The day of chip and pin seems to be quickly receding, as tap to pay is growing at an exponential rate. In fact, contactless payment is now one of the most common payment methods. According to studies, over 60% of transactions outside the US were contactless in 2020, and from March 2019 to March 2020, contactless payments grew by 150% in the US.
When we said ‘exponential,’ we meant it.
Of course, this fast growth coincided with the COVID-19 pandemic, but the use of contactless means has continued since that time. Offering contactless card payments is a key aspect for all businesses, and if you’re looking at growth strategies for high-risk merchants, this must be on your agenda.
In this guide, let’s explore everything there is to know about how to accept contactless payments, giving you a firm foundation on which to move forward.
TL;DR
- Contactless technology relies on an invisible infrastructure of NFC, tokenization, and backend processing systems.
- Businesses must equip themselves with compatible POS systems and work with payment providers to accept contactless payments.
- Consumers value speed, convenience, and hygiene, driving behavior toward contactless usage.
- Contactless payments function through short-range wireless communication and secure data encryption between device and terminal.
- Security measures include tokenization, encryption, biometric verification, and compliance with global standards like EMV.
- Emerging trends include biometric authentication, digital IDs, expanding IoT payment capabilities, and blockchain integration.
- Merchants can implement contactless payments by selecting certified hardware, training staff, ensuring software updates, and marketing the new capability to customers.
The Invisible Architecture of Contactless Technology
Simply tapping a card is just the beginning of the story. Behind this operation there is a sophisticated process that must run smoothly to ensure payment success. One of the most important aspects of touchless payment is NFC technology, or Near Field Communication to give it its full name. Alongside this, tokenization and secure transmission protocols also play a strong part.
NFC Technology: The Silent Communicator
NFC technology is the foundation of a contactless payment. It allows devices to exchange data as long as they are about four to ten inches apart. It’s easy to think that this distance is just random, but it’s actually a built-in security feature that prevents transactions from being initiated if they weren’t intended.
NFC uses RFID (Radio Frequency Identification) technology that creates a secure communication channel between the customer’s device and your payment hardware.
Electromagnetic Induction Principles
For NFC technology to work, it uses electromagnetic induction that occurs between two antenna coils. So, when a customer moves close to the payment terminal with their card, smart watch, or phone, the terminal creates an electromagnetic field. This then powers the passive chip inside the card or the NFC chip if the customer is using a smartphone or watch.
This electromagnetic field has two purposes – firstly, it provides power, but it also acts as a channel for data exchange.
Security Infrastructure: Beyond Encryption
When learning how do contactless payments work, it’s vital to consider security. While basic encryption plays a part, a multi-layered approach is required to ensure privacy and to keep payment data safe. This includes dynamic authentication, cryptographic signatures, and tokenization. All these create unique security elements that create a full framework. Even if intercepted, this information remains secure.
Tokenization: The Digital Disguise
There are many different types of fraud, and tokenization goes a long way to creating a barrier that protects data from nefarious actions. During contactless pay, the card data itself doesn’t directly transmit, and instead a one-time token replaces it. This is randomly generated and presents as a string of numbers, and once the transaction is settled, it becomes worthless.
EMV Cryptogram Generation
Besides tokenization, each transaction also creates a unique cryptogram, which is a highly complex mathematical value. Again, the cryptogram changes with every single transaction, and payment terminals validate them through complex algorithms to confirm legitimacy. As a result, only authorized payments go through your system.
Setting Up Your Business for Contactless Acceptance
NFC and contactless payments, like tap to pay, are a smooth and convenient option for businesses and customers.
Source: unsplash.com
When learning how to accept contactless payments, the next step is understanding the setup process. This is about more than just payment terminals and hardware, it’s about making strong decisions and integrating the system carefully.
Hardware Selection Strategy
When choosing the best hardware, it’s critical to first consider your overall business model, your transaction value, future growth plans, and any mobility needs. There are many different terminals on the market these days, from traditional countertop models to mobile solutions that can turn a smartphone into a payment terminal.
It’s important to take your time when making this decision, as it’s the foundation of your entire contactless system. In fact, you should give this as much thought as choosing the best POS system.
The table below gives some useful information about terminal types and their main features:
Terminal Type | Best For | Typical Cost | Key Features |
Countertop Terminal | Fixed-location businesses | $200-500 | Durability, larger screen, multiple connectivity options |
Mobile Card Reader | On-the-go businesses, pop-ups | $50-150 | Portability, battery-powered, Bluetooth connectivity |
Integrated POS System | Multi-function businesses | $500-2,000+ | Inventory management, customer data, reporting integration |
Software-based (Tap to Pay) | Small businesses, micro-merchants | $0 (app only) | No additional hardware, uses smartphone NFC |
Traditional Terminal Evaluation Criteria
When moving toward contactless pay, it’s important to think about certification levels. In most cases, PCI PTS 5.x is a stronger option than older versions. On top of this, look toward Ethernet with 4G/LTE backup for connectivity, which will ensure you can continue operating even if there is a network outage.
Mobile Solutions for Small Businesses
Mobile solutions are a useful option for small business owners. In this case, a smartphone or tablet is connected via Bluetooth or a direct attachment. This gives extra flexibility if you don’t have a large amount of counter space, or if you simply need more mobility. However, battery life is an important consideration here.
Always look for devices that offer at least eight hours continuous use. If you’re operating outdoors, it’s also key to explore systems that have IP54 durability rating or higher. This means you can operate in challenging environments where it may be damp or humid.
Understanding how to take contactless payments on phone ultimately comes down to choosing the best set up at the start, creating a smooth experience from there onwards.
Software and Gateway Configuration
Besides hardware, software is another key consideration. Software connects your terminal to payment processors and it’s important to have a careful balance of reliability, security, and speed through quality configuration.
Terminal Application Management
Many modern terminals have sophisticated software that often need to be updated to ensure security compliance and to add new features as they’re developed. To ensure your software is always up-to-date, it’s a good idea to have a terminal management protocol that includes overnight updates, so your business operations aren’t disrupted. Within this, set terminal timeout settings to balance
Gateway Redundancy Planning
Gateway downtime has a significant impact on your ability to accept contactless payments, so a redundancy strategy is key. This can include dual-gateway configurations or processors that offer automatic failover paths. From this, configure your system so that it automatically routes transactions through another pathway whenever your first option fails. This will ensure your business continues even if there’s a network or professor issue/outage.
The Psychology and Behavior of Contactless Payments
Understanding how to accept contactless payments also includes understanding the psychological effects on customers and how to drive repeat sales. After all, it’s far easier to simply tap a card or device rather than inputting a PIN number. There’s no denying that contactless payments are certainly faster, but what other effects do they have?
Friction Reduction and Spending Patterns
Studies have shown that customers often spend more when using contactless pay methods, especially compared to cash transactions. A study by the London Business School suggested that customers tend to spend more freely when using a ‘tap and go’ method, as it reduces the “pain” of parting with physical cash.
From all this, it’s clear that understanding customer payment behavior can have a strong impact on your business success levels, helping to reduce customer churn rates over time.
Customer Interaction Redesign
Contactless payment methods require a rethink of the general checkout flow. This means looking at the physical position of your terminals, how your staff interact with customers at the point of payment, and general visual indicators. Optimizing each of these areas creates a smoother experience for your customers while reducing issues and delays.
Terminal Positioning Psychology
Studies have shown that items placed at eye level have a higher chance of driving sales and attracting overall attention. This also extends to where you place your payment terminal, with an angle of preferably 45° thought to boost both visibility and accessibility. To make it easier for your customers, you could also have a “tap zone” of around eight inches clear around the terminal. This can help prevent interference with any other NFC-enabled devices that customers may have.
Staff Training for Contactless Guidance
Understanding how to accept contactless payments also extends to how your staff handle the entire process. The answer to this is staff training, with a particular focus on the terminology used. For instance, say “tap,” rather than “swipe,” to avoid confusion. It’s also a good idea to train staff to use a hand gesture that demonstrates the process, such as mimicking the tapping action needed. Scripts can also be a useful tool for common scenarios, particularly for first-time users and when payments fail.
The table below gives some useful scenarios and recommended explanations:
Customer Scenario | Recommended Staff Script | Supporting Gesture |
First-time user | “We accept contactless payments. Would you like to tap your card or phone on the screen where you see the wave symbol?” | Point to contactless symbol |
Multiple cards in wallet | “To avoid confusion, please tap just one card rather than your entire wallet.” | Demonstrate removing single card |
Failed tap attempt | “Let’s try again. Hold your card flat against the screen for a moment until you hear the beep.” | Show proper card positioning |
Transaction above limit | “For purchases over $100, you’ll need to insert your card and enter your PIN.” | Point to chip reader |
Mobile wallet user | “You can tap your phone or watch directly on the terminal screen.” | Gesture tapping motion |
Contactless Payment Security Considerations
Using contactless payment on phone capabilities reduces the need to buy hardware and saves money over time.
Source: unsplash.com
It’s clear that contactless payment on phone or other device is a convenient choice, but it does still have some security concerns that need to be addressed. However, it’s important to balance security controls with the overall customer experience, to avoid causing undue stress or friction.
Fraud Prevention Strategies for Contactless Environments
At PayCompass, we’re constantly seeking to improve the overall experience for our merchants, including enhancing our fraud protection measures. Our merchant accounts all have this feature, along with real-time transaction monitoring to help you spot any potential issues. However, this is also something which takes place during a tap to pay transaction. In this case, a range of advanced fraud protection measures work together to spot and then block any transactions that seem suspicious.
Transaction Clustering Analysis
Advanced fraud protection systems use transaction clustering to look closely at contactless transactions in groups, or clusters. This helps to spot any suspicious patterns, e.g. many low-value purchases that happen very quickly one after the other, or purchases from geographical locations that seem unlikely to be real.
Customer Communication and Education
Implementing contactless card payments also means educating your customers and communicating clearly. This helps to build confidence in contactless payments while also ensuring that your customers are clear about security practices in place.
Transparency in Transaction Confirmation
Immediate confirmation of transactions gives your customers reassurance while also boosting security confidence. Within this, alter your settings to deliver digital receipts either via text or email immediately after the payment has gone through, even for small transactions. The receipt should include the merchant name, transaction amount, the time, and a partial identifier of the customer’s account.
Mobile Device Acceptance Solutions
Part of learning how to take contactless payments on phone means understanding the full process. Of course, this can also include tablets and smartwatches.
Tap to Pay on iPhone Implementation
First, let’s understand how to use tap to pay on an iPhone. This process turns an iOS compatible device into a payment terminal without having to spend large amounts of money on additional hardware. Of course, this is particularly useful for small businesses who may not have the capital to spend.
Device Requirements and Setup Process
Here’s how to use tap to pay on iPhone. First, you need an iPhone XS or newer, along with iOS 15.4 upward. This isn’t a standalone function, and instead works through a compatible payment app.
To begin, select a payment provider that supports this technology and download their iOS app. Then, complete the onboarding process application and set up your business details, connecting it to your merchant account. After that, ensure you configure your tax settings and activate. After that, the iPhone’s built-in NFC controller will reconfigure to accept incoming payment data.
Transaction Flow Differences
iPhone-based payment acceptance is slightly different to a traditional termin. The customer’s card or device must be placed near the top edge of your iPhone, close to the front-facing camera. The iPhone will vibrate and show a tick when the payment method is detected. It will then show a processing animation while the payment is being authorized.
Android Contactless Acceptance Solutions
Understanding how to accept tap to pay on Android is slightly different to the iPhone version, but still bases itself on the same technological approach.
Android options are more varied than iOS due to different hardware and different security implementations. There are apps that use Android’s built-in NFC capabilities, along with external readers that connect via Bluetooth. This flexibility allows you to choose the best option for your business needs, ensuring smooth tap to pay transactions for your customers.
Software-Based Reader Implementation
Android has its own software-based contactless acceptance called “Tap to Pay on Android.” This requires devices with built-in NFC capabilities, along with Android 8.0 at least. To implement, it’s vital to partner with a payment provider that supports this type of technology.
During setup, the Android app carries out an NFC capability test to ensure that your device meets the necessary specifications.
External Reader Integration Options
If you prefer to connect via an external reader, you’ll use Bluetooth as your connection mode and pair with an Android tablet or phone. However, the transaction process is independent of this device, cutting out the security burden on the mobile device itself.
It’s important to look for readers with SRED certification, which means Secure Reading and Exchange of Data. This encrypts payment data as soon as possible. You can also configure your reader to reconnect to your Android phone or tablet if the connection drops, giving you peace of mind around operational continuity.
Future Trends in Contactless Payment Technology
All technology moves at a fast pace, and NFC and contactless payments are certainly no different. It’s important to understand upcoming trends and likely changes so you can make strong business decisions moving forward.
Biometric Authentication Integration
Fingerprint verification can be used to make a contactless payment.
Source: unsplash.com
As contactless payment capabilities increase, biometric verification looks set to take center stage. Not only does this boost security but it’s also extremely convenient compared to current tap to pay options.
Fingerprint-Verified Contactless Cards
Biometric contactless cards include fingerprint sensors inside the card body, and the cardholder’s fingerprint is needed to authorize all transactions. This means there’s no need for PIN verification or transaction limits. No hardware changes are needed to implement this technology, but software updates may be needed to deal with various authorization flags this type of payment method often creates.
Facial Recognition Payment Systems
Beyond fingerprints, facial recognition is also being implemented into payment processing to give a hands-free, convenient option. This is done through camera systems that are integrated into the terminal, requiring some hardware changes. Customer consent must be taken during initial use, along with clear alternatives to help address any privacy concerns.
Compared to other contactless methods, this type takes around one or two seconds maximum.
Ambient Commerce and Invisible Payments
Invisible payments are another possible advancement that completely removes the need to even tap a card or device. In this case, the transaction is initiated simply based on the customer being present and in agreement. To do this, several types of technologies are required, including computer vision, biometrics, RFID, and advanced payment processing.
Sound-Based Payment Authentication
Sound is also being used to take contactless payment from customers. This uses inaudible sound waves to help authenticate process payments between the card or device and the payment terminal. This service doesn’t require an Internet connection and can work across larger distances.
To implement this type of technology, specialized software is needed, integrating directly into your payment application. Tokenized payment credentials are then transmitted through sound patterns that are far beyond the human hearing range, giving a new authentication channel that works even when traditional networks experience downtime.
Learning Recap
Understanding how to accept contactless payments involves several aspects, including a clear vision of how this technology works. Using Near Field Communication (NFC), this payment method reduces friction and adds convenience to the entire process, with extra security measures that ensure safety and privacy every step of the way.
Since the COVID-19 pandemic, contactless payment methods have become extremely popular, and this has fueled new trends on the horizon. Biometric authentication and sound-based payment technologies look set to revolutionize payments even further. Staying up-to-date with new developments allows you to make solid business decisions moving forward, enabling growth and smooth customer experience.
Of course, the entire payment processing subject requires careful thought, including which payment provider you go for.
At PayCompass, we aim to make the entire process smooth from start to finish. While some providers don’t accept, or severely restrict, high-risk merchants’ payment activities, we provide to make life easier. This is because we understand the challenges of high-risk payment processing in particular, and rather than further complicate matters, we offer solutions.
For more information and to kickstart your payment journey, whether you’re implementing contactless options for the first time or updating your systems, reach out to us today. One of our experts will be in touch to help you move beyond problems, toward answers.
