How and Why to Offer Contactless Payments in Your Retail Store

contactless payments

A contactless payment is a type of transaction made by tapping a device (such as a smartphone or contactless bank card) onto a payment terminal. 

As the name suggests, the entire transaction is made without physically touching a PIN terminal. Shoppers use their smartphone, mobile wallet, or contactless credit card to tap a card reader—hence the name "tap to pay." They’re then billed for their purchase after the wireless connection is made. 

In 2020, it was estimated that 760 million users made a contactless payment.

Revenue generated through contactless methods in the US alone is projected to hit $358 billion by 2025.

Want to get in on the action? In this article, we’ll take a look at how contactless payments work, the advantages for retailers, and how to offer contactless payments to in-store shoppers. 

What is a contactless payment?

Contactless payments are types of transactions completed using a mobile phone, contactless-enabled debit card, or key fob. The device is placed within close proximity to the point-of-sale (POS) terminal. When a wireless connection has been made, the shopper’s bank account will trigger a payment to your business.

The entire checkout experience is faster and easier when shoppers use contactless. Unlike chip and PIN cards (where customers need to hang around and enter their PIN), contactless payments are finalized within a matter of seconds. 

How do contactless payments work?

Contactless payments are made using two types of payment technology: radio frequency identification and near-field communication.

Radio frequency identification (RFID)

Contactless credit, debit, and smartcards have microchips inside (similar to the visible one scanned by the machine when a card is inserted). When a contactless payment is made, the antenna on the credit card reader pings. RFID technology inside the contactless card makes contact with the antenna and the payment is processed wirelessly.

Near-field communication (NFC)

Smartphones store a shopper’s credit card information in a mobile wallet. These smartphones use NFC technology to find a nearby payment terminal, send an encryption key to accept the payment from the mobile wallet, and process a receipt. This is how Apple Pay, Google Pay, Android Pay, and Samsung Pay work. It’s also how payment fobs and wearable devices process contactless card payments.

Start taking contactless payments instantly

Every Shopify plan includes built-in payments processing with quick payouts and low rates, starting from 2.4% + 0c USD. Skip lengthy third-party activations, accept all popular payment methods (including contactless!), and start taking payments online and in-person faster.

    Types of contactless payments

    There are few different options for customers when it comes to contactless payments, including: cards with NFC technology, mobile wallets, and QR codes.

    Cards with NFC technology

    Popular banks are building contactless technology into their customers’ credit and debit cards. Visa, Mastercard, and American Express all have EMV chips in their smartcards. Customers can find whether their card is contactless by looking for the contactless symbol.

    Mobile wallets

    Another popular contactless payment method is mobile wallets or tap to pay. Most mobile devices—including Samsung, Apple Pay, and Google Pay—have radio-frequency identification (RFID) built in. All a shopper needs to do is add their credit or debit card to the digital wallet, open up the app, and tap their phone onto a and tap their phone onto a POS terminal to make a purchase to make a purchase.

    Mobile phone companies have an extra layer of security for contactless payments in the form of biometric verification.

    Samsung Pay, for example, uses facial recognition technology to verify that the person using the mobile phone is the owner of it. Similarly, Apple Pay prompts people to enter their fingerprint ID to complete a contactless sale. 

    QR codes

    Not all contactless payments have to be done through a and tap their phone onto a POS terminal to make a purchase. Retailers can use QR codes for touch-free payments. These are small, square graphics that look like barcodes.

    QR codes on jars

    QR codes (like Shopcodes) bypass the need to have any in-store payment method. Shoppers can use their mobile devices to scan the QR code and make online purchases through a personalized checkout page on your ecommerce site.

    Advantages and disadvantages of contactless payments

    Like any form of new technology, contactless payments have advantages and disadvantages.

    Contactless payments are more secure

    Tapping a contactless-enabled credit card onto a payment terminal might sound risky. After all, how do you prevent fraudsters using your card if it falls into the wrong hands?

    The good news: unlike the magnetic stripe found on chip-and-PIN cards, fraudsters can’t clone your data onto another card.

    The technology that processes a contactless payment is found within the microchip. Only terminals registered to an official business can take contactless payments using the microchip. 

    Moreover, outdated magstripe cards store your financial data right on the magnetic stripe—meaning that if someone swiped your card, it'd be pretty easy for them to lift and clone your data. On the other hand, the data stored on microchips is always changing, making those cards more secure.

    Some banks also prevent fraudulent transactions by asking cardholders to enter their PIN every so often. It’s their way of checking nobody has stolen a contactless card—and that the person making the transaction owns the card they’re using to pay.

    Plus, while there is no limit in the US, some financial institutions limit how much money can be sent through a single contactless transaction. In the UK, for example, the limit is £100 per transaction. Canada allows contactless payments of up to $250 in one go (increased from $100 pre-pandemic).

    Consumers turned to contactless during COVID-19

    When the COVID-19 pandemic spread globally, the World Health Organization made this announcement: “When possible it would also be advisable to use contactless payments to reduce the risk of transmission.”

    This announcement, alongside shoppers’ fear of contracting the virus from touching payment terminals, caused the volume of contactless card transactions to skyrocket.

    Some 30% of shoppers made mobile wallet transactions for the first time during the first two months of the pandemic.

    Contactless payments accounted for 88.6% of total card payments in the UK throughout 2020—an increase of 7% compared to the previous year. Certain industries became evermore reliant on contactless payments. Grocery stores, for example, saw a 29% increase.

    Graph showing the rise in contactless payments due to COVID-19

    The same trend happened elsewhere around the world. In the US, more than half (51%) of consumers admit to using cash less frequently—or not at all—since the start of the COVID-19 pandemic. Another 31% of device users showed an interest in contactless payment options.

    Faster (and easier) checkout process

    It’s crucial for retailers to play close attention to the checkout experiences they’re giving to customers. Almost half of customers who can’t use their preferred payment method will abandon a purchase entirely.

    That boils down to the fact 51% of consumers are influenced by a quick and easy checkout process. Contactless fits neatly into those expectations and demands. Some 62% of buyers are more comfortable making in-store purchases with digital or contactless payments because they’re fast and easy. No waiting around to enter your PIN necessary.

    In fact, there is a new breed of checkout experience centered around contactless payment technology. The goal? To make these experiences as fast, easy, and enjoyable as possible. 

    Mashgin uses computer vision to instantly identify and ring up items for sale—which also makes us the fastest self-checkout system in the world—we’re up to four times faster than cashiers when it comes to the speed of transactions.

    Toby Awalt, Director of Product Marketing at Mashgin

    "What’s cool about computer vision is that Mashgin can quickly ring up every item in a transaction at once—no need for customers to fuss around with bar codes. They just place their items down and, in half a second, they are ready to pay.

    “When you combine this with contactless payment options like NFC and mobile wallets, you end up with a completely touchless checkout experience where people don’t need to touch anything but their own purchase and form of payment, which is why we call it the Touchless Checkout System. Since the checkout lines move faster, everyone gets in and out of the store in less time, which is important in the world of COVID.”

    Toby adds that one retailer, the Denver Broncos, “saw 96% more throughput at concessions stands, which resulted in a 34% increase in total sales” in places where this contactless checkout method was used.

    Card transaction fees

    Any type of digital payment is always competing with cash. There are no transaction fees that absorb into your margins when customers pay with cash. 

    However, customers are moving away from cash payments. Instead, they’re using credit or debit cards (using either contactless and chip-and-PIN methods)—both of which incur transaction and payment processing fees. 

    The good news is that most payment processors don’t charge extortionate fees. The average processing fee for credit cards sits between 1.5% and 3% of the total sale. That money usually hits your bank within three days. 

    Where can you use contactless payment?

    The fast growth of contactless payment means most bank card issuers are offering cards with contactless payment technology. Visa, Mastercard, and American Express all offer credit and debit cards that have the microchip needed to make a contactless payment. 

    More retailers are offering contactless payments to in-store shoppers, too. A recent report found that most people use contactless methods for buying essentials in these sectors:

    • Grocery (85%)
    • Pharmacy (39%)
    • Retail (38%)
    • Quick service restaurants and fast food (36%)

    It’s not just brick-and-mortar stores where contactless is used, either. Over one million customers used Transport for London’s contactless payment card to pay their bus fare. Around 69,000 contactless payments are made each day on London buses.

    How do I accept contactless payments?

    There’s no doubt that offering contactless payment is an option that more and more shoppers are looking for. With COVID-19 hiking up the number of transactions that are made contact-free, retailers can win over footfall returning to brick-and-mortar stores.

    One way to offer and accept contactless payments is with Shopify POS Go. With it, you can accept all contactless credit, debit or mobile wallet payments anywhere in your store without needing a separate card reader. 

    Remember: these days, shoppers value a fast and easy checkout process regardless of where they’re shopping. Have a contactless payment system ready to welcome them.

    Start taking contactless payments instantly

    Every Shopify plan includes built-in payments processing with quick payouts and low rates, starting from 2.4% + 0c USD. Skip lengthy third-party activations, accept all popular payment methods (including contactless!), and start taking payments online and in-person faster.

    Contactless payments FAQ

    How does contactless payments work?

    Contactless payments use near field communication (NFC) technology to wirelessly connect the payment card or device to the payment terminal. When you make a contactless payment, the card or device is tapped against the merchant’s payment terminal. The terminal then wirelessly sends an encrypted signal that is received by the card or device. This signal contains the payment information, which is then securely transmitted to the payment processor. The payment processor then sends a confirmation back to the terminal and the payment is complete.

    What is contactless payment example?

    Contactless payment is a digital payment system that allows customers to make payments by tapping their debit or credit card on a reader at the checkout. Examples of contactless payment systems include Apple Pay, Google Pay, and Samsung Pay.

    How do you do contactless payment?

    Contactless payment can be done through a variety of methods, depending on the merchant and the payment processor. Common methods include tapping a card or mobile device on a payment terminal, scanning a QR code, or using a digital wallet such as Apple Pay, Google Pay, or Samsung Pay. Some banks and credit card issuers offer contactless payment technology embedded in their cards, allowing users to make payments just by tapping the card on a payment terminal.

    What are the types of contactless payments?

    • Credit/Debit Card Payments: Payments made with a contactless debit or credit card are one of the most popular forms of contactless payment. The card must be held near a payment terminal with a contactless reader.
    • 2Mobile Payments: Mobile payments are becoming more popular as phones become more sophisticated. These payments are made using a mobile wallet app, such as Apple Pay or Android Pay.
    • Wearable Payments: Wearable payments are becoming increasingly popular. Smartwatches, fitness trackers, and other wearable devices can be used to make payments.
    • NFC Tags: These are tags that contain an NFC chip which can be read by an NFC reader. The tags can be used to make payments by tapping the tag against an NFC reader.
    • Near-Field Communication (NFC): NFC is a form of contactless communication between two electronic devices. It’s used to make payments by tapping a device, such as a smartphone, against an NFC reader.