The Rise of Contactless Payments Adoption

October 2021

Fintech & Payments

Susannah Hampton

Senior Analyst

Bricks-and-mortar retailers are under pressure to offer increasingly frictionless shopping experiences. Consumers are coming to expect fast, secure and frictionless payments outside the retail sphere too; such as for travel.

he line between physical and digital commerce is becoming increasingly blurred and channels are becoming increasingly converged. With the strong emphasis on contactless payments as a result of the pandemic (and before the pandemic in markets where contactless payments were already well-established), the in-store purchasing experience has moved much closer to the online one. The concept of touch-free payments and/or biometric authentication is creeping increasingly closer to the online purchasing experience.

Contactless cards remain the most popular form of touch-free payment. However, mobile payments are seeing growth as a result of their convenience and of the growing popularity of OEM Pay solutions as a retail payment mechanism.

Following the onset of the COVID-19 pandemic, the demand for digital payments significantly increased and the requirement for socially distanced ways to pay became the norm. Thus, the COVID-19 pandemic is now widely accepted as a key accelerator of a trend that was already taking place within the payments sphere. 

As lockdowns and social distancing measures were implemented with the aim of limiting the spread of the virus, there was an expected decline in in-person payments, a decrease in bricks-and-mortar purchases of non-essential items, as well as an uptick in online and mobile purchases within certain categories.  An increased number of kerbside pick-up and tap-to-pay options were introduced, and their use increased. This has not only been a driver of contactless payments but has also shifted consumer spend away from traditional POS to eCommerce platforms. 

Prior to the pandemic, the consumer and merchant focus for payments was their security, convenience and speed. With the onset of the pandemic, health and safety also became an important consideration. The COVID-19 virus is reported to be able to survive on hard surfaces for a significant period after contact; meaning a potentially elevated risk to using cash, PIN pads and touchscreens at point of sale. The implementation of public health measures introduced to curb the spread of COVID-19 has had a significant impact on all aspects of daily living, including how we pay for goods. This meant that an increased number of retailers had to start accepting contactless payments and payment stakeholders had to rapidly pivot to accommodate new requirements as a result. 

Retailers and governments in some countries began proactively requesting that customers use contactless payments and asking retailers to facilitate this. Banks in many countries raised their contactless payment limits in a bid to mitigate the requirement to use a touchpad or cash at point of sale. As a result of such moves, markets with a previously low uptake of contactless, or prohibitively low contactless payment limits, are now seeing increased use of contactless payments as a result of the pandemic.

With consumers becoming more accustomed to contactless payments and the advantages they offer, and merchants who were reluctant or unable to accept contactless payments now being able to do so, the pandemic-driven shift towards contactless is likely to represent a sea of change; payment habits formed during the pandemic are likely to continue, as an increased number of consumers have now discovered the benefits of contactless payments. As a result of this shift, there will be increased demand for contactless payments across all mechanisms going forward.