Now that high-speed mobile connectivity permeates our society, millennial digital natives (and many older "digital immigrants") are seeking ways to leverage its benefits. That's leading them to gradually embrace newer, more seamless and secure modes of payment: from EMV credit cards and e-checks to mobile contactless payments made with smartphones and smartwatches.
Mobile payments, or tap-to-pay systems, are especially promising. Although the underlying technology has been around for decades, it’s only recently gained traction as a viable payment method for U.S. consumers.
In 2015, Wired predicted an upsurge in mobile payments adoption. Many experts expect the category to represent a significant portion of the American payments market by 2020 — and perhaps a majority in the more distant future.
That begs the question: If you aren't yet accepting mobile contactless payments, what are you waiting for? Making your business mobile-friendly is easier than you think — and carries valuable benefits that you probably haven't considered.
Tap-to-pay systems rely on near-field communication (NFC) technology, which was first patented in the early 1980s. In 2002, the release of industry-wide standards for NFC devices led to an explosion of experimentation by major credit card issuers and payment networks, including MasterCard and American Express. However, early NFC payment systems were plagued by security concerns and friction at the point of sale, so they never really caught on.
It wasn't until NFC-enabled smartphones became widely available that mobile contactless payment systems had a real shot. Dozens of tap-to-pay systems now exist around the world. In the United States, the three big players are Apple Pay, Android Pay and Samsung Pay.
Mobile contactless payment systems don't store digital cash, though related systems known as mobile wallets (Google Wallet is the best-known example) do, and function like debit cards. Instead, NFC payment systems securely store encrypted credit card information.
To further protect sensitive financial information during payment, they use one-time dynamic security codes and device account numbers that render transmitted information unintelligible to potential hackers. Additional security features vary by app and can include biometric safeguards such as fingerprint readers.
Payment itself is easy: customers simply open the payment app and pass their devices near a NFC reader. Processing occurs within seconds and carries the same fee structure as traditional credit card payments.
Cybersecurity is a high-stakes, ever-evolving arms race. There's simply no such thing as guaranteed protection against sophisticated hackers, and anyone who tells you otherwise is playing fast and loose with the facts.
That being said, mobile payments are considered more secure than traditional magstripe credit cards. That's because they mask card information during the payment process in a way that makes it virtually impossible for fraudsters to copy it, even if the merchant's network is compromised.
In contrast, magstripe cards encode raw card information right in the magnetic strip, leaving the door wide open for hackers who've breached merchant networks and in-person thieves who've installed cheap card skimmers on remote readers. When paired with an RFID blocker belt to deter wireless theft, a mobile payment system is significantly more secure for consumers — and, by extension, retailers.
Mobile contactless payments aren't just easy to accept, they're cheap too. Accepting Apple Pay or Android Pay has the same effect on your transaction margins as accepting traditional magstripe and EMV cards. When you use PayJunction's system to accept magstripes, EMVs or tap-to-pay, you pay the standard Interchange fee plus a 0.75% surcharge, which is a bargain compared to what other payment processors charge.
In a fast-moving world, seconds matter. Although the time investment required to insert an EMV card and wait for the payment to process is not an order of magnitude greater than what’s required to tap a phone to an NFC reader, it's significant for harried customers. Tap-to-pay customers can pay with one extended, fluid motion.
By contrast, there's little to be done during the 16 seconds a typical EMV transaction takes to process. It might not seem like a big deal, but customers are liable to walk away from that uncomfortably long interval feeling like they've lost time they'll never get back, which is true.
The "everyone is doing it" argument doesn't always work. However, when not following the crowd can actually hurt your bottom line, it proves persuasive.
That's what's happening with tap-to-pay systems right now. In the United States, merchants resisting the mobile payments revolution aren't yet losing money as a result. But that day could be closer than you think.
As more consumers adopt mobile payments as their primary in-person payment method (and even occasional users come to expect the option to pay by phone wherever they go), they may see mobile-incompatible merchants as out of touch, or even backward. And that's not a good look for retailers seeking to remain competitive in the digital age.
Consumers who fully embrace mobile payment solutions such as Apple Pay and Android Pay can theoretically sever (or at least loosen) ties with one of the most potent symbols of consumerism: the physical wallet. Storing a lineup of credit and debit cards on a mobile payment app means not taking those cards along on errands, day trips or vacations.
Don't underestimate the extent to which that simple change reduces the friction around in-person payments. When customers no longer have to stop, remove their wallets, retrieve the appropriate card, and run it through a reader, they're liable to approach the point of sale with a bit less trepidation.
Aaron Geers is a technology writer for Money Crashers, who covers personal finance, small business, mobile apps and gadgets.