We recently looked at EMV chip payment FAQs for retailers. Nearly all consumers now have a chip-enabled card and retailers have followed suit: the vast majority of retail stores now accept EMV payment instead of the now antiquated swiped magnetic strip.
But a similar, though arguably more advanced, technology is becoming commonplace in many parts of the world (see the chart below). It’s also picked up steam over the last several years in the U.S. Contactless, (mobile, in particular) payments are on the rise, with more banks offering the technology to their customers, and more retailers accepting it as a form of payment. So we figured we should do another FAQ as a mobile payment guide for retailers.
Let’s go over some of the basics of contactless payments, including how it works, what makes it more secure, why all retailers should be accepting this form of payment, and what it means for your store’s POS system.
1) What Is NFC Anyway?
Near-field communication (NFC) is a radio frequency identification (RFID) tool that can be used to allow two devices to communicate with each other. The technology has been around for some time and has been used in various forms: garage door openers, ID chips in pets, public transportation entrances, and many more. More recently, however, its burgeoning use has been to facilitate payments.
This form of payment can be used with a number of devices, including fobs, watches, wristbands, tags, actual credit/debit cards, and, most commonly, mobile phones. More and more of our day-to-day operations are being conducted through our phones, and the payment industry has followed the trend.
(Note: For the sake of this blog post, we’ll be addressing contactless, mobile payments since it’s the most common and fastest growing form in the industry.)
2) How Does NFC Technology Work?
NFC requires two devices using the same radio frequency to communicate. For this type of communication, the two devices must be in very close range, approximately 1.5 inches or less from each other. Once within range, and with no other outside interference, the devices can safely pass along sensitive information, in this case, bank account details.
For a payment, this communication is done through a POS system payment terminal. The payment terminal is where the card makes the actual payment. Often these terminals, or credit card machines, will accept multiple forms of payment, including magnetic swipes, chip dips, and contactless taps/hovers.
3) Who Provides Mobile Payments for Customers and Retailers?
The number of providers is growing rapidly, but the main players at this time are Apple, Android and Samsung.
See Related: 2018 Retail Trends: You’ll Be Shocked
4) Are Mobile Payments More Secure?
The short answer is yes. In fact, it’s even more secure than EMV chip transactions. As the use of credit cards has become more ubiquitous, related fraud has grown more rampant. EMV and contactless payments are an effort to reduce this. So what makes it so secure?
- First, NFC is both encrypted and dynamic. It is typically encrypted by means of tokenization. When you register your debit or credit card with your contactless payment service, they will immediately erase all banking account information and replace it with a series of random numbers, or, tokens. Additionally, the information used to make each transaction will change after every use, thereby making it dynamic. These aspects of the technology is exactly what make EMV-enabled cards more secure than magnetic-stripped cards.
- But mobile payments offer more security. In order to register your banking information with a mobile payment, you’ll be required to use facial recognition, fingerprint ID, or additional security codes in order to confirm the authenticity or the transaction.
- Many countries also require a PIN for transactions over a certain value, called a “floor limit.” This adds further protection.
- Finally, mobile payment terminals are only allowed to connect to one device at a time, preventing any miscommunication during the payment process. And again, the devices must be within a such a close range that an unknowing customer will never mistakenly pay for someone else’s purchase.
5) Are There Other Benefits to Mobile Payments?
There are added benefits for both retailers and consumers.
Mobile Payment Benefits for Consumers
- Mobile payments offer an added level of convenience. The technology allows you to put multiple cards onto whatever platform you’re using. No more cluttered, overfilled wallet!
Mobile Payment Benefits for Retailers
- Retailers benefit from a reduced liability for any fraudulent transactions. For any fraud using a magnetic strip card, the burden of compensation lies on the retailer. But with any EMV or contactless fraud, the issuing bank is on the hook, keeping your business more safe.
- A benefit for both retailers and consumers it its lack of transfer. It never touches anything or leaves the customer’s hand. This prevents any confusion, keeps the POS area cleaner, and reduces wear and tear on both cards and payment terminals.
- Another mutual benefit is the speed of contactless payments. Mobile payments generally take about half the time as an EMV chip reader. The chip is an actual processor that requires more advanced communication to complete a transaction. A speedier checkout line keeps customers happy and retailers doing more business.
- Furthermore, loyalty and discount memberships can be built into the payment app. This makes getting your customers signed up with their email address and a loyalty program even easier, allowing retailers to keep in contact with their customers. Consolidating everything into one payment app keeps everything simple and organized.
6) Do Retailers Need Contactless Payment Terminals?
It’s HIGHLY recommended. EMV-capable terminals are an absolute essential. Contactless is the next wave of the payment world, so it’s better to be ahead of the curve than playing catch-up. Plus, most contactless payment terminals double as EMV chip readers. And they’re affordable.
Much of the rest of the world is a few years ahead of the United States, but the industry here is quickly following suit. See the advertisement below that helped usher in a new payment era in the UK.
In the U.S. there had been a stalemate between banks and retailers for several years. Banks didn’t want to roll out millions of new cards and new technology if most retailers weren’t accepting contactless payments. And retailers didn’t want to invest in new payment hardware if consumers weren’t going to pay that way. The game of chicken is mostly over, though many large retailers have yet to adopt contactless terminals. A mass overhaul of that many payment terminals is a much larger investment than it is for small businesses.
Overall, if you own a small or medium-sized business, this is a reasonable investment certainly worth making. Predictions estimate that mobile payments will account for over 50% of all payments in the U.S. by 2020. Try it out with your personal card payment methods to see how easy it is, and how to better troubleshoot any issues that a customer at your retail store may have in the future.
7) Are There Any Downsides to Contactless Payment Technology?
- Many retailers have been pushed to honor all cards. Some retailers fear that there will be a similar move to honor all mobile payments. Herein lies the concern. As more companies roll out their mobile payment platforms, this will include more retailers themselves. So a Target store might be forced to accept a mobile payment from Amazon. Not only might it be frustrating to accept payment from a direct competitor’s platform, but mobile payments hold important customer information on them. A customer’s shopping profile and history, therefore, could easily be passed along to other retailers.
- Contactless payments are still not integrated with all credit card processors, so any retailer must check that their processor is able to accept it. POS companies that double as credit card processors, such as Square and PayPal, bundle all fees together, charging retailers a straightforward, but higher processing rate. In these instances, you’ll see hardware that is free or heavily discounted, but with processing rates at or above 2.5%.
- Depending on where you use a mobile payment, small purchases don’t require a PIN. This can be problematic if a cell phone or other form of contactless payment is lost. A thief would have a window in which to make fraudulent purchases prior to the device being reported missing to any issuing bank.
- Not surprisingly, crooks have found ways to compromise even this technology, though it’s extremely rare. RFID-blocking wallets are available to purchase in order to protect against possible threats to your card security.
Mobile Payment Guide for Retailers with KORONA
Every retailer must be sure that their point of sale is compatible and integrated with a mobile payment platform. KORONA’s POS software is integrated with all forms of mobile payment. We can also provide any necessary hardware as well. Click below to find out more about how KORONA can help your small business grow.