with their preferences. Additionally, many contactless card transactions are coupled with loyalty rewards and benefits, enhancing value for users and incentivising the embrace of this secure and convenient payment style.

The Future: Biometrics in Secure Contactless Payments

The landscape of secure payments in India is on the verge of exciting developments, driven by the integration of technology, security, and convenience. As digital payments continue to rise, projected to reach an astonishing $10 trillion by 2026 according to a report from BCG and PhonePe, the need for effective security approaches become increasingly vital.

A notable trend in the industry is the integration of biometric verification into payment systems. The acceptance of facial recognition technology is paving the way for a new era of genuinely touchless payment experiences.

As of late 2023, India boasted approximately 16.89 lakh micro-ATMs. During the pandemic, cash withdrawals using these devices soared to INR 1.2 lakh crore in FY20, eventually climbing to INR 3.33 lakh crore in 2023, according to RBI reports.

Additionally, the Indian government’s Aadhaar Enabled Payment Service (AEPS) has effectively harnessed biometric technology by utilising micro-ATMs for secure, cardless fund disbursements in remote areas. This cost-effective platform creates connections between micro-ATMs and banks nationwide, facilitating immediate deposits and withdrawals across different banking entities.

By closely monitoring the growth trajectory of AEPS and micro-ATMs, valuable insights can be gleaned regarding the future of biometric payment solutions in India. Fintech companies are actively pursuing inventive strategies to enhance payment methods while ensuring optimal security. Many Proof of Concept projects are underway to evaluate the potential of biometric and facial recognition technologies in enhancing payment security.

However, in the Indian marketplace, the readiness of merchant technology will be a crucial element in the acceptance of these progressive payment methods. The outlook of contactless payments in India is optimistic, with further innovation, a focus on security, and a commitment to improving customer experience set to pave the way for a robust and seamless digital payment ecosystem for everyone.