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Technology
Contactless Payments
Payment technology is moving past chips and stripes and into taps and waves. Here’s why that matters.
By Lara Ewen
A new payment method is on the horizon that may end up making Europay, MasterCard and Visa (EMV) chips seem old-fashioned. Meet contactless payments, such as Apple Pay’s mobile wallet app. The technology allows users to wave their phones in front of a terminal, making payments using stored debit and credit card information. This next-generation payment technology is already popular in Europe and is slowly gaining ground in the U.S. But is this just another fad or is it a game changer?
“In simplest terms, contactless payment is just a short-range wireless way to pass payment,” says Marc Castrechini, vice president of product management at Boston, Massachusetts–based Cayan, formerly Merchant Warehouse, a payment technology company that supplies terminals and payment services to retailers. “It’s a way for two devices near each other to pass information back and forth.” For example, users with Apple Pay, which is Apple’s mobile payment and digital wallet service, are able to pay for transactions by waving the phone near a payment point. The stored credit card data is then transmitted wirelessly. The tested technology has been used in keyless car entry for decades.
Although the technology is 35 years old, the security is both layered and advanced. Mobile wallets bring extra security to an issuing bank’s systems by adding computerized codes and “tokens,” or unique digital codes, attached to each transaction. “Mobile wallets use encryption and tokenization,” says Jared Drieling, business intelligence manager at Omaha, Nebraska–based management consulting company, The Strawhecker Group (TSG), which focuses on the global electronic payments industry. “EMV chips protect from a physical theft of a card, but a contactless transaction is encrypted and tokenized, which means it’s more difficult to crack. Even if you do hack it, you only get access to that one transaction.”
Although contactless payments are still relatively new in the U.S., tech-savvy Millennials may be increasingly inclined to use digital wallets rather than carry cards or cash. “Apple Pay was slow at the start,” says Lauren Bitar, senior manager of retail consulting at retail analytics firm RetailNext, based in San Jose, California. “Retailers weren’t taking it at first, but now it’s starting to pick up momentum. Maybe Apple Pay won’t get you more sales, but it’s like bringing flowers to dinner. You won’t look bad if you don’t do it, but it can’t hurt.”
Jewelers looking to woo Millennial customers need to consider offering as many options as possible and contactless may be simply another way to engage. “Millennials are driving mobile wallets, so some merchants adopt them for the cool factor,” says Drieling. It’s also about offering options. “All consumers, and particularly Millennials, are starting to expect different payment experiences,” says Castrechini. “They have unique payment preferences and they’re pushing for new and better experiences. You’re seeing that in customer journeys across channels — paying for something on their phones, and then going into the store and picking it up. As consumers get used to that, they’re going to expect retailers to provide those services.”Article from the Rapaport Magazine - February 2017. To subscribe click here.
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