Contactless payments have surged since 2020, initially spurred by consumers’ concerns about the spread of germs when the COVID-19 pandemic hit. Turns out, many people found “tap to pay” to be more convenient than swiping or inserting a card to make a payment, so contactless payments have taken hold. Visa reported earlier this year that nearly 20 percent of all in-person credit or debit card transactions in the U.S. — and 45% in New York City — are now made by tapping a card or using a digital wallet such as Apple Pay or Google Pay on an NFC payment terminal or other contactless acceptance devices, such as those in train and subway stations.
We’ll take a closer look at NFC payments and cover everything you need to know about the technology, how NFC payments work, the benefits to consumers and businesses, NFC security features, and what to look for when upgrading to an NFC terminal.
What is NFC?
Near Field Communication (NFC) is the technology that allows two devices — like your phone and a payment terminal — to talk to each other when they’re very close, typically within two inches. NFC is based on short-distance, radio-frequency identification technology (RFID) and uses a tiny microchip and radio antenna to conduct the wireless tap-and-go experience. It is the technology used for conducting contactless payments for nearly 20 years.
What are NFC Payments and How do NFC Payments Work?
NFC enables convenient contactless payments via EMV credit and debit cards, as well as mobile wallets including Apple Pay, Google Pay and Samsung Pay. The COVID-19 pandemic fueled the demand for NFC contactless cards. In 2018, just 3% of cards in use in the U.S. were contactless. Now, virtually every major credit card issuer offers contactless cards, and 87% of debit cards are projected to be contactless by the end of 2022.
In order for NFC contactless payments to work, both the payment terminal and the payment instrument (i.e. card, phone, wearable) must be enabled with NFC technology. Cardholders can easily tell if their credit and debit cards have NFC capabilities by checking for the contactless indicator, which looks like a Wi-Fi symbol turned sideways. Most NFC payment terminals feature the symbol on the exterior case or on the display.
Consumers simply wave their card, phone or wearable device (i.e. Apple Watch, Fitbit) near the NFC payment terminal and transactions are completed in less than two seconds!
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What is the Difference Between EMV and NFC?
An EMV card — also referred to as a “chip card” or a “smart card” — features a secure, embedded integrated circuit chip (ICC) on the front that has the ability to read and write information to the chip and validate authenticity. The chip stores encrypted data that is more secure than mag-stripe data.
Some EMV chips also feature NFC technology, which means they can be dipped (“contact EMV”) or tapped (“contactless EMV”) to pay. Mobile wallets use NFC wireless technology in the phone to communicate with an NFC payment terminal or mobile card reading device.
Both EMV and NFC payments meet stringent data security standards for in-person payments, and both protect businesses from the EMV liability shift. That means businesses that have an EMV card reader are not responsible for the fraud charges stemming from most counterfeit card transactions.
What Are the Benefits of NFC Payments?
Consumers — especially younger generations — like the speed and convenience of paying without opening up wallets and digging for cards. Contactless payments drive business efficiencies and there are many good reasons to encourage customers to pay with a tap. Plus, business owners don’t have to worry about any increased costs. Transaction rates for NFC contactless payments — whether by card or by phone — are the same as traditional swiped and dipped payments.
Preferred by Customers - In early 2020, Mastercard did a study that found 46% of consumers made contactless cards their “top of wallet” choice. And as more consumers adopt mobile payments, they may expect to pay anywhere with their phone or wearable, and not have their physical wallet on hand as a back-up. That could result in lost sales, and lost customers.
Faster Payments - In a fast-moving world, seconds matter. NFC transactions are faster than any other in-person payment method and are completed in the blink of an eye, allowing customers to tap their card or mobile wallet and be on their way. And if you run a business like a busy coffee shop, you’ll appreciate the time savings that keep customers quickly moving through the line.
Healthier Interactions - Contactless payments surged as consumers and businesses looked to limit the spread of germs in the early days of the COVID-19 pandemic. Mastercard’s study found that 82% of consumers viewed them as a cleaner way to pay. Allowing customers to tap their own card, phone or wearable on a customer-facing NFC payment terminal like PayJunction’s ZeroTouch Terminal reduces contact with staff.
Reduced Points of Failure - The contact points on an EMV chip card or in a payment terminal’s EMV chip slot tend to wear out quickly, resulting in the inability for an inserted card to be read. The terminal will attempt three times before the consumer or clerk is instructed to swipe the card through the mag-stripe reader. Not only is this frustrating, but it slows the check-out process. Contactless chips are less prone to damage, and there are no physical points of failure in a digital wallet.
Where is NFC Used?
NFC payment transactions only apply to payments made in person, not those made online or through recurring payments, such as subscriptions. If at least 80% of your payments are made in person, you should make sure that you have an NFC payment terminal to accept EMV and mobile wallet contactless transactions. This protects your business from certain types of fraud and chargebacks. It also builds customer trust by showing that you’re keeping up with the latest technology.
Most contactless payments take place at a check-out counter with a customer-facing NFC payment terminal. Increasingly, payments are taking place away from a fixed location, such as at tables, curbside, in pop-up departments, or on the road. In these cases, a portable payment terminal extends the speed and convenience of paying with a simple tap anywhere these interactions take place.
Contactless payments are also gaining traction in self-service segments where customers use kiosks to make purchases or gain entry, such as movie theaters and mass transit operators. Look for a rise in “tap-to-ride” programs on trains, buses, subway systems and ferries. Commuters who find it convenient will be increasingly less likely to carry their wallets, and seek out businesses where they can pay for purchases the same way.
How Secure are NFC Payments?
The idea of paying for something with just a wave of a card or device may make some people uncomfortable. Consumers want to ensure that their data — and their money — can’t be stolen. Businesses want to protect their data as well.
Unlike the mag-stripe technology on the back of traditional credit cards — which was developed in the 1960s — NFC payments are considered to be extremely secure. NFC uses advanced technology that only the receiving terminal can read. The data involved in an NFC payment transaction is encrypted and dynamic so, unlike the data on a magnetic stripe, it’s difficult to hack and always changing.
Making payments from a smartphone is one of the most secure ways to pay. In addition to NFC security, most mobile wallets have a secondary form of verification — such as a fingerprint scan or facial recognition — that significantly limits the risk of anybody but the device owner using it to complete mobile payments. The leading wallet apps from Apple, Google and Samsung replace actual card details stored on the device or in the cloud with tokens, making them completely useless to fraudsters.
A full 87% of business owners we surveyed reported higher numbers of NFC transactions and told us that contactless payments were fast, easy and safe.
Why Should You Accept NFC Payments?
Why wouldn’t you want to support payments that are popular, fast and secure? Contactless payment adoption will continue to grow, especially as younger generations age and choose modern payment types versus those of older generations still paying with cash, traditional credit cards and even checks.
The way customers pay comes down to choice, and businesses should be ready to accept payments no matter how they are presented: via mag-stripe card swipe, EMV card insert, or the tap of an NFC card, smartphone or wearable device. Using an all-in-one customer-facing terminal allows patrons to choose their preferred payment method, and keeps staff and customers safe.
If you’re still using an old-school mag-stripe terminal, make the leap directly to an NFC payment terminal. Your customers will thank you.
How Can Businesses Implement NFC Payments?
Check with your payment provider to see whether your terminal is equipped to accept NFC payments. In some cases, you may be able to keep the same device and just download a new version of the software application.
PayJunction’s Smart Terminals are automatically enabled to accept NFC and contactless payments via EMV cards and mobile wallets. The NFC readers on our ZeroTouch Terminal and Portable Terminal are intuitively located in the center of the display, reducing customer confusion and speeding up the checkout process.
Look for solutions that integrate NFC payment terminals with a cloud-connected Virtual Terminal and Payment Gateway. This will allow you to accept omnichannel payments made in-person, online, via remote invoices, and through recurring billing. You’ll gain a consolidated view of payment activity no matter where payments take place across channels, departments and locations.
Ready to take NFC contactless payments at your business?
Editors Note: This post was originally published in October 2020 and has been updated for comprehensiveness and accuracy.