Payments evolved: cashless and cardless payments with NFC
April 25, 2018
Payments evolved: cashless and cardless payments with NFC

What do you know about modern payment methods? Do you still use cash or bank cards? A friend of mine felt astonished when saw someone used a contactless card to pay in store a couple of years ago. The future was already at the door and most of the people were unaware. As the contactless card payments are now as common as coffee in the morning, NFC-payments are marching around the globe.

Cashless and cardless payments are relatively new, but they quickly take over the traditional methods. It’s no brainer really when you carry in your pocket a smart device with NFC capabilities. Furthermore, global smartphone adoption is reaching 66% in 2018, according to Zenith’s Mobile Advertising Forecasts 2017. The company estimates smartphones penetration above 90% in Europe and Asia: 94 % in the Netherlands, 93% in Taiwan, 92% in Hong Kong, 91% in Norway and Ireland.

 Contactless payments

As the essential part of daily life, smartphones accumulate and unite vast amount of functions, inevitably replacing a number of devices, including laptops and digital cameras, and day-to-day activities. Modern affordable smartphones are now fast, powerful, and full of features, that were key selling points of top-segment devices several years ago. This enables enormous possibilities for everyone and everywhere.

Cash may seem and feel obsolete, but what about credit and debit cards? Turns out, bank cards are still a preferred means of payment in a growing number of businesses. Nonetheless, the overall ubiquity of smartphones globally led more consumers to conduct shopping and financial activities on their mobile devices. Global payment environment is constantly changing as more people embrace mobile and online banking, and financial institutions see the potential in implementing payment means to the smartphones.

According to Statista study, the penetration of mobile payments is near 37.5% now, reaching 66.7% by 2022 with the number of users reaching 977.2 million. Moreover, consumers rapidly adopt the most convenient way of mobile financial transactions – contactless payments. In a number of Western European and Asian Pacific countries some banks, retailers, and transportation companies have already minimized transactions with cash or even credit/debit cards, preferring contactless payments at branches or at the POS.

Although contactless payments differ in implementation, the NFC technology, which stands for Near Field Communications, is the most common mean of shopping at POS.

NFC payments explained

To understand how the technology works, imagine you have an NFC-enabled smartphone, which can store your bank card information via one of the mobile wallets of mobile bank application. You are shopping at a store that has a mobile payments reader. Instead of reaching for the wallet to retrieve cash or bank card, you simply take out a smartphone and hold it inches above the reader. The Point-Of-Sale terminal then automatically retrieves the payment and other relevant information like loyalty cards, coupons, or offers at the same time (so-called ‘one tap’ solutions) from the smartphone and processes the transaction.

In short, NFC allows communication between two devices (via RF field), typically a portable device such as a smartphone, tablet or wearable, and a terminal or reader of some kind.

The undoubtful convenience of the technology determines the market potential of the contactless NFC payments, which is enormous. The most prominent feature of NFC payments is that you only need a smartphone to conduct a payment. There’s no point in pulling out the wallet, you may completely leave it at home with all the cash and bank cards, loyalty cards and coupons, all in one phone in your pocket. The chances that you have a smartphone near you whole day are pretty high anyway, so you may never bother.

Merchants are adopting the contactless payments and subsequently the NFC-enabled terminals at a quick pace. This payment method is easy to understand and to use, as well as reliable and secure. First of all, hacking a modern complex mobile operating system – Android, iOS, or any other, is not a trivial task. And then in most cases, the contactless transaction needs to be confirmed by entering a passcode or scanning a fingerprint. The transaction is then validated with the help of the secure element, which hosts card applications and cryptographic keys for financial transactions, or host card emulation, which relies on cloud tokenization. They are tamper proof and protected from software and hardware-based attacks.

The only concern about NFC payments is the lack of globally unified across any enabled terminals and supported platforms standard. EMV standard is the most common among major credit card and smartphone companies for use in general commerce, but it is not the only one in the world.

Global adoption of contactless NFC payments

According to the latest study of Juniper Research, within 5 years 1 in 2 of global transactions at POS will be contactless (53%), compared to just 15% this year. The most prominent market for contactless payments is the Asia-Pacific region, which leads globally in terms of mobile payment usage. China is also leading in transaction value, reaching $200,000 million in 2018.

Europe is a little behind in terms of market adoption. However, the Juniper Research study indicates, that in countries, where contactless is widely promoted (the UK, Poland, and Nordic), all POS terminals in many markets should be contactless-enabled by 2020.

Interestingly, the US is lagging behind with contactless payments sharing less than 2% of all transactions now. However, this figure will rise to 34% by 2022.

Another prominent country in adopting NFC payments is Canada, where 53% of smartphone owners are interested in paying with their mobile devices. And 85% of smartphone payers with contactless technology have the positive impressions towards the method.

The only question is: Are you ready for the global payment revolution?