COVID-19 has been regarded as the single biggest event that disrupted life more than ever since World War 2. Even though recorded fatalities are decreasing, the spread of the pandemic forced global economies to go into total shutdowns for weeks together and suspended cross border travel for months. The cycle is repeating due to periodic spikes in infection cases. Vaccinations are expected to get the disease under control by the end of 2021, but certain realms of change that the pandemic brought in the lives of humans are so big that they are likely to remain as a habit post the pandemic era.
One of the key traits that the pandemic encouraged is the adoption of contactless payments. From Asia to Europe and the Americas, consumers were quick to adopt contactless payments to avoid physical touches, which was a key cause of the COVID-19 infection spread.
But even before the pandemic, digital payments involving zero or minimal contact were already on the rise in most countries. Take for example India, the world’s second most populous nation with over a billion citizens. In 2005, less than 5% of all monetary transactions in India were by digital means. By 2025, it is estimated that more than 58% of the net transactions happening in the country will be by digital means. Contactless payments involve two major mechanisms
- Contactless Cards – Debit or Credit cards that work by tapping or placing near a PoS machine without having to physically enter pins or codes by touching.
- Digital Wallets and Payment Apps – Bank or card linked digital apps that can hold money as a digital wallet or directly draw money from a customer’s bank account for payments.
The story of developing nations like India with regards to digital payment is a strong indicator of the direction in which the payment industry worldwide is moving. Contactless payments are, in fact, transitioning into the future of payments across business sectors and individual transactions.
Let us examine key four reasons why the future of payments will mostly be contactless:
- Accelerated Digital Transformation: Leading consulting firm McKinsey says that businesses that were used to achieving their digital transformation objectives in a phased manner over 2 to 3 years have to now adapt to a transition model that happens over a matter of days or weeks. While the perils of such a rapid move need more attention, what is evident here is that businesses are willing to adopt digital in all forms of their business. This growth in digital adoption automatically translates into higher rates of adoption for digital payments, of which, contactless payments will be a key preference.
- Lower Operational Costs: Contactless payment options do not involve currencies or expensive hardware for carrying out transactions. Often, consumers pay for services or goods by simply scanning a QR code on their payment app or just by tapping on NFC-enabled PoS machines. The reconciliation process happens automatically in the background. Earlier, when cash dealings were in plenty, businesses had to arrange for the periodic deposit of currency into their trading bank branch. They also had to invest on hardware for counting and verifying authentic notes. For digital transactions, there is very little investment involved and for a marginal service fee, businesses can facilitate a seamless payment experience for their customers. In fact, they can negotiate with payment service providers for better rates depending on the volume of transactions they process.
- Easier Maintenance for Customers: Most digital contactless payment services create fully digital and self-service onboarding mechanisms that make the payment option available for customers in a matter of minutes. This is a huge advantage when compared to the days or weeks it takes in normal scenarios when a bank has to ship a payment card to the user after undergoing extensive onboarding and verification mechanisms at a local branch. Since most contactless payment options involve no physical cards, the chances of customers forgetting or misplacing their cards are eliminated. In the event of some technical fault for the digital wallet or card, a replacement can be instantly obtained by informing the concerned bank or payment provider.
- Secure Digital Trails: All contactless payment options have well-defined digital logs and trails that help both regulators and consumers track their financial dealings at any time and in a transparent fashion. The use of tokenized digital cards ensures that no merchant or shop gets access to the direct financial credentials of any customer. That apart, multistage authentication policies can be enforced by any user to secure their transactions across any digital channel or store. In the case of contactless cards, they employ the same EMV-chip technology found in normal credit and debit cards, which ensures that fraudsters cannot make duplicate copies of the card for any illegal use.
As the world is increasingly moving to a digital-first economy, contactless payment options will find more takers. The pandemic reinforced the importance of hygiene practices like social distancing and avoiding physical contact at public places to the maximum extent possible. This will also be a key driver of cultural change among the public to shift into digital instruments that promote contactless payment. The future of payments will be contactless and early movers can certainly make a difference in staying competitive in the new normal.