In recent years, contactless payment technology has emerged as a transformative force in the financial industry. This technology is currently reshaping the payment landscape, with smartphone-based payments accounting for more than 50% of global revenue.
Driven by technological advancements, contactless payment technology has seen a significant surge in popularity as it is increasingly becoming a preferred choice of payment for consumers across the globe.
A Forbes article “The Future of Contactless Payments: Three Predictions for the next five years”, revealed in one of the predictions that contactless payments will supersede cash and traditional credit cards.
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The article further revealed that contactless payments have continued to gain widespread adoption with 48 countries increasing their spending limits on contactless transactions. The average contactless limit increase after COVID-19 was 131%.
Similar increases are expected in the U.S., which currently has a limit of $100. Even countries that prefer cash payments, such as Germany, have become enthusiastic adopters. Before the pandemic, Germany had 35% of transactions being contactless, now more than half of overall purchases are touchless.
These preferences by customers are poised to likely cause contactless payments to overtake cash and traditional credit cards within the next three to five years. At the Zenith Tech fair event held in 2023, Vice President & Head, West Africa Andrew Uaboi, revealed that 74% of business owners expect consumers to prefer contactless payment.
A recent study reports that 27% of small business survey respondents have seen an increase in customers using their mobile phones or contactless cards to pay. Also, according to a March 2020 report, the global contactless payments market size is expected to go from $10.3 billion in 2020 to $18 billion in the next five years, which corresponds to an 11.7% compound annual growth rate (CAGR).
The contactless payment market has continued to skyrocket, and is forecasted to quadruple to $164.15 billion by 2030. Alongside merchants, Central Banks across the globe, are actively pushing out a central bank digital currency (CDC) to capitalize on the contactless trend.
With a growing number of consumers and businesses embracing this technology, a report by Juniper Research revealed that the value of contactless transactions is expected to reach $6 trillion by 2024, up from $2 trillion in 2020. This surge is fueled by the widespread use of contactless cards, and mobile wallets, amongst others.
Here’s a look at how this technology is reshaping the payment landscape
Increased efficiency for businesses
A significant number of merchants say contactless payments have helped shorten checkout lines, reducing wait times for customers. They further reveal that contactless payments have decreased average transaction times, helping to streamline operations. Contactless technology offers a seamless payment experience, which explains why 84% of merchants say an increasing number of customers are using them.
Enhance convenience for consumers
The heightened convenience of contactless payment solutions benefits customers as well. Merchants say contactless payments have improved customer satisfaction. As a hassle-free way to make purchases (and one that eliminates the need for physical currency), 45% of respondents to a global consumer survey said they prefer contactless payments, to traditional cash transactions.
Elevate security for transactions
The security protections of contactless payments- including circuit chips, encryption, and network tokenization, benefit consumers, merchants, and financial institutions. Three in five merchants that accept contactless cards indicate a decrease in fraud rates, particularly reduced card skimming, which benefits consumers and BFS providers alike. With enhanced security in mind, nearly two-thirds of consumers will shop with merchants accepting contactless payment over those not.
Challenges and Considerations
While the future of contactless payments looks promising, there are several challenges to address:
1. Security Concerns: Despite advancements in security measures, concerns about data breaches and fraud persist. Ensuring robust security protocols and educating consumers about safe payment practices are essential to mitigate these risks.
2. Infrastructure Development: The widespread adoption of contactless payments requires robust infrastructure, including POS terminals and digital payment networks. Developing this infrastructure, especially in emerging markets, is crucial for the continued growth of contactless payments.
3. Digital Divide: While contactless payments offer numerous benefits, there is a risk of exacerbating the digital divide. Ensuring that all segments of the population have access to digital payment solutions and the necessary digital literacy is vital for inclusive growth.
Conclusion
The mutual benefits of contactless payment technology are transforming the future of transactions, not just for customers but for merchants and financial institutions alike. From simplified payment processes to amplified security measures for each transaction, contactless payment solutions help power a frictional payment experience that will continue to improve over time.
This mode of payment has no doubt become a catalyst for the next generation of payments, and the gateway for the countless possibilities in the world of connected devices. As the payment landscape evolves, we can expect more secure, convenient, and innovative solutions that cater to the needs of a diverse global population.