Small businesses are getting better acquainted with payment cards. Most recently, payment platform Square has launched a new debit card for merchants. The card is tied to the merchant’s account balance, not a bank account, and it can be used as a tool to help business owners to better control their cash flow. They’ll gain access to funds in real-time rather than having to wait for customer payments to settle, which can typically take couple of days.
Incidentally, many of these small business owners are millennials, and they are also integrating the latest card technology into their payment systems, including contactless capabilities. The global market for contactless payments is expected to be worth $27.2 billion by 2023, though tap-and-go cards have taken off in some regions more than others.
Contactless cards have taken the payments industry by storm in Europe, where more than 50 percent of transactions are tap-and-go. Near-field communications technology (NFC), which enables contactless payments, has also muscled its way into the mainstream in Canada and Australia. In the U.S., however, it’s a different story, as contactless card adoption has been slow.
In the U.K, the trend caught on particularly well in the transportation sector, where features such as speed and security won consumers over. MasterCard is holding fast to its prediction that 100 percent of Europe’s point-of-sale terminals will be equipped for contactless payments by 2020.
So why has user adoption lagged in the U.S.? It’s not because the banks haven’t tried bringing this technology into the mainstream. Leading banks, including JPMorgan and CapitalOne, in addition to a federal credit union, have injected 100 million contactless cards including credit and debit cards into the U.S. economy, which sounds like a lot. It pales in comparison, however, to the 1 billion cards in total that are currently in circulation in the country.
As the U.S. grapples with contactless adoption, other regions of the world have already discovered the benefits to contactless payment cards.
Meanwhile, on a global scale, card expenditures are projected to reach $45 trillion in the six-years leading up to 2023, the catalyst for which is the rise of contactless payments. Cards are becoming more popular for small everyday transactions, even replacing cash as consumers learn the ease in which they can complete their purchase.
Let’s explore some of the benefits but also the downside.
There are several moving parts to contactless cards, all of which work together to deliver a transaction speed of a fraction of a second. This is a key benefit of contactless and one of the main reasons that mainstream adoption has taken off in many places. There is no PIN number or signature involved, which accelerates the process greatly. All consumers must do is locate the contactless symbol at the point-of-sale, after which time they will receive a prompt to tap the checkout terminal.
The way contactless technology works is a wireless link connects a contactless card with an antenna. The card is embedded with a security chip and the POS system contains the RFID (radio frequency) antenna. The security chip generates a one-time code that is deciphered at the point-of-sale and is designed to guard the user’s banking details.
Consumers will also find some of the familiar features that they’re accustomed to with a traditional credit or debit card, such as adding in gratuity or receiving cash back. And unlike cash transactions, they can still monitor each and every purchase through the card’s records.
In the unfortunate event that a contactless card is stolen, the ease in which the card can be used can work against the consumer. Considering that there is no PIN number involved, a criminal could easily capitalize on this even for a little while before the card is canceled.
A silver lining in this is that some contactless cards are designed for smaller purchases and have transaction amount limits. As a result, a thief wouldn’t be able to do too much damage in one place.
It’s unclear whether the debit card that Square issued to business owners is contactless, but they do offer a Bluetooth-enabled reader device that is equipped for contactless payments. The next logical step, it seems, would be to add this feature to the merchant debit cards.