Contactless payments: spike during COVID-19 and future

Cyril Diamandi
Cyril Diamandi

Spike of popularity among contactless payment during Coronavirus pandemic

Coronavirus – a dangerous disease that poses a huge threat to the economies and populations of all countries in the world. One of the sources of the virus’s spread is cash, which carries a huge amount of bacteria. ATMs with cash-recycling functions become a channel of disease transmission. The only way out is by making contactless payments, which allow you to pay instantly and not put yourself in danger.

Even the World Health Organization (WHO) recommends consumers avoid cash contact and switch to contactless payments to prevent the spread of COVID-19. WHO issued this recommendation after China and Korea began separating and disinfecting used banknotes known to carry viruses and bacteria in cash flow.

A representative of the World Health Organization noted in a recent interview with The Telegraph:

“We know that money often passes from hand to hand and can collect all kinds of bacteria and viruses. We advise people to wash their hands after handling banknotes and try not to touch their face. Wherever possible, it is advisable to use contactless payments to reduce the risk of the infection spreading.”

Consumer peirceived importance of contactless payments

Coronavirus is a huge threat to the international economy. Opinions vary greatly on how slow the global economy will grow.

The study of the American Institute of International Finance (IIF) is pessimistic. IIF estimates that the global economy will grow by a maximum of 1% in 2020, the worst result since the 2007-2008 crisis. In China, the source of the virus, GDP growth will slow to 4% instead of the previously expected 5.9%.

Consulting company McKinsey&Company has outlined three scenarios of crisis development. The softest scenario is the elimination of coronavirus outbreaks up to the second quarter of 2020. In this case, the global GDP will grow by about 2% instead of 2.5%. If the pandemic cannot be overcome within the first half of the year, the growth of the world economy will not exceed 1.5%. In the case of a prolonged pandemic and the spread of disease during the second or third quarter, global GDP could fall by 1.5%.

So, how can you stop spreading disease? Only using contactless payments. Its popularity is incredibly increasing due to the COVID-19 pandemic. Surely, contactless payment is the safest way of using money. 

Types of contactless payments

In most cases, contactless payments are ensured by NFC chips – small boards that are found in most modern smartphones and tablets, as well as in many smartwatches and smart bracelets. These chips can transfer the encrypted data of a customer’s bank card to another chip that is installed, for example, in a POS terminal at a store. The data exchange takes 1-2 seconds, followed by successful payment. 

The contactless connection between the devices is made with the help of radio frequencies (Radio Frequency Identification technology). NFC-chip uses a special radio frequency (13.56 MHz), which works only if the devices are close to each other.

How contactless cards work

There are two main options for using NFC technology in retail payments:

  1. The first way is payment by using cards supporting contactless technologies (for example, MasterCard PayPass/ Visa PayWave).
  2. The second way, which is gaining popularity, is contactless payment by mobile devices through paying services (for example, Apple Pay, Android Pay, Samsung Pay).

To use a smartphone as a contactless payment tool, you need to tie the card to your smartphone once using a special application. At this stage, an encrypted “key” (token) will be generated and stored in the application. After that, you can pay with your smartphone without using the card.

Contactless payment is becoming more and more entrenched in mobile devices. Near Field Communication (NFC) technology is already available in Apple, Samsung, and other mobile devices. In addition to NFC, Samsung has introduced magnetic security transfer (MST) technology into its smartphones, which can interact with terminals that accept cards with a magnetic stripe. 

Contactless payment is also influenced by wearable devices. Watches with an embedded NFC chip are produced by leading tech companies like Apple and Samsung. Traditional watchmakers, like Mondaine and Swatch, are also keeping up.

In addition to the convenience of NFC technology, the advantage of contactless payment is the security of settlements, which is provided by the global digital tokenization platform Mastercard Digital Enablement Service (MDES). MDES allows turning any device with NFC chip and Internet connection into a secure payment tool: a unique token is created to protect transactions. A token is a 16-digit combination of numbers tied to a user’s bank card number, which is unique for each connected device. Bank card details are hidden when tokenized payment is made and are securely protected. To verify the payer by the bank during the payment process Mastercard transforms the token into the card number.

The main advantages of using contactless payments:

  • Protection from COVID-19. Using contactless payments you avoid contact with things (money) that potentially can be infected with the coronavirus.
  • Simplicity. One-touch purchase payment without pin code and signature. You need less time to pay for the purchase. 
  • Quick. Payment using contactless technology occurs almost instantly. This saves time for the client and makes the work of the cashier more effective.
  • It’s an innovation. The most modern payment technology. If a business uses contactless payment – it gains respect from customers.

But how contactless payments affect business and economy? What are the examples of successful implementation of contactless payment technology?

Use cases in different economy sectors

Contactless card limits

In 2016 in Seattle, the American eCommerce giant Amazon launched a new type of Amazon Go offline store with no cash registers or cashiers. Buyers only need to select the right products from the range offered and leave the store, the payment will pass on its own, contactless and discreetly.

The company combines RFID (radio frequency identification technology) with smart video cameras. The system records when the customer takes an item off the shelf, while video cameras locate the customer inside the store. A comparison of different data allows the system to identify who took an item from the shelf and record it in a shopping list in an Amazon mobile application.

This approach allows customers to perform a reverse operation, return a product to the shelf and thus automatically exclude it from the virtual shopping basket. Products can be carried out in pockets or hands. After a person has gone through the turnstiles, the money is automatically deducted from his Amazon account.

Amazon Go, where the whole process of shopping (from selection to payment for goods) carried out by the buyer, brings 50% more profit than the traditional format stores.

The company continues to develop a new payment method that will allow consumers to pay for their purchases using the palm of their hand without using a bank card.

The American company had filed a patent for a “contactless biometric identification system” with a palm scanner. The tech giant is developing this project together with Visa and Mastercard. Major banking institutions, like JPMorgan and Wells Fargo, are also taking part in its development.

The company plans to provide customers with an opportunity to tie the data of a bank card to their palms, which will allow them to make purchases with one touch of a hand without using “plastic”. Also, the company plans to introduce payment by hand in the supermarket chain “Whole Foods”. How we can see, Amazon is the leading contactless payment developing company in the world. 

Contactless payments are becoming part of the “on-demand economy”. Taxi applications such as Uber, Bolt, Gett can be used for reference. These services allow users to tie a card to a mobile application once and then automatically pay for their trips without touching either cash or the interface of the application itself.

Besides mobile platforms for ordering services, functions of contactless payments are available both on social networks (Facebook, Twitter) and messengers like Telegram, WhatsApp and Viber.

Over the next decade, we will see more changes in the banking industry than in the last 100 years. KPMG Global’s research “The Future of Digital Banking” confirms that technologies such as Artificial Intelligence, Blockchain, Biometrics, 5G, AR/VR will have the greatest impact on the financial services industry in the next 10-15 years. Soon, contactless payments can be replaced by voice command and biometrics. Thanks to the “Internet of Things”, any device can become a digital channel for paying for goods and services.

Examples of successful implementation of contactless payments into banking systems are Monobank, Revolut, N26. All these banks are mobile, they have no offices, but are incredibly popular. Of course, among young people. 

All these banks are actively competing with each other. For example, N26 is the most highly regarded German startup and one of the most highly regarded startups in the world. Revolut has attracted more than $350 million in investments for its development and its value is estimated at more than $2 billion. In just 3 years Monobank reached the mark of 2 million users – this is an excellent result. 

Consequences for business and economy

The sphere of contactless payments is huge and develops due to the solutions implemented by eCommerce companies, blockchain platforms, mobile developers, financial projects, banks, and even companies specializing in passenger transportation.

The rapid development of mobile technologies and contactless payments is creating a new model of user behavior. This behavior model prefers the active use of smartphones, contactless payments and various connected devices in everyday life.

Banks that do not think about the development of contactless payments may lose in the future: they will lose both clients and time. 

One of the main factors that stimulate the development of contactless payments in the world is the desire to be the first in innovations. Contactless technologies are a sign of the modernity of banks and businesses. 

Future of contactless payments

Preferred devices for payment

A lot of countries have long adopted cashless technology, some experts even claim that the more NFC payments a country has, the greater its economic potential. Cash payments are still prevalent in developing countries, but in recent years, high-population countries such as China, India, Brazil, and the USA have begun to step forward into a contactless future.

According to Business Insider, the flagship for developing countries is China, with its unique payment technology integrated into its local social network – WeChat messenger. This subsidiary of China’s giant Tencent is a mix of services, one of which is WeChat Pay, a contactless payment system for more than 1 billion users that allows them to send money directly from one smartphone to another without leaving the application, further boosting the commercial boom in China.

According to the Merchant Savvy web service, China dominates in contactless payment development. Only in February 2019, 1 out of 9 people on the planet used Chinese payment systems to send and receive cash during the Chinese New Year. 

According to Worldpay’s 2018 Global Payment Report, mobile payments will continue to grow and by 2022 become the second most popular method of payment after bank cards in the world. 

In the US and Europe, card payments are still more popular than mobile payments. There are various reasons for this, but among the main ones are conservatism, as well as firmness of the authority of EMV chip cards, which are very popular among middle-class people.

Conclusion

Contactless payments: spike during COVID-19 and future

Contactless payments are the future of money transfers. The coronavirus outbreak and its worldwide spread significantly increase the popularity of contactless payments because cash is transmitting COVID-19. Contactless payments are the best way to prevent the spreading of COVID-19.

Contactless payments are a very convenient way to transfer money. The business actively implements new technologies in its own work and increases NFC popularity. The cases described in this article demonstrate the potential for spreading contactless payments in the world.