The days of simple cash payments may be behind us. Technology is moving at breakneck speed, at least where payment processing is concerned. Think back to the last time you paid for goods or services in a store – did you pay by card? If so, did you simply tap to pay? It’s quite likely.
In fact, contactless payment methods were expected to hit $6 trillion in 2024 alone. That statistic certainly highlights the convenience and speed of simply tapping your phone, credit or debit card, or even a smartwatch. Throughout the COVID-19 pandemic, contactless payments became the norm, and they’ve only picked up speed since.
In this guide, we’ll explore what tap to pay is, how it can help your business, where it might lead in the future, and how PayCompass can help you navigate the challenges of high-risk payment processing.
TL;DR
- Contactless payments have evolved from magnetic stripes and chip cards to near-field communication (NFC) technology, enabling fast and secure transactions.
- Tap to pay works by using short-range wireless communication between a payment device (like a phone or card) and a payment terminal.
- The technology is integrated across a range of devices and platforms, including smartphones, smartwatches, and credit/debit cards.
- Businesses benefit from faster checkout times, reduced cash handling, and improved customer experience with tap to pay solutions.
- Emerging trends include biometric authentication, wearable tech integration, and expansion into public transit and peer-to-peer payments.
- Regulatory frameworks ensure data security and privacy compliance, with standards set by governments and financial institutions.
The Unique Challenges of Liquor Store Operations
It’s easy to assume that tap to pay has been around forever; it certainly feels like it has. However, it only started to gain a little traction in the late 1990s. When exploring when did tap to pay start, it’s important to remember that technology has advanced at an exceptionally fast rate since that time, driving change and innovation within the payment processing arena.
Today, it’s almost a mainstay, and it’s extremely easy to tap to pay on iPhones or other devices. You don’t need to remember a card and you don’t even have to touch the terminal. It’s the height of ease and convenience. Let’s explore where tap to pay came from and how it developed into the monster it is today.
The Birth of Tap to Pay
The technology used in tap to pay technology took many years to develop, so it didn’t appear overnight. We’ve mentioned that the late 1990s saw the first contactless cards, and these used RFID (Radio-Frequency Identification) technology with many limited security features. However, as NFC (Near Field Communication) technology developed in the mid-2000s, contactless payments experienced a boost in functionality and security.
Early Adopters and Pioneers
South Korea was the first country to adopt a nationwide contactless payment system back in 2001, followed by MasterCard’s PayPass and Visa’s PayWare. Japan then jumped into contactless payments in 2004. The table below outlines the timeline in a little more detail:
Year | Milestone |
2001 | South Korea introduces T-money system |
2002 | MasterCard launches PayPass |
2004 | Japan introduces Osaifu-Keitai |
2007 | Visa launches payWave |
2014 | Apple Pay launches in the US |
Global Adoption and Standardization
Tap to pay solutions are popular for a reason – they’re extremely convenient. Over time, they became more commonplace, so global efforts to create universal standards began. From this, EMVCo was developed, a group of major payment networks that worked to create global standards for contactless payment options, leading to the ISO/IEC 14443 standard. This defines major protocols for dealing with tap to pay transactions.
Of course, as time has gone on, tap to pay technology has also significantly affected payment processing industry statistics, with a clear and growing preference for this contactless route.
Overcoming Security Concerns
During the earliest days of tap to pay solutions, there were many concerns about security and this was a major roadblock for implementation. These days, sophisticated technology helps to alleviate worries, with tokenization and point-to-point encryption robust choices to secure data transmission. Dynamic CVV technology also works alongside these methods, creating a new security code for every single transaction.
When combined, tokenization, CVV technology, and point-to-point encryption help to reduce different types of fraud and protect both businesses and customers.
The Mechanics Behind the Tap
Investing in a tap to pay terminal allows you to offer a range of convenient payment methods to your customers.
Source: unsplash.com
We’ve talked about what it is, but how does tap to pay work? It might seem simple – you literally just tap and your transaction goes on its way – but what happens behind the scenes? It might not seem important, but it’s important for businesses to understand the inner workings of contactless payments. This is particularly useful for those in high-risk industries, who often face a higher level of scrutiny.
The Tap to Pay Dance: A Step-by-Step Breakdown
Learning how to use tap and pay is relatively easy, but understanding what happens after the beep is more complicated.
To initiate the process, there needs to be two things – a tap to pay terminal and a NFC device or card. The device can be a phone or a watch. When the device or card is within 4cm of the terminal, it creates a radio frequency signal that kickstarts the payment process. This is when the NFC chip in the payment device starts working. At this point, a secure channel is created to enable safe data exchange, often using AES 128-bit encryption.
Next, the card transmits an encrypted token which the terminal verifies with the payment network. If all goes well, payment is allowed. As you can see, while tap to pay looks simple, it’s complex behind the scenes.
EMV Technology in Tap to Pay
EMV standards are created by three major card networks – Europay, Mastercard, and Visa. As you can imagine, they play a huge role in security of tap and pay transactions, giving peace of mind for customers and merchants.
EMV chip cards generate cryptograms that are unique for every transaction. This helps prevent replay attacks using sophisticated tactics. The EMV standard also includes specifications for contactless payments in particular, while 3D Secure adds more security with an extra authentication layer.
The video below answers some common questions about contactless transactions, including where to point your card or device at the tap to pay terminal, and how it all works.
Behind the Scenes: Payment Processing
We’ve covered the basics of a tap to pay transaction, but there’s far more to consider. In fact, it’s a complex process that includes the merchant, payment processor, and financial institution.
First, the tap to pay terminal sends encrypted transaction data to the acquiring bank. Then, the bank sends the transaction through the appropriate card network, verifying the account status and that there are available funds to complete the transaction. At this point, the transaction is approved.
The table below simplifies the process:
Step | Action | Responsible Party |
1 | Initiate transaction | Customer |
2 | Capture payment data | Merchant terminal |
3 | Route transaction | Acquiring bank |
4 | Authorize payment | Issuing bank |
5 | Confirm transaction | Merchant terminal |
6 | Complete purchase | Customer |
Transaction Speed and Efficiency
It’s clear that tap to pay transactions are much faster than regular ones. In fact, a study by Mastercard showed that contactless payments are often ten times faster than other methods. This means customers can purchase their goods and services and go about their business much faster, while the business can move on to the next customer, boosting sales.
Tap to Pay Across Devices and Platforms
The positive thing about tap to pay is that it can be used on different devices and platforms, albeit with slight differences in terms of implementation. When dealing with anything related to payment processing, it’s important to understand the different variations of every step, including the various payment gateways available. This gives you the best information to make solid business decisions.
Let’s take a look at how tap to pay Android fares against iPhone and other devices.
Tap to Pay on iPhone: Apple's Approach
Tap to pay on iPhone is simple and intuitive, allowing you to make payments with ease.
Source: unsplash.com
Tap to pay on iPhone is one of the most commonly used options. The system implements iOS devices very smoothly and easily. Of course, there’s also the Apple Pay system to consider.
Apple’s implementation approach involves a Secure Element chip that helps store encrypted payment information. Additionally, the Secure Enclave contained in Apple processors also adds extra security within the basic hardware, while transactions made through Apple Pay require biometric authentication. All of this gives peace of mind that tap to pay transactions are as secure as possible.
Setting Up Apple Pay
When considering how to set up tap to pay on Apple devices, it’s a relatively simple process. You can easily configure your iPhone to use Apple Pay or your Apple Watch, and your device will take you step-by-step through the process.
Part of the setup procedure is to verify your identity with your card issuer. However, it’s good to know that Apple doesn’t have access to your original card numbers and it doesn’t store them either. Instead, Device Account Numbers are used to process payments securely.
Apple Pay's Unique Features
Apple Pay is very popular and it has many capabilities that other tap to pay options don’t. The main plus point is that Apple Pay works directly with in-app purchases and web transactions, and you can also use it for in-store payments. For this reason, it’s a very flexible choice. Additionally, the Apple Wallet app pulls together all your passes and loyalty cards in one easy-to-find place, while Apple Cash allows peer-to-peer transactions using iMessage.
Android's Tap to Pay Ecosystem
Tap to pay on Android is quite different to iPhone, but still offers a highly effective contactless payment service. The main difference is that Android uses HCE (Host Card Emulation) for its contactless payment service, so it doesn’t need a secure element.
Additionally, Google’s SafetyNet Attestation API ensures integrity of Android devices when used in secure transactions. As for flexibility, Android has a large and open ecosystem and it can be used for contactless payments on apps and for services.
Google Pay and Other Android Solutions
There are many payment methods to choose from but Google Pay is a common choice for Android users. Despite that, it isn’t the only option for this type of device, as users can also choose third-party applications, such as PayPal or a banking app.
One of the biggest differences between Apple Pay and Google Pay is that the Android version uses cloud-based secure storage to hold payment credentials.
NFC-Enabled Android Devices
We know about the famous Apple Watch, but many Android devices also support contactless payments. Most mid to high-end Android smartphones use NFC technology and there are Android smartwatches that can be used for contactless payments as a wearable. However, it’s important to note that the placement of the NFC antenna varies across the board, which can affect positioning when you tap to pay.
Tap to Pay for Businesses: A Game-Changer
We’ve talked at length about what is tap to pay and how it works, but now let’s turn our attention to tap to pay for business use in particular. It’s not a stretch to say that contactless payments have impacted businesses across the board, creating challenges and opportunities. While there is an initial investment required to purchase a tap to pay POS, many businesses find that it pays for itself over time.
Of course, it’s important to understand how changing the payment methods you offer affects your payment processing costs. Let’s explore tap to pay for business use in more detail.
Tap to Pay Terminals: The Merchant's Perspective
To be able to accept contactless transactions, you must have the right hardware and software installed. Many modern payment terminals now integrate NFC readers with EMV chip readers, while some also support payments via QR codes for extra flexibility.
Once you have the hardware and software in place, it’s important to remember that there will be regular maintenance to keep your software up-to-date and as secure as possible.
Mobile Point of Sale (mPOS) Systems
Many modern smartphones and tablets now work as tap to pay terminals, which is certainly something to explore. These devices use sophisticated tap to pay POS systems and can be a big advantage for small businesses who don’t have the capital to purchase large and expensive hardware.
Most mobile point of sale systems use a dongle or a case that creates NFC capabilities, and cloud-based software allows for real-time transaction monitoring. It’s also possible to perform inventory management as an extra feature. In some cases, it may be possible to use an offline mode for payment processing.
All of this helps to create a robust mobile payment credit card processing method that’s smooth and accessible for all.
Integration with Existing POS Systems
It’s likely that you already have a regular POS system installed in your business, so it’s important to understand how to upgrade your system to support contactless payments. If you’re struggling with any aspect of your POS system, don’t hesitate to reach out to us at PayCompass as we’re more than happy to help.
The good news is that some POS systems can easily be enhanced with an NFC-capable card reader, although integration usually requires significant software updates to handle the processing journey.
These are all things to consider before making the leap, but many businesses do find that it’s an investment worth making if you want to grab the benefits of tap to pay transactions. Speaking of benefits, let’s talk about those next.
The Benefits of Tap to Pay for Businesses
We know that tap to pay is a faster and smoother experience for the customer, but what about the business?
Perhaps the most obvious benefit is shorter queues and the ability to serve more customers in a shorter amount of time. This can lead to increased sales, boosts customer satisfaction, and may, over time, ensure repeat custom.
We can also mention reducing paper waste here as a lesser-known benefit. Digital receipts reduce the need to print out a paper receipt, saving the planet and making accounting much simpler.
Role-Based Training Approaches
It’s likely that your staff all have different roles that mean they must focus on specific tasks. For instance, your cashiers need to be fast and accurate with transaction processing and age verification. Your inventory managers must be experts in their role, with training on adjusting, receiving, and reporting functions. Managers must be able to use all the system’s functions. Within this, developing role-specific training helps to smooth the process and ensures that everyone is able to complete their role without being overwhelmed with features they don’t need to use.
Also remember that everyone learns differently, so adapt your training to different learning styles. This means incorporating visual demonstrations, theory, and hands-on practice.
Enhanced Data Security
The enhanced data security measures involved in tap to pay helps businesses ensure the safety and privacy of customer information, helping to reduce fraud. This is an issue for all businesses, but for high-risk businesses in particular, fraud is more prevalent. At PayCompass, we’ve designed our high-risk merchant accounts with these problems in mind, and our fraud protection measures help to minimize risks and boost confidence.
The Future of Tap to Pay Technology
Using tap to pay for apps and devices is certainly prevalent, but what does the future look like? How will tap to pay solutions evolve as new technology emerges? There are many payment processing statistics and trends to take on board, so let’s look at the most pertinent regarding contactless payments.
Biometric Authentication in Tap to Pay
Biometrics are increasingly used in tap and pay apps, adding an additional layer of security.
Source: unsplash.com
Biometrics and contactless payments go hand in hand in terms of boosting security and enhancing the overall user experience. Using facial recognition, fingerprints, and other biometric technologies is becoming more commonplace and these are an easy way to authentic identity.
Biometric data is usually stored on the device itself and it’s not transmitted during a transaction. In many cases, multi-factor authentication combines both biometrics and other methods to give the strongest defense possible. Additionally, some systems may also start to use behavioral biometrics in the future, including typing patterns as one option, along with voice activation.
Internet of Things (IoT) and Tap to Pay
The Internet of Things, or IoT, is being quickly incorporated into our everyday lives through smart devices and wearable objects. It’s unsurprising that many of this also links to contactless payments.
IoT devices can use low-power NFC chips and secure element technology. In many cases, IoT payments also use machine-to-machine transaction processes, so there’s no need for human intervention. This smooths out the tap to pay procedure and reduces the chance of errors.
Regulatory Landscape and Compliance
We can’t talk about any element of payment processing or transaction types and not consider regulatory challenges. It goes without saying that there are many legal and regulatory frameworks that govern tap to pay transactions from area to area. For this reason, PCI DSS (Payment Card Industry Data Security Standard) is vital to ensure compliance.
Many regulators also create transaction limits for contactless payments and anything over that requires extra authentication, such as a PIN number. This requirement varies from area to area, sometimes based on the type of merchant and risk assessment, while some regions allow customers to set their own contactless limits. In some cases, contactless payments may be banned altogether.
Global Variations in Tap to Pay Regulations
As with most payment processing issues, tap to pay transactions vary across regions and countries. For instance, the EU’s new PSD2 (Payment Services Directive) is important to learn about as it impacts contactless payments considerably. Moreover, some countries require two-factor authentication as standard for high-value transactions.
As far as cryptocurrency-based tap to pay transactions are concerned, this is an even more complex situation and regulations vary widely across the board.
Cross-Border Tap to Pay Challenges
The world is large and many businesses now trade across borders. Of course, this creates unique challenges for contactless payments. The most challenging issue is currency conversations in real-time, creating a complex situation for both the business and the customer, who understandably wants to know exactly how much they’re paying in their local currency.
To overcome these challenges, interoperability between different national payment systems is a vital piece of the puzzle. This goes a long way to smooth water and facilitate cross-border contactless payments.
In terms of security and regulations, there may be a need for local data storage in some countries, which adds even more complications to an already complex situation.
If you do trade across borders, ensure you are extremely clear on requirements to ensure compliance and to avoid any negative outcomes.
Data Privacy and Consumer Protection
Ensuring the safety and privacy of user information is vital no matter where you’re trading, and this is why many regions require clear consent for data collection when processing contactless transactions. Additionally, some jurisdictions require regular privacy audits, especially for companies that handle a large number of contactless transactions.
Most jurisdictions have principles that limit the amount of data allowed to be kept on any customer. Again, clear and prior knowledge of all this is vital.
GDPR and Tap to Pay in Europe
Across the EU, the General Data Protection Regulation, or GDPR for short, has impacted many payment types, including tap to pay. Within this, the EU requires contactless providers to have robust privacy measures. Users can request deletion of their payment data under certain situations.
Failing to follow GDPR has dire consequences, including substantial fines.
Dispute Resolution and Chargeback Processes
As with any type of payment, there is always a risk of issues, particularly chargebacks and disputes. This is even more likely for high-risk businesses, and it’s important to understand the effects of this and how to overcome them. Our merchant accounts all have built-in chargeback prevention and we’re also on hand to offer dispute management services.
All this highlights why it’s so important to choose the right high-risk merchant services for your needs from the start.
Learning Recap
We’ve come to the end of our guide on tap to pay and it’s clear that this is an extremely popular yet complex payment method. From the customer’s side, it’s relatively easy. They just tap their card and wait for the beep. However, there is a whole other story behind it, utilizing sophisticated technology and processes. Understanding all this places you in a good position to offer a range of payment methods to your customers, choosing the ones that benefit your business the most. From there, learning how to set up a tap to pay allows you to move toward a smoother and faster payment route.
However, despite the advantages of contactless payments, alongside other options such as card-not-present payments, there are regulatory challenges that need to be overcome. If you trade over borders, remember to familiarize yourself with any regulations and rules you must adhere to, and remain up-to-date with any changes.
As the digital era continues, it’s vital to utilize as many payment options as possible. Not only does this allow you to benefit from higher speeds and smoother processes, but it increases customer satisfaction too.
Why PayCompass
At PayCompass, we understand the challenges you face as a business owner. As a high-risk business owner, your daily operations become even more complicated. We’ve designed our merchant accounts to deal with the issues that plague your business life, from higher fraud risks to chargebacks, disputes to account freezes. Instead, we aim to make your payment processing smoother and infinitely easier. All you need to do is reach out to us to learn more.
