Contactless payments were originally introduced in Austria in 2013, followed by adoption by large Austrian banks that have integrated debit cards with NFC technology. Large retail chains have also launched NFC-enabled terminals.
Latest advances
2016 can be expected to promote 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 meet the financial standards set by institutions, merchants, assorted consumers, and even technology providers.
With more than 650 million NFC-enabled smartphones expected to be contactless for in-store payments, the change can be expected to occur with the adoption of a niche this or next year.
Advantages perceived by retailers
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Contactless transactions have great potential for increased security, when payments can be used via SIM-based tokenization capability. The tokenization feature creates a unique code that is sent from the device to the merchant’s NFC-enabled machine.
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The card information is stored with the issuing networks or is even stored in the cloud. Since it is token-enabled, a scammer who could intercept transactions would gain access to a one-time token, but would not be able to get the card details.
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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 provide strong security compared to any swipe card or PIN.
NFC smartphone transactions can be expected to increase steadily over time as more banks and merchants start accepting such transactions. Contactless mobile payments will mainly coexist with other payment modes.
The future of contactless payments
Deloitte predicts that by the end of 2015, five percent of the base of 600-650 million phones equipped with Near Field Communication (NFC) will be used at least once a month to make contactless payments in stores at points selling. This compares with the monthly use of less than 0.5 percent of the 450-500 million NFC phone owners in mid-2014. Contactless mobile payment will not go mainstream by the end of 2015, but the adoption of a niche it will be a significant progression from almost zero in previous years.
According to Deloitte numbers, NFC-enabled devices used for in-store payment will increase as people become more familiar with the process sooner. The use of mobile phones to make payments will soon flood the market trends. A combination of contactless payment modes with smartphones is sure to affect financial operations such as checking balances, transferring funds, and online transactions.
This year will be a turning point for NFC-enabled phones to initiate in-store payments and meet multiple prerequisites and security measures for widespread adoption, especially to satisfy financial institutions, consumers, technology providers, and the like.
Advantages to encourage contactless payments
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The main advantage of contactless smartphone transactions is security with its SIM-based tokenization capability
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The card information stored in the issuing networks or in the cloud, which restricts the uselessness of the tokens after a single use.
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NFC-equipped phones can power and manage high-value transactions and have no sticking points, requiring only a card or reader-compatible device.
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The spending limit can be based on the credit or debit card limit only, but with contactless cards you have a payment limit before additional identification is sought.
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Accepting NFC payment requires appropriate point of sale (POS) terminals that are compatible and fast enough
The adoption of NFC mobile payments will be driven primarily by financial reasons for businesses. For consumers, the reasons are behavioral. But to encourage the use of contactless mode, the overall checkout process should be simpler, elegant, or incentive-based in terms of coupons or discounts. Smartphone users who have embedded credit card information linked to their phone can send a fingerprint to unlock the phone or authorize a purchase.
It can be expected that in the near future, people will be offered a choice, and of the 30 million people, some will choose to pay using their phone without relying on contactless cards. A smartphone can also offer a higher payment limit than a contactless card.
