Contactless methods of payments, such as mobile wallets and tap and pay cards are growing in popularity due to their convenience and speed. In fact, Visa predicts that there will have been more than 100 million contactless payments made by the end of 2019.
No more relying on unsecure magstripe technology
EMV cards were introduced as a way to combat the use of counterfeit cards. Pre-EMV chip cards only had the magnetic strip on the back of the card that was used for transmitting payment details. The data in the strip was static, and easily reproducible.
Fraudsters have long had access to magstripe technology and with legitimate customer account data are able to create credit cards that magnetic point of sale terminals can read.
With the signigicant data breaches that we’ve seen in the last few years, most of us have had our personal data and credit card credentials exposed. This is a treasure trove for fraudsters who are able to use this data to create counterfeit cards.
EMV chip cards provide security at POS
EMV chip cards were introduced in the US between 2013-2015, almost 10 years after Europe. EMV chip cards, the new standard for physical debit cards and credit cards, have a computer chip embedded in them. This chip dynamically creates a new, unique transaction number for each purchase. Fraudsters that are able to get access to this number will find it useless to use this number for future purchases.
With wide deployment and use of chip cards, we saw a dramatic shift in fraud. Before the deployment of EMV chip cards, 70% of fraud happened in brick and mortar stores, but after the adoption of chip cards this number dropped to 20%. Fraudsters are moving to the e-commerce channel, where they can more readily use their stolen customer data.
One of the big challenges that issuers and merchants saw with the introduction of the EMV cards was creating a delightful customer experience. Initially there was confusion about how to use the cards: “dip” vs. “swipe. Then there were concerns about how much time it would take to process a transaction. In the retail world, even seconds can be critical for moving shoppers through the queue. Then there were the offensive sounds the terminals made as they reminded customers to remove their card. Overall, the EMV chip experience is sub-optimal.
Contactless payment is the answer to a better customer experience that is still secure
Introducing the contactless experience. A contactless payment is a secure method for customers to purchase goods or services using technology such as near-field communication (NFC) or radio-frequency identification (RFID) at a POS terminal enabled with the same technology. The payment method, linked to a credit or debit account, could take the form of a mobile phone with a digital wallet, a wearable device such as a smart watch, or a contactless card.
Almost as soon as EMV chip cards were deployed, people were trying to figure out how to provide a better customer experience with the same level of security. For example, Apple Pay was introduced in the midst of the EMV card deployment, launching in October 2014 .
Digital wallets such as Apple Pay, Samsung Pay and Google Pay leverage EMV standards to create a dynamic number for each transaction and combine this with a biometric or PIN authentication ensuring that the payment is secure.
Contactless cards use this same EMV technology and standards, generating a unique number for each tap at a payment terminal. They offer the same security as the EMV chip cards, but offer the greater speed and convenience of tapping a card.
One of the challenges with contactless payment adoption has been merchant acceptance. In 2014 when Apple launched their wallet, less than a quarter of merchants accepted contactless payments. Early adopters trying to use their digital wallets were often frustrated by lack of merchants accepting this form of payment.
The networks made a big push towards helping merchants with contactless adoption, and in 2018 in the US we saw a significant uplift in contactless terminals, with more than 70% of merchants having contactless enabled terminals.
Now that many merchants support the capability and banks are starting to issue contactless cards, 2019 appears to be the year that we expect to see widespread adoption of contactless payments through a combination of contactless cards and mobile payments.
New payment methods require behavior pattern shifts. These only happen with the development of a habit. Initial adoption will be slow as consumers start getting comfortable with the technology. Early adopters will continue to use their contactless cards and champion it with their friends and colleagues. As people start using the cards and see how easy the experience is, I think they will be interested in repeating the experience and momentum will build. The end of year holiday season is likely to be the turning point.
It will be interesting to see if the growth will climb as quickly as predicted.
For more information, on contactless payment capabilities, visit the network overviews of contactless payment solutions:
Visa (https://usa.visa.com/pay-with-visa/contactless-payments/contactless-cards.html) Mastercard (https://www.mastercard.com/en-ke/consumers/features-benefits/contactless.html)
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