What is Contactless Payment? 5 Advantages and Examples

While most people learned about near-field communication (NFC) technology during the COVID-19 pandemic, contactless payment technology has been around long before 2019.

The first contactless payment was made in 1995 in Seoul, South Korea. Called the UPass, this prepaid card was developed by The Seoul Bus Transport Association to add efficiency and convenience for commuters.

In the western part of the world, the first time a contactless card was used in the United States was in 2004.

Since then, accessibility to contactless payments has grown to include contactless cards, wearable devices, and mobile apps like Apple Pay, Samsung Pay, PayPal, Venmo, and Google Pay.

But contactless payment technology grew to a market value of $34.55 billion in 2021, and RFID/NFC technology has a projected growth rate of over 19% between 2022 and 2030.

With more than a billion contactless payment users in 2024, businesses of every size are adopting contactless payment options to better serve their customers and avoid losing sales due to only accepting cash or swipe-style cards in their payment systems.

If you’re considering contactless payment integration, this article takes a closer look at how contactless payment technology (RFID and NFC) works, answers questions including what NFC mobile payments are, explains the different types of contactless payment methods, describes the benefits of integrating contactless payments, and offers guidance on to how to implement contactless payments in your business.

What is a Contactless Payment?

Also called tap-to-pay, contactless payments let consumers use their smartphone, smartwatch, or chip card to pay for goods instead of using traditional magnetic strip cards or cash.

Contactless payment is a digital payment method that expedites the entire payment process, offering a more sanitary and secure payment method since no cash has to change hands. It reduces the need to touch card readers or physically insert your payment card into payment terminals. Contactless payment options include contactless chip cards and Apple Pay/Google Pay/Samsung Pay on smart devices.

Contactless Payment Technology

While nearly as common as cash or card in 2024, tap-to-pay and contactless card technology, like chip cards, Apple Pay, and smart cards, have been around for almost 30 years.

The Seoul Bus Transport Association initially introduced a prepaid, contactless payment card in 1995 to help improve the commuter experience, while the first contactless card (EMV card) was introduced in the US nine years later (2004). Apple Pay was first announced as late as 2014. Google Wallet and Android Pay beat Apple by several years, introducing their contactless payment smartphone technology in 2011.

In 2020, as with virtually every other area of life and business, a need for ways to reduce and prevent COVID-19’s spread promoted fast innovation. Contactless payment technology was one of the first and most effective ways to help protect consumers and businesses from contamination.

While most people have seen contactless payments in action, here is an overview of how popular methods like Apple Pay, Google Pay, and Samsung Pay all work.

RFID Technology

Radio Frequency Identification (RFID) is wireless communication technology that uses radio waves to transmit signals that trigger RFID tags. RFID utilizes both electrostatic coupling and electromagnetic coupling.

RFID readers come in two different forms: mobile readers and fixed readers. Logically, fixed readers are permanent, and mobile readers are portable. RFID functions via an antenna, transceiver, and transponder, which is how contactless payment data communicates with point of sale (POS) systems. The radio frequency identification (RFID) tag is located in the POS payment terminal or payment device.

NFC Mobile Payments

The near-field communication (NFC) tag is embedded in the chip card or mobile payment device. When the contactless payment device comes within a specified distance of the payment terminal, the payment is processed. The cardholder’s information securely travels through the payment terminal, and the tap-to-pay process is completed in a matter of seconds.

Note: RFID and NFC function very similarly, but they are not the same. NFC is considered more secure, as it uses more security and data protocols. This difference makes RFID and NFC incompatible.

Other Wireless Payment Technologies

EMV cards and tap-to-pay apps aren’t the only contactless mobile payment methods replacing magnetic stripe cards. Exciting advancements in wireless payments—like encrypted blockchain systems and biometric authentication—are growing in popularity, too.

With a plethora of extra security and user experience benefits, industries at large are making plans and preparing to integrate these advancements and stay ahead of consumer trends.

3 Contactless Payment Options

With a closer look behind the curtain at how contactless payment technology works, it’s time to discuss the different types of payment methods available. There are several contactless NFC technology options replacing traditional magnetic stripe cards as cardholders’ preferred way to pay, so the following can help you decide how much payment flexibility is right for you.

1. Tap-To-Pay Cards

Also termed chip cards and EMV cards, most issuing banks offer their customers contactless payment-compatible debit and credit cards. EMV (Europay, Mastercard, and Visa) chips help encrypt the payment information transmitted to the POS, so even though cardholders may still need to enter their PIN into the payment terminal, they have additional fraud protection thanks to their contactless card.

2. Mobile Wallets

Those who don’t like shuffling through a wallet full of credit cards and debit cards can use tap-to-pay on their mobile smartphones and wearables. Using this completely digital contactless payment method allows cardholders to store their credit and debit card information in their Apple Pay, Google Pay, or Samsung Pay digital wallets.

Apple Pay

First announced back in 2014 and now available as a standard feature on a majority of Apple devices (smartphones, apple watches, iPads, etc.), Apple Wallet makes it quick and easy to store card information and use tap-to-pay wherever it’s accepted. Apple Pay’s security features include both software and hardware protection measures like Face ID, Touch ID, optic ID, and passcode requirements.

Google Pay

Predating Apple Pay by three years, Google Pay works in much the same way as its main competitor but for Android OS devices. It lets users store payment cards, easily make in-store and online purchases, split bills, and make group payments. It offers a reward program and spending insight. Google promises to never sell personal information, and industry-leading security measures include the ability to lock your phone from any location, advanced privacy controls, and tap-to-pay protection.

3. Wearable Devices

Smart devices like fitness trackers and wearables are another convenient way for cardholders to protect their debit card and credit card information with contactless payments.

Smartwatches and Fitness Trackers With Payment Capabilities

With similar NFC tags, advanced wearable devices (including Apple, Google, and Samsung) offer the on-the-go convenience of tap-to-pay, even if the customer doesn’t have their wallet or mobile phone.

How To Accept Contactless Payments

Integrating contactless cards and tap-to-pay compatibility into your business requires only a few basic steps but careful planning. Whether you’re operating from a brick-and-mortar location or are a mobile merchant at a trade show, accepting contactless tap-to-pay is an effective way to secure more sales by accepting payment from customers who only have contactless payment options on hand.

Step 1: Assess Current Processes and Your Tech Stack

Before you research touchless payment options, audit your current payment process to understand what’s currently working and what isn’t. While integrating contactless cards and contactless mobile payments is mainly about solving a conversion bottleneck, it’s always a good idea to understand how the current process functions so you can create the best plan to improve the entire workflow.

Determine whether your current tech stack and hardware can actually support contactless cards (EMV chips) and NFC tap-to-pay, so you’re prepared for the possibility of a massive system upgrade.

Step 2: Set Up New Hardware or Software to Unify Systems

Set up the hardware and software needed to accept NFC chip payments, and be sure to coordinate with system experts to ensure the most efficient setup process while dealing with troubleshooting concerns.

Integrate with any existing and compatible systems (your ERP, CRM, lead generation and communication platforms, etc.).

Step 3: Provide Comprehensive Training

Ensure your staff is prepared to confidently operate the new contactless card and NFC tap-to-pay systems with thorough training. It’s also a good idea to provide access to resources and knowledge bases they can reference.

Step 4: Spread The Word

Tell customers about your updated payment options through social media channels, websites, and on-hand pamphlets and flyers. You can also give your team scripts to follow and encourage customers to ask a representative about the shift.

Contactless Payment vs. Traditional Payments

The advantages of mobile payments and contactless payments go beyond spreading fewer germs—or even just improving the customer experience. While implementing contactless payment methods makes purchasing easier, it also offers a plethora of benefits to your team and overall operations.

1. Provide convenience for your customers with faster transaction times. Contactless payments have grown in popularity thanks to their convenience and security. When you set up your Apple, Google, or Samsung Wallet, paying for groceries is as simple as taking out your phone. Sometimes, you don’t even need to enter your personal identification (PIN) number.
2. Optimize user experiences across the board, thanks to ease of use for consumers and merchants. Everyone involved in a contactless payment transaction benefits because the entire payment process moves more quickly. Contactless payments eliminate the need for cashiers to manually enter cash or credit card payments, limiting or eliminating physical contact.
3. Increase customer satisfaction and CLV by making post-purchase service less stressful. It also improves exchange processes by ensuring the relevant payment information is, basically, always at hand. No need to worry about keeping receipts or swiping multiple cards to try and find a previous transaction.
4. Protect cardholders with enhanced security features like EMV cards (“Europay, Mastercard, and Visa”), advanced encryption in payment terminals, limited range of communication, and fraud protection. This is one of the main ways contactless payments outperform traditional magnetic stripe cards. While not completely impervious to attacks, these security measures help cardholders avoid malicious intent because they don’t have to swipe or insert a card during point-of-sale transactions.
5. Improve health and safety for everyone because of the reduction in physical contact during transactions, a critical benefit during health crises like the COVID-19 pandemic. Increased health and safety for your team can help decrease sick days that put a strain on operations.

Make 30% More Sales With Podium

If you’d like more details on how to integrate contactless payments into your small or medium-sized business, check out this article on how to add contactless payments to your local business.

Or, if you’re interested in transforming your lead generation and customer communication processes, schedule a demo to learn more about how Podium’s AI Employee is changing the game for local businesses like yours.