Contactless payments: What they are & why you need them

Fumbling for cash or even swiping a difficult card at the register can be a headache for your customers, and it can slow down your lines. Contactless payments—also known as tap-to-pay—have revolutionized how customers shop and how businesses accept credit cards. 

This convenient technology allows customers to complete purchases by tapping a card, smartphone, or wearable device near a compatible terminal. 

According to QuickBooks Small Business Insights, nearly 50% of US small businesses report that cash flow is a significant challenge—so anything that makes it easier for customers to pay is crucial for continued growth and success. 

Today, we'll cover what contactless payments are, how they work, and how you can implement them in your business.

What are contactless payments?

How do contactless payment systems work?

How to use a contactless credit card or debit card

How to use a phone for contactless payments

How to accept contactless payments as a business

What are the benefits of contactless payments?

Which credit card issuers use contactless payments in the United States?

Choose the best payment setup for your business

What are contactless payments?

Contactless payments include any method that allows customers to check out without inserting a card or handing cash to another person. Instead, contactless payment methods use near-field communication (NFC) or radio-frequency identification (RFID) to complete transactions.

Contactless payments occur in two forms:

• Through a smartphone or wearable mobile device, via a mobile wallet or app
• Through contactless technology embedded within a credit card

If a merchant’s check-out terminal has contactless technology, customers can hold their contactless payment form—whether a credit card or smartphone—near the terminal to complete the transaction. The convenience and added security for customers may be a draw for all types of retailers. 

Contactless payments vs. mobile payments

While mobile payments are technically contactless, contactless payments commonly refer to in-person transactions made in close proximity but without physical contact. 

Typically, consumers make contactless payments at a point of sale and rely on technology that works at close distances. Mobile payments use cellular or Wi-Fi networks and don’t require close physical proximity to enable payments.

The history of contactless payments

Contactless payments aren’t new, but they are becoming the new normal for purchases. The technology that serves as the basis for contactless payments has developed over the decades to become more convenient, useful, and secure. 

To understand the evolution of contactless payments, you first need to look at where it started.

The integrated circuit chip technology that enabled the first chip cards has been in use since the 1960s. The Europay Mastercard Visa (EMV) standards for smart card specifications were developed in the 1990s. EMV chip cards and equipment were widespread throughout many European countries, but were only implemented in the United States in 2014.

Contactless payment technology has come a long way from fobs, and touch-free phone payments are no longer strictly used by early adopters. 

How do contactless payment systems work?

This technology isn’t new, but the ins and outs of this transaction process are new for many. 

Contactless payments have two aspects: the payment system and the payment method.

Payment system

NFC technology, a type of radio frequency identification (RFID), is the key to contactless payments. This advanced form of radio signal technology allows for short-range transmissions, which, in this case, receive data from the customer's card or phone.

This technology allows your payment system to communicate with their phone or card to complete the transaction.

The contactless payment system is an NFC reader, which communicates with the payment method once it’s within one or two inches. Once the NFC reader collects the data from the customer's payment method, it transfers that data to the merchant’s point-of-sale system.

Payment method

For the other half of the equation, let’s look at how the payment method works. Contactless cards have a built-in antenna and chip to pick up signals from NFC readers. When a consumer puts the card over the payment system, it will communicate with the card reader via radio signal and process the payment.

For mobile device contactless payments, the technology is built into the phone’s capabilities, so it communicates with the payment system the same way.

The role of EMV Chips and tokenization

Beyond the convenience, one of the most compelling aspects of contactless payments is their robust security. It's largely thanks to EMV chip technology and an innovative process called tokenization.

When a customer taps an EMV chip card, it doesn't just send their static card number. Instead, the EMV chip embedded in the card acts like a tiny, secure computer. For every single transaction, it generates a unique, one-time cryptogram, essentially a unique transaction code. This process is called tokenization. 

This code is dynamic and tied to that specific purchase; it's never reused. Even if a fraudster somehow intercepted this code, it would be useless for any subsequent transaction, making the stolen data worthless. This makes contactless payment one of the safest forms of payment out there.

How to use a contactless credit card or debit card

It’s easy to use a contactless credit or debit card. Customers with a contactless-enabled payment card can follow these steps to complete payment:

1. They'll need to look for the contactless symbol on their card and the merchant’s checkout terminal.
2. Then, they'll hold the card within a few inches of the contactless symbol.
3. If their purchase is approved, they’ll hear a beep or see a checkmark or green light.

This process should take about 10 to 15 seconds for quick payments. Provide clear instructions at your checkout terminal to help consumers use this technology, especially if you haven’t offered this type of transaction.

How to use a phone for contactless payments

Customers can use a smartphone or cards to complete a contactless payment. They first need to set up their digital wallet (Apple Pay, Google Pay, etc.) with card or bank account information.

This process is fairly simple. The customer downloads a wallet app and adds their card or bank information. Once the card or bank information has been verified, they can start using their mobile phone to make contactless payments.

If they’re using their phone as a contactless payment method, they may need to unlock the mobile wallet (usually using their phone’s face scan feature). Then they should hold the phone in front of the reader and wait for the reader to beep or signal, confirming the payment has been accepted and the transaction is complete.

How to accept contactless payments as a business 

The primary requirement for accepting contactless payments is an NFC-enabled point-of-sale (POS) terminal. These modern terminals are equipped with the technology to communicate wirelessly with a customer's contactless card or mobile device, completing the transaction with a simple tap.

You can also turn your smartphone or tablet into a powerful payment reader using Tap to Pay in QuickBooks' mobile app. Instead of needing a separate card reader, an app on your device allows it to communicate directly with your customer's contactless card or mobile wallet.

To set up Tap to Pay, just follow these steps: 

1. Go to Sales in the QuickBooks mobile app. 
2. Find the invoice for which you want to receive payment. 
3. Tap Receive Payment. 
4. Confirm that you want to use Tap to Pay. 

It's that easy to use your smartphone as a secure payment terminal, allowing you to accept contactless payments anywhere your business takes you.

What are the benefits of contactless payments?

Contactless payments offer cardholders and business owners many advantages, including security, speed, and convenience.

Enhanced security

Contactless payments use cutting-edge technology to make every transaction more secure. From EMV chips that generate unique, one-time transaction codes for every purchase to robust encryption protocols, your customer's information remains safe the whole time. 

Some of the most beneficial security features of contactless payments include: 

• Unique transaction codes: Each tap generates a new, one-time code, making intercepted data useless for fraud.
• Tokenization: Replaces sensitive card details with a meaningless, unique digital token during transactions.
• Data encryption: Protects all information transmitted between the device and the payment terminal.
• Biometric authentication: Mobile wallets often require Face ID or fingerprint scans for transaction approval.
• Short-range: Requires devices to be very close, minimizing data interception risk.

More efficient operations

Contactless payments dramatically improve your business's operational efficiency, benefiting both your team and your customers. They drastically reduce checkout times—when transactions complete in mere seconds, your business can process more customers quickly, especially during peak hours, and effectively manage queues.

Imagine a busy coffee shop during the morning rush. Customers tapping their phones or cards could complete payments almost instantly, keeping the line moving swiftly and serving more people in less time.

Convenience

Contactless payments offer significant convenience for your business by streamlining the checkout process. This means your customers won't have to fumble through their bags or wallets looking for a card, which often leads to impatient customers and longer lines. 

When you consider the collective time wasted by customers searching for cards—while you watch—it can significantly slow down your operations. By offering contactless options, you can help keep lines moving and improve overall customer satisfaction.

Health and safety

Minimizing physical contact remains a general health consideration in any public interaction. Contactless payments significantly reduce hygiene-related risks often associated with handling physical cash or inserting cards into shared terminals.

Customers can simply tap their card or mobile device, eliminating the need to directly touch a communal payment pad or exchange items with a cashier. This "touch-free" approach is a simple yet effective measure for maintaining a more hygienic environment for both customers and staff.

Higher revenue potential

The frictionless nature of contactless payments can also directly contribute to a higher revenue potential for your business. When customers can complete transactions easily, they are more likely to make impulse purchases, as the payment process feels less like a hurdle and more like a natural extension of their shopping experience.

Overall, contactless technology has made payment quicker, safer, and more convenient.

Which credit card issuers use contactless payments in the United States?

According to McKinsey’s Global Payments Report, nearly 90% of Americans use some form of digital payment. So, there’s a significant demand for contactless payment options anywhere consumers spend money.

That demand is being met quickly. Virtually every major credit card issuer in the country has either already offered contactless card payment or announced its intention to make such technology available.

From self-checkout stations and cash registers to contactless payment systems on restaurant tables, touchless checkout is only growing in popularity. If you haven’t already embraced it, it may be beneficial to do so.

You may not own a particular card outfitted with this contactless payment technology. But you may still choose to add that card to a mobile wallet on your smartphone. As long as the merchant accepts touchless payments, you’ll be good to go.

No-touch payment has proven to be easy and safe. With contactless payments, we can expect a more streamlined purchase experience—one that may become more widespread as merchants adopt it.

Choose the best payment setup for your business

Embracing contactless payments is no longer just a trend; it's vital for businesses looking to attract new customers and retain existing ones. By leveraging technologies like NFC and tokenization, you can enhance convenience, speed, and safety at the point of sale. 

Ready to bring the benefits of contactless payments to your business? With QuickBooks, setting up and accepting tap-to-pay is secure and straightforward. Modernize your checkout experience and keep your business moving forward—explore how QuickBooks Payments can help you get started today.