A contactless payment-enabled POS terminal. (Photo by Sharon Fisher)

Early in the pandemic, the World Health Organization said that COVID-19 could spread through touching surfaces contaminated by the SARS-CoV-2 virus. For retailers without contactless payments systems, this kicked off a flurry of businesses looking to add the service to their point-of-sale checkout systems.

Many “essential” businesses, especially grocery retailers, already had contactless payment enabled through their already-installed POS checkout systems. In the United States, many POS systems accept Apple Pay and similar apps. Apple Pay was the first truly successful contactless payment system to gain consumer support nationally. For other Idaho retailers, especially smaller merchants, the upfront cost of adding contactless-enabled infrastructure can be a barrier to adding contactless payments.

Contactless payment evolution

In contrast to North America, nearly half of all payments in Europe were contactless by 2018, according to Mastercard Europe. Europe has led the world in adopting contactless payments, just as it led the world in the earlier adaption of chipped credit cards. In adapting advances in payment technology, Europe has an advantage over America with its unified multi-national banking system centered on the Euro, a European Union regulatory environment that pushes continent-wide standards in finance, and legislation from the European Parliament in 2007 that pushes shared APIs for fintech software.

Contactless payments were left to market forces in the United States, with the result that the country is eight to ten years behind Europe and Asia in adopting contactless systems. Contactless payments on the European model developed using mostly shared APIs and focused on POS systems using credit and debit cards. In contrast, the American market developed around mobile devices based on proprietary apps and APIs.

The success of the first widely accepted contactless system in the U.S. is a long story involving fumbles by Google and PayPal, and careful planning plus a little luck from Apple. The result was that Apple Pay won the market share race, introducing a payment app for Apple-branded mobile devices that was both secure and easy-to-use in 2014. Apple took most of 2013-14 to develop its payment system with the cooperation of Visa, Mastercard, Amex and several major banks. Tellingly, Apple patented much of the software behind Apple Pay. Given that the iPhone is the most popular mobile device in America, Apple’s big bite out of the contactless payment market share quickly followed.

The Idaho retailers that had contactless payment in place before the pandemic mostly had Apple Pay-enabled POS checkout systems in their stores. Large retailers like Boise-based Albertsons as well as much-smaller businesses like the Boise Co-op, the eastern Idaho Broulims chain and the family-run Kesler’s Market in Blackfoot all accepted Apple Pay well before the arrival of COVID-19.

Not everyone jumped on the Apple Pay bandwagon. Walmart introduced its own system in 2015 called Walmart Pay, which uses QR codes scanned by the customer at checkout.

Consumers

Because of the app-oriented contactless payment market in the U.S., many banks and credit unions went the route of setting up their banking software to enable Apple Pay and the similar apps of Google Pay or Samsung Pay and to tie these to personal credit or debit cards. For example, Zions Bank, Idaho Central Credit Union and Icon Credit Union allow all three payment programs to be tied to their customers’ accounts, while the Idaho State University Federal Credit Union offers just Apple Pay and Google Pay.

While European contactless payments are dominated by credit and debit cards, far fewer cards in United States are contactless- enabled. In 2018, only 3% of all American credit and debit cards were capable of contactless payments. Discover is currently transitioning all of its cards to using contactless payments but MasterCard and Visa have not followed its example. Idaho Central Credit Union currently offers a contactless-payment enabled card but many other Idaho credit unions and banks do not.

Technology

Contactless payments systems currently offered in North America use one of three technologies: NFC RFID, QR-code scans, or magnetic-stripe emulation. The magnetic-stripe emulation is a proprietary technology unique to Samsung smart phones and hasn’t seen widespread adoption. QR code scans are also less common though Walmart’s sheer size has made given this method some weight.

By far, the NFC RFID method is the most popular form of American contactless payment due its use by Apple Pay, Discover Card, and now Google Pay and other wallet apps.

The dominance of the NFC RFID systems in the United States means that anyone who wants to jump on the Apple Pay and other app-based systems must have an NFC RFID-enabled POS. For small businesses with thin margins, this can be a barrier to adoption. Like card stripe and chip reading POS set-ups, a small business is confronted with inexpensive contactless terminals but with high per transaction fees and marginal customer support like square ($49 reader, 2.75% per transaction fee, no monthly fee, support by email only) or an expensive POS system like FattMerchant with a more-expensive POS terminal but low or no fees and on-demand support (>$300 reader, no transaction fee, monthly plus interchange fees charges, live support, monthly revenue must be >$7000 to be cost effective).

In the current market, a small, side-hustle or hobby business is faced with a large upfront capital cost and/or hefty monthly fees for a fully featured POS system vs. an inexpensive reader with a big per-transaction fees and scant customer service.

Because of the cost of financial services, some small operations like the Chinese Cafe in Emmett opt out of taking cards entirely and only take cash.