ETA Expert Insights: Ditching the Plastic: Will Contactless Identity Payments Render Credit Cards Obsolete for SMBs?

By Kevin Feagan, Chief Revenue Officer, Everyware

An exploration of how the rise of contactless identity payments might push small and medium-sized businesses to move away from traditional credit card systems.

The financial transaction landscape is in flux, with innovations constantly reshaping how businesses and consumers interact. One of the most significant shifts is the move towards contactless identity payments, which are rapidly gaining traction over traditional credit card systems, especially among SMBs. But what’s driving this change?

Real-Time Payments: The Heart of Contactless Transactions
At the core of contactless identity payments lies the concept of real-time payments. Unlike traditional transactions that can take days to process, real-time payments are settled instantly. This immediacy is particularly beneficial for SMBs, as it improves cash flow and reduces the uncertainty of pending transactions.

Whether through NFC technology, QR codes, or pay-by-text, contactless payments are inherently designed for real-time processing. When a customer makes a payment, the transaction is authenticated, verified, and completed within seconds. This seamless integration of real-time payments with contactless methods offers SMBs a dual advantage: speed and convenience.

Why Merchants are Moving Away from Physical Credit Cards
Several compelling reasons are driving the shift from physical credit cards to contactless payments:

1. Cost Efficiency: Traditional credit card systems have various fees, from setup costs to transaction charges. In contrast, contactless payment systems often have reduced transaction fees and eliminate the need for expensive point-of-sale hardware.
2. Enhanced Customer Experience: The speed and ease of contactless payments lead to quicker checkouts, reducing wait times and enhancing the overall customer experience.
3. Adaptability: Contactless systems are easily scalable, allowing businesses to adapt to increasing transaction volumes without significant infrastructure changes.
4. Data Insights: Digital transactions provide merchants with valuable data insights, enabling them to tailor marketing strategies and offer personalized promotions.

The Rise in Contactless Payment Adoption: A Look at the Numbers
Recent statistics provide a clear picture of the growing preference for contactless payments. According to a survey by Mastercard, more than half (51%) of Americans are now using some form of contactless payment. Furthermore, Mastercard’s data shows in-person contactless payments grow aggressively yearly. The global contactless payment market, valued at over USD 36 billion, is expected to expand at a compound annual growth rate (CAGR) of 19.1%. These figures underscore the rapid adoption and potential of contactless payments.

Fraud and Security: Challenges and Solutions
While contactless identity payments offer new convenience, they also present unique security challenges. The digital nature of these transactions makes them potential targets for cyberattacks.

Challenges:

• Phishing Attacks: Scammers might send fake payment requests or duplicate QR codes to deceive customers.
• Data Breaches: As businesses store more customer data, they become attractive targets for hackers.
• Privacy Concerns: Handling biometric data and personal information raises concerns about data misuse and privacy breaches.

Solutions:

• Multi-Factor Authentication: Implementing additional verification steps, like OTPs or biometric confirmation, can add an extra layer of security.
• End-to-End Encryption: Encrypting data at every transaction stage ensures that it remains unreadable even if data is intercepted.
• Regular System Updates: Updating software and systems can protect against known vulnerabilities.
• Educating Customers: Informing customers about potential scams and safe payment practices can reduce the risk of fraud.

In conclusion, the move towards contactless identity payments is not just a fleeting trend but a reflection of the evolving needs of businesses and consumers. While challenges exist, the benefits of real-time, contactless transactions—ranging from cost efficiency to enhanced security—make a compelling case for SMBs to embrace this change. As with any technological shift, success will depend on adaptability, continuous learning, and a proactive approach to security.

Sources

• https://www.cnbc.com/select/mastercard-survey-contactless-payments/
• https://www.thalesgroup.com/en/worldwide-digital-identity-and-security/bank-payment/magazine/contactless-payments-adoption
• https://www.grandviewresearch.com/industry-analysis/contactless-payments-market

About Kevin Feagan
Kevin Feagan is the Chief Revenue Officer at Everyware, a leading customer engagement, billing, and payments company based in Austin, Texas. Launched in 2015, the company provides services to more than 9,000 merchants across multiple verticals including healthcare, travel, utilities, not-for-profit, and automotive. The platform provides a simple, fast, and secure way to move money while enhancing the ability for merchants to communicate with their customers in real-time with text messaging. It saves them money by improving cash flow and reducing paper billing costs, chargebacks, and fraud. For more information about Everyware, visit Everyware.com or follow on Facebook, Twitter, Instagram, and LinkedIn.