Everything you need to know about contactless payments

 

 

 

While contactless smart cards were first used in Seoul, South Korea in 1995, it wasn’t until 2007 that contactless payments came into operation throughout Europe. Since then, this form of making payments has risen year-on-year 

MasterCard recently revealed that 78% of all payments in Europe are now contactless. Indeed, statistics show that mobile contactless transactions doubled in Europe in the first quarter of 2020 alone, in small part due to the Covid-19. The subsequent raising of spending limits in various states has also helped with the shift to contactless payments.  

 

 

How contactless payments work 

 

Another reason for the popularity of contactless payments is that the process is incredibly simple. The purchaser just waves a card or enabled Smartphone over a reader which accepts the payment.  

Of course, there is a lot more happening behind the scenes to make this all happen. The key to this is a chip inside the payment card that emits radio waves. A built-in antenna facilitates the connection with the card reader in a process known as Radio Frequency Identification (RFID) technology. The terminal, recognises the signal, communicates with the card and processes the payment.  

With the Internet of Things (IoT), contactless payments can be made via a number of devices such as fitness trackers, key fobs, Smartwatches and even specially designed adhesive stickers. The range of devices that can be used for contactless payments is continuing to increase. Contactless enabled devices can normally be identified by the inclusion of a logo made up of four lines creating a wave symbol. With many of these devices, transactions are normally processed via a digital wallet, such as KoalaPays or Apple Pay.  

As well as shops, cafes, bars and vending machines, contactless payment is now commonly used for public transport in many cities across Europe. Significantly, most of the time there is no charge to customers for making a contactless payment transaction. 

 

 

Secure and convenient 

 

Contactless payments have become the preferred alternative to chip and PIN for a number of reasons, including convenience and security. Obviously, with a contactless payment, most of the time there is no need to input a PIN. However, extra security can be enabled by instructing the terminal to ask for a PIN after a certain number of purchases have been made. Because the card sends the POS (Point Of Sale) reader an individual code, or token, each time a transaction is processed, the account details of the customer are never revealed. 

A limit can also be set on the maximum size of each transaction. In Europe, this has been typically set at €30, although many outlets are now allowing higher amounts to avoid physical contact when paying during the Covid-19 pandemic. 

Contactless cards aren’t completely without risk. If they are lost or stolen, they can still be used to make transactions until the card is stopped. This underlines the importance of customers getting in touch with the issuer as soon as possible should their card go missing. 

 

 

Contactless for business 

 

Whether your customers choose to pay by Smartphone or card, the authorisation process is exactly the same for your business. Once the payment is approved by the card issuer, the transaction is finalised. Since contactless payments work within a couple of centimetres from the terminal, it’s virtually impossible to interfere with the transaction. As the card doesn’t leave the customer’s hand, staff intervention is eliminated. 

To accept contactless payments, businesses need a type of payment terminal also known as a PDQ (Process Data Quickly) machine. The price of these can vary widely depending on specification, but some retailers choose to rent machines, as it can be more cost-effective. 

Cash used to be king, but more businesses are discovering that contactless business reduces the cost and administration associated with cash and also reduces the risk of theft. With most businesses already using contactless payments, it makes sense to offer your customers the choice too. 

Pros and cons of living in a cashless society

 

 

 

 

The Covid-19 pandemic has taken us another step closer to becoming a cashless society. Indeed, in some countries, such as Sweden, only 2% of all payments now involve cash. And many retailers now refuse to take cash at all.  

Certainly, there are clear advantages for getting rid of cash, the big question is, what are the disadvantages?  

 

 

The benefits of going cashless 

 

For businesses, handling cash is a cost and comes with risk. Without cash, there’s no chance of physical theft, missing notes or coins. With cash, you need to pay someone to handle it and cash up at the end of the day and that comes with the risk of error. If that isn’t inconvenient enough, the cash then needs to be taken to the bank to be paid in. With payments going direct to a business bank account, the risk of errors is significantly reduced and accounting becomes much easier.  

A cashless society also makes it easier for state authorities to track money for taxation or legal purposes. Police bodies have greater visibility over money laundering and profits from crime. However, there is a possible downside here. Data protection and privacy laws may need to be updated for state authorities to track and record every transaction. 

If you travel a lot, carrying around a lot of cash isn’t the best idea. It’s also much simpler when it comes to converting cash, as your credit card issuer, or bank, does it for you. With KoalaPays account, you can convert money from over 20 currencies and we’re adding more all the time. 

A cashless society also means that the inconvenience of carrying around coins would become a thing of the past. As an added benefit, the need to mint notes and coins would be eliminated. 

And finally, let’s not forget why fewer people are using cash right now. Removing cash from society makes for a more hygienic society. 

 

 

Reasons for holding onto cash 

 

What would we miss if cash disappeared? Certainly, when it comes to personal expenditure, people tend to have more control over their spending if they can see and count their cash before paying. If you’re trying to stick to a budget, it can be easier to overspend or make mistakes is you’re using a card. However, as more people adopt mobile banking apps, this can be avoided. At the same time, some people, such as the older generation, may not be as tech-savvy, preferring cash.  

For others, cash can have an emotional value. Paying cash into a child’s bank account for a birthday gift really isn’t the same as giving physical cash. 

Even today, not everyone has access to a bank account. If you can only pay by card or online, then some people may not be able to pay at all. Fortunately, new fintech companies such as KoalaPays are making it easier for people to make payments without even having access to a bank account.  

One big disadvantage of a cashless society is that you would need to have some form of bank account. Theoretically, this would give banks a monopoly on money. Without more competition, financial institutions could charge more punitive fees for holding funds and allowing customers to carry out transactions. It’s envisaged that competition from new fintech companies would prevent this, but central banks too could impose onerous monetary policies for customers such as negative interest rates on savings.  

While a cashless society removes the risk of physical theft, fraudsters are finding ever more sophisticated ways to steal money digitally, whether that’s cybercrime, hacking or phishing bank/card details. There’s also the risk of system failures, meaning you can’t access your money when you need to 

A cashless society clearly offers a lot of advantages to businesses and individuals alike. However, there are still drawbacks to overcome. Contactless has certainly done a lot for speeding up queuing and making it more convenient for fast, low cost payments, but consumers are emotionally attached to cash, so we’re not likely to see the end of cash just yet. However, with financial technology getting better all the time and new services appearing from companies such as KoalaPays, the cashless society may not be too far away.  

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