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A plexiglass barrier between customers and cashiers is perhaps one of the few vestiges of the traditional banking experience that remains intact after all of this.
It seems unlikely, after all, that customers will be impatient to wait in lines of more than two people to deposit their paychecks or make withdrawals. It is even more unlikely that they would want to handle wads of banknotes and coins that have been touched by hundreds of strangers, including a bank teller who, out of habit, might lick his thumb to sort through a stack of tickets.
Amid lingering concerns about the novel coronavirus and anticipation of a second wave of infections, secular industries are rethinking their daily operations. Banking is no exception and has a new buzzword: contactless.
Contactless transactions are ubiquitous in many parts of the world. Americans, however, have been slow to adopt them. In the United States, the much anticipated “wallet death” simply never materialized. In 2018, just 3% of cards used in the US were contactless, compared to around 64% in the UK and up to 96% in South Korea, according to a study by global management consulting firm AT Kearney.
But as Americans slowly come out of their coronavirus-induced quarantines, flashing in the sun and wondering what, exactly, this “new normal” has in store for them, contactless payments are starting to make a lot more sense.
What are contactless payments, anyway?
Contactless payments are pretty much what they sound like: a way to pay for goods or services without physically having to swipe your card through a machine or pass it on to another person. If you’ve even seen a passer-by typing their phone at a cash register to pay for their café au lait, you’ve seen the technology in action.
As customers demand more and more speed – and now the assurance that store workers and bank tellers will stay physically away – more and more physical businesses are turning to ‘tap-to’ systems. pay ”.
Banks and card issuers can be smart to ride downwind created by the Covid-19 and capitalize on the trend. Overall use of contactless payments in the country has grown 150% since March 2019. But even before the pandemic, banks were implicitly pushing customers towards contactless payments by offering rewards for using platforms like the card. Apple recently launched.
How contactless payments work
Typically, contactless payment systems operate using radio frequency identification (RFID), a popular technology based on electromagnetic fields. RFID uses memory chips that store data or “tags”, as well as RFID readers that decode the message. Thanks to this technology, nearby physical objects can communicate with each other. These systems are used for day-to-day tasks such as tracking packages, managing inventory and collecting tolls.
Contactless payment systems often rely on Near Field Communication (NFC). This is a newer and more complex technology that falls under RFID. Unlike RFID, which works at a distance of several meters, NFC only works when there is a small distance between objects, usually a few centimeters. So there is no risk that you accidentally pay for a stranger’s groceries if you pass them in the queue.
NFC is the technology behind services like Apple Pay and Google Pay. Cardholders enrolled in these services can use contactless payment platforms on their smartphones, watches or other portable devices for quick and easy transactions at point of sale (POS) terminals. Square offers a NFC reader for businesses looking to jump on the mobile, contactless bandwagon.
NFC technology also enables a variety of daily activities beyond payments. it is used for electronic ticketing, for example. Users can use a transit pass or smart device to enter a subway turnstile or board a bus. New York’s Metropolitan Transportation Authority (MTA) is deploying OMNY, a contactless way to pay for public transport in the city. If all goes according to plan, the system will replace the MetroCard by 2023.
In the banking context, cardless ATMs allow customers to withdraw money with a simple swipe, swipe or squeeze. Instead of physically inserting a debit card into the machine, these ATMs allow customers to withdraw money through a smartphone app.
Some banks have proprietary apps for accessing cardless ATMs, while others work with third-party mobile wallets like Apple Pay. These apps generate verification codes (a QR code, for example) or display a digital version of the user’s debit card. Users scan the code or touch the device near a specified location in the ATM, and voila, the transaction is complete.
Some ATMs also have NFC-enabled capabilities that allow users to tap their debit cards in a designated area on the machine instead of manually entering a personal identification number (PIN) on a keypad.
Both NFC and EMV debit cards contain chips, so a “smart card” can refer to either. However, only NFC-enabled cards will work for contactless payments and cardless ATM transactions. Cardholders can easily tell if their card has NFC capabilities by checking the contactless indicator, which looks like a Wi-Fi symbol turned to the side.
Benefits and Considerations for Contactless Payments
Experts generally consider NFC payments to be secure. The technology uses the same standard set by EMV chips, which calls from the US Payments Forum “Effective in reducing fraud”, including in-store card counterfeiting cases.
For added peace of mind, cardholders can check with payment providers what specific steps ensure data security. Many dedicated FAQ sections exist to respond to customer inquiries regarding the security of contactless payments. Visa discusses technology behind this payment method on its site, and Apple Pay offers a long explanation on his support forum on how he uses data encryption.
Contactless payments are a convenient way for customers, merchants and banks to conduct transparent, fast and socially distant transactions. Once installed, the systems are relatively maintenance free. However, contactless payments have several drawbacks. Here are some considerations:
- Obsolete systems that do not accept contactless payments. If retailers or bank branches don’t have updated point-of-sale terminals installed at checkout or an ATM, you’ll have to go old-school with an EMV chip dip or traditional swipe.
- Private life. While security is not a major concern with this technology, privacy concerns are more ambiguous. The MTA has already landed in Hot water on potential privacy issues with its OMNY program.
- Accessibility. Critics of fintech often point out that it is not always accessible to the masses. Because of Numeric fraction, many people simply do not have access to technology such as smart devices. Those who rely exclusively on cash transactions (people without a bank account, for example) may find themselves unable to pay or withdraw money if retailers and banks go 100% mobile. (Some retailers have already suffered a backlash against such cashless policies.)
- Limitations of transactions. Since tap-to-pay systems do not require a signature or PIN, the maximum number of purchases or withdrawals is often limited. The exact amount that cardholders can spend or withdraw depends on the policies of the card issuer and the sponsoring bank.
Specific to transaction limitations, countries around the world are re-evaluating these limits as the need for contactless payments grows in the wake of Covid-19. NFCW.com, an online portal that provides news and analysis specific to emerging payment technologies, reports in its May 28 update 49 countries have announced increases in the limit for contactless payment transactions, ranging from 25% to 400%, with an average of 131%.
Paying for things in a post-Covid world
In early March, the World Health Organization warned that banknotes may be able to carry and the spread of the new coronavirus. While the jury is still out on how likely it is to catch Covid-19 from touching surfaces or objects, physical businesses and bank branches are likely to want to minimize the risk of infecting customers, no matter how small.
On his banking blog, Accenture listed “A strong push towards a cashless society” as the # 1 potential long-term impact the pandemic could have on global payments processes. MasterCard questioned 17,000 consumers in 19 countries have found that they perceive contactless payments as “the cleanest way to pay”.
If these predictions and sentiments come true, bank customers can expect a very different transaction experience in the future. On the one hand, they can spend less time in line, as contactless payments lend themselves to faster transactions. While the transaction time for a smart card can range from 30 to 45 seconds, a contactless transaction can reduce it to 10 to 15 seconds.
From tap-to-pay debit transactions to contactless payment methods for public transport, today’s landscape is fertile ground for contactless technology to take off.