NFC and Contactless Payments: A Small Business Guide to Enhancing the Customer Experience

Even several years post-pandemic, contactless and mobile payments don’t show any signs of slowing down. CEO of Mastercard, Mike Miebach says one in every two in-person payment transactions globally are made using contactless payment methods today. 

Contactless technologies enable customers to make payments without touching point-of-sale terminals (POS) or payment equipment. Juniper Research predicts that global contactless transactions will reach a valuation of $10 billion by the year 2027.

You’d be wrong if you thought this trend was prevalent only among younger, tech-savvy generations. A study by Barclays in the UK shows that 80% of senior citizens aged 85-95 years use tap-to-pay or contactless payments.

As customers increasingly gravitate toward touch-free payment options, ignoring them can only harm your bottom line. In this article, we’ll discuss everything small businesses need to know about contactless payments and how to implement them.

What Are Contactless Payments?

Why don’t we start with the basics? Contactless payments are those that don’t require the customer to swipe cards or touch a PIN pad at checkout. NFC and contactless payments go hand in hand as near-field communications (NFC) technology powers contactless payments.

This technology facilitates information transfer between devices placed close to each other. The same technology powers contactless debit and credit cards—the ones with the WiFi-type symbol on them.

NFC also powers digital wallets such as Google Pay, Apple Pay, and Samsung Pay on mobile devices. All customers need to do is wave or tap their mobile phones (Android or iPhone) or wearables near an NFC-enabled payments terminal and the transaction is complete.

How Do Contactless Payments Work?

Contactless payment methods require NFC technology via embedded RFID (Radio Frequency Identification) microchips, transponders, and antennas. An NFC payment card or device needs to have these three things to enable touch-free payments.

When a contactless chip card, smartphone, or wearable is brought near a compatible payment terminal:

• NFC technology triggers communication between the two. 
• A one-time code is generated that keeps the transaction secure. 
• The payment terminal reads the encrypted card information and sends it to the payment processor for authorization.
• Once the transaction is approved, the terminal receives the confirmation in a few seconds and the payment is complete. 

All information passed between contactless cards, devices, payment terminals, payment processors, and card issuers is encrypted. The entire process takes only a few seconds.

While mobile wallets like Apple Pay and Google Pay can’t authorize payments, they store a customer’s card information and tokenize it which is then sent to credit card networks like Visa or American Express. 

Contactless payments are secure because the microchips generate new codes for each transaction. Compare this to traditional magnetic stripe cards where cardholder and payment information are sent to the card reader and can be easily intercepted. 

The dynamic authentication technique facilitated by microchips in contactless payments cannot be reverse-engineered to retrieve sensitive or valuable information. The only information that passes between cards, devices, and payment terminals are tokens. 

Benefits for Consumers

By now, it must be quite evident why customers prefer contactless payments over traditional ones and why small businesses should start accepting them. Nonetheless, let’s go over the benefits that contactless payments provide to customers. 

• Speed – Transactions are completed so quickly that it’s hard to fathom all the technology and communication behind the scenes. Additionally, customers don’t have to enter PINs, insert cards, or sign to make payments. Even with the high level of encryption in contactless payments, they are still incredibly quick.
• Convenience – A customer can breeze past a payment terminal in-store, waving their smartphone close to the terminal to pay for their purchases. There’s no need for long queues and multiple steps to complete payments.
• Hygiene – As mentioned earlier, contactless payments saw a huge boost during the pandemic and it’s clear why. You don’t have to touch a card reader or payment terminal to make a payment, which drastically reduces the spread of germs.
• Security – Information being transferred as contactless payments are processed is hard to intercept. Moreover, due to strong encryption and tokenization, any intercepted information is rendered useless to malicious parties.

The Technology behind Contactless Payments

NFC technology was developed in the early 2000s and is considered the next step in the evolution of RFID technology. It allows data to be exchanged between two devices over very short distances—usually a few centimeters. 

With NFC, devices like smartphones, smartwatches, and credit and debit cards can transmit information to payment terminals without having to come in physical contact with the terminals. What’s more, these information transfers are completely secure and encrypted.

NFC-enabled payments offer many advantages over other payment methods. When compared with magnetic stripe cards and EMV chip cards, there is no need to swipe or insert contactless credit cards into card readers. This reduces the time it takes for a customer to pay and makes the payment process easier. 

Contactless payments are also much safer than cash transactions as there is no physical transfer of currency and customers don’t have to carry bills and coins with them. NFC makes payments seamless and quick.

One of the key benefits of NFC is advanced security. It uses tokenization to protect sensitive and private information. In this process, tokens or meaningless and randomly generated values replace actual payments or cardholder data. New tokens are generated for each transaction which makes it nearly impossible for fraudsters and criminals to get their hands on any valuable data. 

Why Contactless Payments Are Essential for Small Businesses

Contactless payments offer tons of benefits to small business owners or merchants as well.

• Consumer expectations – More and more people are relying on convenient contactless payments across all age groups. So retailers must keep up with this trend to succeed and generate steady revenues. 
• Competitive advantage – By accepting contactless payments at your business, you gain an advantage over others in the industry who aren’t doing the same. Small businesses should implement contactless payment technology that gives them a competitive edge. 
• Hygiene and safety – In the post-pandemic era, people are hyper-aware of how easy it is to be exposed to deadly microbes. Touch-free payments offer hygienic and safe shopping experiences that minimize contact with surfaces in public places. 
• Long-term ROI – Not only can you attract more customers by providing them with convenient and trendy payment options but you can also reduce penalties from fraud and chargebacks. 

How to Accept Contactless Payments at Your Small Business

You’ve learned about the popularity of contactless payments and you may want to give that convenience to your customers. That’s great!

1. Assessment. Before you start looking for NFC-enabled terminals, check the terminals you already have to see if they have NFC capabilities. Next, figure out how much time and money you might need if you have to upgrade to new terminals. For a small business, a complete overhaul of your payment stack may be too costly so decide your next steps carefully.

2. Implementation. To set up or upgrade your payment system for contactless payments, you can partner with payment service providers. They will help you enable NFC payments in a quick and efficient manner at reasonable rates.

3. Training. Once implementation is done, you need to train your staff on processing these transactions and troubleshooting simple issues that may occur.

4. Testing. Most importantly, do not let your new payment system go live without thorough testing. You don’t want to have impatient and frustrated customers at checkout while your staff try to fix issues on an untested system.

To ensure smooth operations with your contactless payment systems, there are a few best practices that your business can follow.

• Use ample contactless symbol signs and other signage to educate your customers on how to pay touch-free.
• Set up digital prompts to guide customers to complete payments with minimal help from staff.
• Highlight the benefits of contactless payments to encourage more customers to get on board.

Common Challenges and How to Overcome Them

A few common challenges can crop up when you want to implement contactless payment systems in your business. Firstly, technical issues could occur—especially related to connectivity and compatibility with existing and connected software and hardware. Most of these issues can be avoided with thorough testing. 

Customers could also be reluctant to use contactless payments and have valid concerns. These can be addressed with signage, prompts, and trained staff. You could also face pushback within your business while attempting to set up such payments due to high initial costs. With the help of data and highlighting the long-term benefits, you can assuage your stakeholders’ fears. 

Choosing the Right Payment Processor

You don’t have to do everything yourself. Payment processors have the experience and knowledge to help you set up a robust, resilient, and efficient contactless payment system. Carefully compare costs, plans, transaction fees, customer support, and compatibility before choosing your payment processing partner.

Payment Depot provides comprehensive support and expertise with transparent, interchange-plus pricing for all your payment needs.

Contactless payments offer speed, convenience, security, and hygiene benefits for businesses and customers alike. Future-proof your business by implementing these solutions to meet consumer expectations and stay competitive. Start exploring Payment Depot’s contactless payment options today to enhance customer experience and drive growth.

What Are Contactless Payments?

Why don’t we start with the basics? Contactless payments are those that don’t require the customer to swipe cards or touch a PIN pad at checkout. NFC and contactless payments go hand in hand as near-field communications (NFC) technology powers contactless payments.

This technology facilitates information transfer between devices placed close to each other. The same technology powers contactless debit and credit cards—the ones with the WiFi-type symbol on them.

NFC also powers digital wallets such as Google Pay, Apple Pay, and Samsung Pay on mobile devices. All customers need to do is wave or tap their mobile phones (Android or iPhone) or wearables near an NFC-enabled payments terminal and the transaction is complete.

How Do Contactless Payments Work?

Contactless payment methods require NFC technology via embedded RFID (Radio Frequency Identification) microchips, transponders, and antennas. An NFC payment card or device needs to have these three things to enable touch-free payments.

When a contactless chip card, smartphone, or wearable is brought near a compatible payment terminal:

• NFC technology triggers communication between the two. 
• A one-time code is generated that keeps the transaction secure. 
• The payment terminal reads the encrypted card information and sends it to the payment processor for authorization.
• Once the transaction is approved, the terminal receives the confirmation in a few seconds and the payment is complete. 

All information passed between contactless cards, devices, payment terminals, payment processors, and card issuers is encrypted. The entire process takes only a few seconds.

While mobile wallets like Apple Pay and Google Pay can’t authorize payments, they store a customer’s card information and tokenize it which is then sent to credit card networks like Visa or American Express. 

Contactless payments are secure because the microchips generate new codes for each transaction. Compare this to traditional magnetic stripe cards where cardholder and payment information are sent to the card reader and can be easily intercepted. 

The dynamic authentication technique facilitated by microchips in contactless payments cannot be reverse-engineered to retrieve sensitive or valuable information. The only information that passes between cards, devices, and payment terminals are tokens. 

Benefits for Consumers

By now, it must be quite evident why customers prefer contactless payments over traditional ones and why small businesses should start accepting them. Nonetheless, let’s go over the benefits that contactless payments provide to customers. 

• Speed – Transactions are completed so quickly that it’s hard to fathom all the technology and communication behind the scenes. Additionally, customers don’t have to enter PINs, insert cards, or sign to make payments. Even with the high level of encryption in contactless payments, they are still incredibly quick.
• Convenience – A customer can breeze past a payment terminal in-store, waving their smartphone close to the terminal to pay for their purchases. There’s no need for long queues and multiple steps to complete payments.
• Hygiene – As mentioned earlier, contactless payments saw a huge boost during the pandemic and it’s clear why. You don’t have to touch a card reader or payment terminal to make a payment, which drastically reduces the spread of germs.
• Security – Information being transferred as contactless payments are processed is hard to intercept. Moreover, due to strong encryption and tokenization, any intercepted information is rendered useless to malicious parties.

The Technology behind Contactless Payments

NFC technology was developed in the early 2000s and is considered the next step in the evolution of RFID technology. It allows data to be exchanged between two devices over very short distances—usually a few centimeters. 

With NFC, devices like smartphones, smartwatches, and credit and debit cards can transmit information to payment terminals without having to come in physical contact with the terminals. What’s more, these information transfers are completely secure and encrypted.

NFC-enabled payments offer many advantages over other payment methods. When compared with magnetic stripe cards and EMV chip cards, there is no need to swipe or insert contactless credit cards into card readers. This reduces the time it takes for a customer to pay and makes the payment process easier. 

Contactless payments are also much safer than cash transactions as there is no physical transfer of currency and customers don’t have to carry bills and coins with them. NFC makes payments seamless and quick.

One of the key benefits of NFC is advanced security. It uses tokenization to protect sensitive and private information. In this process, tokens or meaningless and randomly generated values replace actual payments or cardholder data. New tokens are generated for each transaction which makes it nearly impossible for fraudsters and criminals to get their hands on any valuable data. 

Why Contactless Payments Are Essential for Small Businesses

Contactless payments offer tons of benefits to small business owners or merchants as well.

• Consumer expectations – More and more people are relying on convenient contactless payments across all age groups. So retailers must keep up with this trend to succeed and generate steady revenues. 
• Competitive advantage – By accepting contactless payments at your business, you gain an advantage over others in the industry who aren’t doing the same. Small businesses should implement contactless payment technology that gives them a competitive edge. 
• Hygiene and safety – In the post-pandemic era, people are hyper-aware of how easy it is to be exposed to deadly microbes. Touch-free payments offer hygienic and safe shopping experiences that minimize contact with surfaces in public places. 
• Long-term ROI – Not only can you attract more customers by providing them with convenient and trendy payment options but you can also reduce penalties from fraud and chargebacks. 

How to Accept Contactless Payments at Your Small Business

You’ve learned about the popularity of contactless payments and you may want to give that convenience to your customers. That’s great!

1. Assessment. Before you start looking for NFC-enabled terminals, check the terminals you already have to see if they have NFC capabilities. Next, figure out how much time and money you might need if you have to upgrade to new terminals. For a small business, a complete overhaul of your payment stack may be too costly so decide your next steps carefully.

2. Implementation. To set up or upgrade your payment system for contactless payments, you can partner with payment service providers. They will help you enable NFC payments in a quick and efficient manner at reasonable rates.

3. Training. Once implementation is done, you need to train your staff on processing these transactions and troubleshooting simple issues that may occur.

4. Testing. Most importantly, do not let your new payment system go live without thorough testing. You don’t want to have impatient and frustrated customers at checkout while your staff try to fix issues on an untested system.

To ensure smooth operations with your contactless payment systems, there are a few best practices that your business can follow.

• Use ample contactless symbol signs and other signage to educate your customers on how to pay touch-free.
• Set up digital prompts to guide customers to complete payments with minimal help from staff.
• Highlight the benefits of contactless payments to encourage more customers to get on board.

Common Challenges and How to Overcome Them

A few common challenges can crop up when you want to implement contactless payment systems in your business. Firstly, technical issues could occur—especially related to connectivity and compatibility with existing and connected software and hardware. Most of these issues can be avoided with thorough testing. 

Customers could also be reluctant to use contactless payments and have valid concerns. These can be addressed with signage, prompts, and trained staff. You could also face pushback within your business while attempting to set up such payments due to high initial costs. With the help of data and highlighting the long-term benefits, you can assuage your stakeholders’ fears. 

Choosing the Right Payment Processor

You don’t have to do everything yourself. Payment processors have the experience and knowledge to help you set up a robust, resilient, and efficient contactless payment system. Carefully compare costs, plans, transaction fees, customer support, and compatibility before choosing your payment processing partner.

Payment Depot provides comprehensive support and expertise with transparent, interchange-plus pricing for all your payment needs.

Contactless payments offer speed, convenience, security, and hygiene benefits for businesses and customers alike. Future-proof your business by implementing these solutions to meet consumer expectations and stay competitive. Start exploring Payment Depot’s contactless payment options today to enhance customer experience and drive growth.