NFC Payments: Everything You Need To Know About Contactless Payments

NFC payments are contactless payments that use near-field communication (NFC) technology to exchange data between readers and payment devices like Apple Pay and Google Pay e-wallets in smartphones and smartwatches or tap-to-pay credit cards and debit cards. NFC devices must be close together―typically less than 2 inches apart―to complete these contactless payments.

NFC payments are widely used because they are contactless, encrypted, and highly secure and can help speed up the checkout process. To accept these payment types, you need a specialized card reader. However, due to contactless payment popularity and increased adoption rates because of the COVID-19 pandemic, most merchant accounts offer NFC readers.

How NFC Payments Work

When payment and reader devices are close together and activated, the NFC chips exchange encrypted data to complete a payment. The process creates a lightning-fast checkout flow that’s both convenient and one of the most secure payment methods. Because of this, NFC-driven payments, such as Apple Pay and Google Pay, are fast becoming a preferred consumer payment method.

Many modern credit cards and debit cards come with NFC capabilities.

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Smart watches like Apple Watches and Samsung Galaxy Watches have mobile wallet features that enable NFC payments.

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Smartphones are typically NFC-enabled with mobile wallets with Apple Pay and Google Pay.

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The wireless or “contactless” connection between the two devices uses radio waves similar to radio-frequency identification (RFID) labels used in store, warehouse, and other wireless tracking applications. NFC chips use a specific RFID radio frequency (13.56MHz) that only works when the chips are very close together.

For added security, e-wallets only communicate with NFC readers when the user unlocks the app on their device, selects the payment card to be used, and completes the payment action.

iPhones use a secure thumbprint or facial recognition to unlock the payment screen. (Source: Apple)

Another security plus is that NFC payment readers connect to only one NFC payment device at a time. This makes it so there’s no danger that a nearby customer pays for another’s purchase accidentally. The technology won’t allow that to happen.

In addition to the security benefits covered above, shoppers can also store multiple credit cards and debit cards on their mobile devices. This reduces shoppers’ need to carry cards in wallets and purses.

How Customers Pay With NFC

• Tap-to-Pay Card
• Mobile Device as a Smart Card

The reader/writer mode is when an actual card with NFC technology that contains payment information is used to make in-person purchases. Customers can complete a payment once the card is placed or tapped against an NFC-enabled payment terminal; EMV credit cards and debit cards are popular examples, but this technology is also used for access cards as well as school meal or library cards.

EMV chip cards can be simply “tapped” to complete purchase transactions. (Source: PayPal)

The card emulator mode is where an NFC-enabled device like your smartphone acts as an NFC card by installing an application that holds payment information. This allows customers to make in-person payments using their mobile device. Popular examples include payment apps, such as Apple Pay, Google Pay, Samsung Pay, and Cash App (by Square).

NFC payment readers, such as this one from Square, provides secure wireless connectivity between mobile devices and countertop registers. (Source: Square)

How To Accept NFC Payments

You need an NFC-enabled reader to accept NFC payments, but that’s only one part of the equation. Your credit card processing plan has to accept digital e-wallet payments as well. Most but not all merchant account providers do this. Typically, processing fees for NFC payments are the same as regular card-present payments. Exact pricing will vary depending on your specific merchant account and plan.

Click through the tabs below to learn more about some of our preferred merchant accounts that offer NFC payments:

Benefits of NFC Payments

• Faster checkout process: According to Mastercard, contactless payments are up to 10 times faster than other in-person payment options.
• Better, more convenient customer experience: Allow customers to choose the payment method they are most comfortable with. Some 40% of consumers prefer digital wallet payments, while 37% prefer contactless card payments.
• Increased security: Using NFC technology is more secure than swiped card payments. In fact, NFC technology has contributed to a decline in in-person credit card fraud.

NFC Payment Outlook for Small Businesses

NFC payments are not exactly a new technology, but businesses and customers alike have been rather slow to adopt this payment type. For example, only 51% of iPhone users have enabled Apple Pay―the most popular NFC payment type―on their devices.

COVID-19 Accelerated NFC & Contactless Payment Adoption Rates

However, much hesitation around NFC payments from both shoppers and business owners receded at the start of the pandemic. Reports show a 29% increase in contactless payment users in 2020 (nearly double the 2019 growth), amounting to 92.3 million consumers from a total of 71.5 million in 2019.

The rise of COVID 19 pandemic encouraged more consumers to adopt a contactless method (proximity mobile payment) when completing an in-person purchase.

A study conducted by the National Retail Federation (NRF) and Forrester found that as of 2020, 58% of retailers accept contactless payments, which is a huge 40% increase from 2019. Of retailers surveyed in August 2020, 19% said that no-touch payments accounted for more than half of all in-store transactions.

More Consumers Are Now Choosing Contactless Payments

While 21.2% of US consumers have avoided contactless payments because of security concerns, almost half (47.2%) of them now are drawn to contactless payments as compared to traditional card transactions for convenience reasons.

Cost & Cybersecurity Are Retailers’ Top Concerns Around NFC Payments

According to the same NRF/Forrester study mentioned earlier, the cost of implementing and accepting NFC payments is a top concern for 75% of retailers, while 65% are concerned about cybersecurity risks and 63% are concerned about increased fraud.

NFC Payments Are Here To Stay

Most retailers (94%) expect to see an increase in contactless payment usage. Among consumers who used contactless phone or card payments for the first time in May 2020, 67% were satisfied with the experience and 57% reported they would continue using the payment method after the pandemic.

Meanwhile, 2021 Worldpay research shows that card usage is shifting increasingly to pass-through mobile wallets with the increasing popularity of mobile contactless payments. Globally, mobile wallet’s share of in-person transactions reached 28.6% of the total POS transactions, valued at more than $13.3 trillion.

Although digital wallet payments make up a small percentage of all POS transactions in the US, they are forecast to take the biggest increase in market share as more consumers opt for cash and debit transactions.

Bottom Line

An NFC payments-enabled reader is what you need to accept NFC payments in your store or business. Startups and small to midsized retailers can add this capability easily by purchasing low-cost NFC payment readers from top-rated small business payment processors.

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