Contactless payments are a form of credit and debit card payment where the consumer does not need to touch anything. They won’t need to touch anything with their card. In fact, they may not even use their card. And they certainly won’t need to touch anything with their hands.
This is in contrast to traditional ways of accepting credit cards. For decades, debit and credit cards had a magnetic stripe on the back. When customers made a payment to a business owner, they would swipe the card through a POS reader. If the card was a debit card, they would need to input credit or debit as their payment options.
Then they would need to put in a PIN, or take a stylus and sign the keypad. Either way, it involves a lot of touching. In fact, the average POS terminal could receive potentially hundreds or thousands of touches per day. And with that many fingers, odds are someone has left some germs on that keypad.
In this article, we will discuss how to take payment from customers through 7 different contactless options.
Contactless Payments: The New Norm
Collecting PINs or signatures is still part of the payment process. But it is disappearing almost as fast as the magnetic strip. In case you didn’t know, those shiny black lines will likely disapear from cards by 2030.
Payment gateways that facilitate contactless payments are the new norm. One catalyst to their rapid rise was the Covid-19 Pandemic when consumers became more health conscious. By 2021, around 80% of US consumers were using contactless payments at least somewhat regularly.
Retailers were also responsive to the idea of contactless payments. In addition to their more sanitary quality, contactless payments are the fastest form of payment. Magnetic strips and EMV chips can take up to 10 seconds, while contactless payments can take 1-2 seconds.
8 seconds may not seem like such a difference. But remember people will abandon a web page if it takes more than 60 seconds to load. This is probably why 74% of retailers planned to make contactless payments a long-term feature of their business. Moreover, 59% are already or plan to go cashless.
Contactless Ways to Collect Money From Clients and Customers
What follows are a few customer payment options for contactless transactions. None of these ways require them to touch anything, or you to take a card from them.
#1: Contactless Plastic Payments
Almost all new credit and debit cards can facilitate contactless payments. Small white radio waves on the card’s surface indicate contactless payment abilities. This symbol represents the RFID (radio frequency identification) technology used in the cards.
Each card has an embedded chip and a small radio antenna. When the card is within a few inches of the terminal, the antennae facilitate the transfer of relevant information. In this case, it’s an encrypted token unique to that transaction.
This information is then passed along the card network to the cardholder’s bank. Their bank will verify the likelihood of fraud and the availability of funds or credit. In this regard, it’s similar to the traditional swiping of a magnetic strip. The difference is that each contactless payment has its own signature—unlike the static data stored on a magnetic strip card.
Everything is accomplished within 1-2 seconds, and the card does not even need to touch the terminal. Consumers have responded positively to contactless technology, appreciating its convenience and sanguinity.
Mastercard found that as many as 46% of American consumers have shifted a contactless card to the top of their wallet. As a merchant, all you need to collect payments like this are the right payment services. A POS terminal with contactless technology will allow you to collect contactless card payments.
#2: QR Codes
One unique way to collect payments from customers is the QR code. QR codes are black-and-white checkerboard patterns that cardholders can scan with their phone. Their phone will then prompt them to open a webpage where they can make a payment.
This payment can be made by inputting card information into a payment portal or using a mobile wallet. Some payment portals can facilitate the use of P2P payment apps to make the payment. However it happens, QR codes are a unique fusion of online and in-person payments.
On one hand, the customer is in front of you. But on the other hand, the actual payment is collected online, just as if they were shopping in your online store. For this reason, merchants should take note that QR code payments are charged as card-not-present transactions. These types of transactions do have slightly higher fees than card-present transitions.
However, QR codes are becoming a preferred way of collecting money from customers in certain settings. Of the 1 million restaurants in the United States, more than 52% are now using QR codes. Traditionally, diners would have to settle a tab by handing a waiter their card, which presented some security concerts.
QR codes let them pay right from the table. In that vein, QR codes are also being used to pull up menus. But in addition to eateries, QR codes can also be used for collecting invoice payments. When you send invoices, a QR code on the invoice can guide clients to make a payment upon receipt.
Another benefit to QR codes is that you don’t need any hardware. If you’re offline but you want to do business, all you need is a business card. Or you can point the customer to a sign with a code. Networking, in-person meetings, and pop-up shops are all situations where a business owner can benefit from QR codes.
#3: Mobile Wallets Like Google Pay
Mobile wallets are similar to contactless card payments, and use a similar type of technology called NFC or near-field technology. This is also a form of radio-wave tech that generates one-off pieces of encrypted information making every transaction different.
The customer takes their mobile phone and holds it to the POS terminal. This allows the devices to communicate with short-term radio waves. The requisite information is then sent along the card networks, and the payment is completed.
There are already 2.8 billion mobile wallet users around the world, and that number will increase to almost 5 billion by the end of 2025. Consumers appreciate the ease of having payment options right in their smartphone, instead of having to carry around a wallet.
If state and local governments switch to forms of digital ID (which is hotly contested) this may accelerate the trend toward universal mobile payments. Until then (and if then), around 43% of US consumers are using mobile wallets, including 44 million users of Apple Pay.
What you need to take mobile payments is (once again) just the right type of POS terminal. Your customers will do the rest. Of course, one drawback to mobile wallets is battery power. For these reasons, your POS should (and will) also accept card payments.
But it will be also interesting to see if in-store wireless charging stations become a normal part of the in-person retail landscape.
#4: Online Payments
Don’t forget about good old-fashioned online payments. There is no contact here, and in fact, the customer is likely not even in front of you. For the 2.5 million online businesses in the United States (and 24 million worldwide), this is a no-brainer.
However, there is an art to the science of collecting payments online. The best way to take payments online is through a payment gateway that is integrated into your site. This provides a smoother customer experience than something like a PayPal button, or worse—a button that takes the customer to a third-party website.
So, you may be wondering, “How can customers pay me online”? The best way to collect money online is to work with a payment processor who can integrate payment right into your website. This will have some back-end components that customers cannot see, such as anti-fraud measures like proxy-piercing (in short, verifying the true address of the customer making payment).
You might be wondering how an online presence can help a traditional brick-and-mortar…or if a traditional brick-and-mortar can help an online business. Research has actually confirmed the presence of a unique halo effect where sales in both venues increase.
It’s a symbiotic relationship between in-person and online sales. Consumers develop a certain brand loyalty, and may (for instance) turn to your online store when they cannot come in. Alternatively, they may engage with your site when they want to preorder something.
#5: ACH Payments and Recurring Billing
Another method to get payment from a client or customer with no contact is subscription billing. In subscription business models, the client or customer makes periodic payments (annual or monthly) and in return gets access to services or delivery of goods.
There is no need to collect the payment information regularly because your payment processor will store it for repeated use (on a date, and for the amount you and the cardholder agree on). You won’t have to think about how to collect outstanding payments from customers, because the charge will be automatic every month.
In terms of cash flow, this is also one of the best ways to collect money from clients and customers. One-off transactions are limited in scope, and you don’t know if you’ll see the customer again. By contrast, subscription services are a more permanent source of cash flow, as long as you can retain the customer.
The subscription economy will be worth $1.5 trillion by 2025, with key players being Netflix and Amazon Prime. But subscription services can be more than movies or free shipping. Subscription services delivering tangible goods like food and beverage makeup 54% of the market share. They can also include delivery of niche goods like curated or handcrafted items.
Besides card on file recurring payments, another form of contactless, recurring billing is through the ACH network. This uses checking accounts and routing numbers to make payments, instead of card numbers. The transaction fees are much lower, and payments are taken right from the customer’s bank account and deposited to yours (although that’s somewhat of a simplification, it’s an adequate summary of ACH payments).
#6: Text Your Payment
This one might raise some eyebrows. Interestingly, while only 4% of businesses have explored this option, 35% of consumers want to pay by text. But wait…there’s more. That number shot up to 62% for consumers under 35.
No surprise there, perhaps, since 89% of people have their phone within arms reach at all times…leaving us wondering how the other 11% can go through life not opening TikTok every 60 seconds. While texted invoices or texted requests to collect payment may seem invasive, these stats are showing them to be a valid and appreciated method for collecting payment.
Consumers are on their phones a lot, which is probably why text messages have a 95% read rate within 3 minutes, and a response rate 209% higher than phone calls. If you’ve ever tried to call someone lately, you probably know that (don’t even bother leaving a voicemail).\
A texted payment request will be similar to collecting online payments, in that the customer is guided to an online portal. From their phone, they can use a card, mobile wallet, or P2P app to make a payment. For certain demographics (e.g. those under 35) this might be one of the best ways to receive payments from clients or customers.
Before searching for a company that specializes in text payments, ask your payment processor if they can facilitate this type of transaction. Since it’s an up-and-coming method that’s showing an increase in popularity, chances are they can integrate it into your current payment terms.
#7: Preauthorize a Transaction
Preauthorization is not necessarily contactless in its own right, but its initial stage can be when done in a contactless method (such as any of the ones listed above). Preauthorization is when the customer agrees that the final billed amount is yet undetermined (although within specific limits specified at the point of sale).
Common examples include checking into a hotel or renting a car, where the customer might get charged for incidentals (e.g. that cozy $150 bathrobe you thought they wouldn’t notice). By the time the charge is completed, the customer is usually no longer in front of you, and the conclusion of the payment is totally contactless.
But preauthorizations can also be used in settings aside from hospitality and dining (where they are also common, because of tips). You can use preauthorization in a way that is somewhat similar to subscriptions.
Customers or clients can leave payment information with you (via the payment processor) and you can run charges as services are rendered or goods are taken. This payment model is kind of similar to a tab.
Although the tab model is out of vogue for retail, it may be coming back. Companies like Amazon are using this model to operate cashier-less stores. Customers have already provided payment information, and whenever they visit a store, their account is billed automatically. Everything is contactless, although also devoid of pleasant point-of-sale small talk.
Contactless Payments: A Wrap-Up
Contactless payments are secure and easy. Their security is mainly derived from the fact that the radio-wave communication which enables them is short-wave. Outsiders cannot interfere in the interaction, as they can with a magnetic card reader (by installing a skimming device). Additionally, each wireless transaction is encrypted and/or tokenized, making them totally useless for future transactions.
In terms of convenience, they are quick and easy, taking just 2 seconds or less. Consumers just have to wave a card over a terminal, or even just their phone. True, QR codes require a little bit more work, but they have the added convenience of guiding customers to a menu. Moreover, with QR codes, customers do not have to hand over their cards.
Then there is accepting payments online, and subscription billing. These transactions can be initiated from the home, which requires some additional security measures. But they can also become significant sources of revenue and stable cash flow (especially the latter).
Contactless payments are here to stay, but they also require some of the most up-to-date and cutting-edge technology. And there’s no stopping there either. Already, new biometric methods are being explored—in some cases, for unlocking mobile wallets, and in others for making payments. For instance, Apple has developed biometric locks such as finger and/or retinal scans for accessing mobile wallets.
And ultimately, contactless payments may be made with implanted chips, such as some consumers in Europe who have had payment chips implanted in their hands. While this apocalyptic (as the book of revelations warns against) microchip hasn’t really taken off yet, it may be complemented by less invasive methods such as face scans to facilitate payment.
A Relationship in the Present…For The Future of Payment Processing
Of course, that’s a discussion for another day, since it will require updated, innovative POS terminals. In the meantime, POS terminals that facilitate contactless payments can be provided by a payment processor. One thing to take note of is this: a long-term relationship with a payment processor can help you stay up-to-date in the payment landscape.
A good payment processor can lease or sell you the most current hardware. They can also serve the software that animates them. This software may also integrate into other solutions like inventory or accounting software.
Intrigued by the possibility of contactless payments? Give us a call or contact us by filling out the form below. We can answer any questions you have about contactless payments and discuss how to integrate them into your business.
