In this article, you’ll learn:
What is a contactless payment
Which contactless payment method is right for you
How to make contactless payments using your credit card or phone
Contactless payment has existed since the 1990s, although only a very small number of merchants used it. A few of the first contactless payment systems emerged in Seoul, North Korea, in 1995, and in the United States in 1997. The trend didn’t catch on in the UK until London’s transit agency introduced the Oyster Card system for use in the underground.
There were over 900 million contactless payments processed in the UK in December 2020. That number has multiplied by almost 7 since 2016; just 4 years ago. And during the pandemic, the Financial Conduct Authority (FCA) raised the limit on contactless payments to £100, given how many more people had switched to using card rather than cash.
Exactly what is contactless payment, and how does it work? It’s a payment method that uses debit cards, credit cards, or other payment devices in conjunction with a point of sale (POS) terminal; the customer just taps their card on the terminal and the payment is processed.
Contactless payment works thanks to radio frequency identification (RFID) and near-field communication (NFD) technology. RFID technology means that the card in question is a chip card, and NFC refers to the short -- meaning about 5 centimeter -- range at which the payment device and the machine communicate.
Giving customers the option of contactless payment is much more convenient for them. When customers pay at a contactless payment machine, they don’t have to use a PIN, so transactions flow faster. That also helps merchants keep their lines moving. Contactless payment is also becoming more common; according to a 2021 report by Finance Gov UK, 27% of transactions in 2020 were contactless payments, a huge leap from just 7% four years previous.
And then there’s the matter of security; contactless payment is much safer than older forms of payment. In the past, cards with a magnetic stripe on the bottom were swiped through a reader. The magnetic stripe is much easier for fraudsters to steal information from, and they can use this information to clone new cards and engage in identity theft. Contactless payments are much less susceptible to fraud.
Firstly, it is a more secure form of payment. The chip data is much more difficult to steal, because it is encrypted. The contactless chip creates a one-time code for each individual transaction, and unlike with magnetic stripes, this one-time code is difficult to hack and even if it were hacked, would have no personal data stored.
And mechanically, contactless fraud is harder because the customer already has to be very close to the reader in order to process a transaction, so a potential thief would be noticed pretty easily. Additionally, contactless fraud is not a high priority for most thieves as there are often transaction limits on contactless payments; the limit in the UK is £100 per single transaction. This makes contactless fraud a high-risk, low-reward endeavor; in fact, less than 1% of credit card fraud involves contactless payment.
“There are now 135 million contactless cards in circulation, covering 88 per cent of debit cards and 81 per cent of credit cards” - UK Finance, 2021 Payment Markets Report
In order to accept contactless payment like credit card payment, you’ll need a contactless payment machine. This is the same as a standard card reader, but with NFC payment capability. Unfortunately, not all card readers are created equal.
Many card readers charge large transaction fees, up to 4%, as well as chargeback, implementation, and other costs. SumUp card terminals only charge a 1.69% fee on all transactions, with no chargeback, implementation, or subscription fees. And the transaction fee is not a flat rate, it’s proportional, which means it scales to the individual transaction.
Buying a contactless reader lets you do more than get paid. It gives you access to a wealth of customer information, which the reader automatically gathers, which you can use to plan better business strategies. This allows you to see the best times of day for your business, most popular products, and most served demographics. All the data gathered by the reader is visible in the SumUp app.
Today’s modern NFC readers like Solo card reader are incredibly fast and easy to carry with you wherever you go, so if your business takes you on the road, you can still get paid. The readers connect to your mobile device or tablet via Bluetooth and can accept all major payment methods.
Your contactless card terminal doesn’t have to be limited to just cards. NFC payments can also be processed and accepted by smartphones and tablets with Internet connections. Nearly 16% of people in the UK have set up contactless payment capabilities on their smartphones.
Contactless payment by phone works by linking a credit or debit card (or multiple cards) to your smartphone, which can then be used as if it were that card, by tapping the phone on the reader. The most common contactless payment services are Apple Pay, Google Pay, and Samsung Pay.
All of these methods are secure as card details are not stored on your device, and registered cards can be deleted at any time. And in order to pay by phone, the phone needs to be unlocked first, which means only someone with the password could use it.
Although Apple Pay comes built into the iPhone and Google and Samsung Pay are separately downloaded apps, the premise is the same. When you open the app, it prompts you to add a card, either by taking a picture of it or by entering the details manually. Once you’ve done that, you will get a confirmation call or text from your bank to make sure it was really you adding the card.
Contactless payment is even possible using an Apple Watch. The same cards added to your Wallet app can be used on the watch; just double click the side button and hold the display of the Apple Watch near the contactless reader. When you feel a gentle tap, you’ve paid.
Contactless payment is becoming more common in the UK and elsewhere, and why shouldn’t it? It’s a faster, more secure method for customers to pay -- they can even leave their wallets at home and use a phone-- and it lets merchants serve more people in less time. Accepting contactless payment doesn’t bring additional costs or complex procedures either.
Find the right payment solution for your small business today
With SumUp, you can quickly and easily accept credit and debit card payments with your smartphone or tablet.