NFC payment acceptance for SMBs

Near-field communication (NFC) has become a more common term in the payments industry over the last few years as it’s become a driver of mobile payments. But what exactly is NFC and how does it work? Let’s start with a definition and then we’ll get into seven things to know about accepting NFC payments.

What are NFC payments?

NFC is a method of wireless data transfer that allows smartphones, laptops, tablets and other devices to share data when in close proximity. NFC technology powers contactless payments via mobile wallets like Apple Pay and Google Pay, as well as contactless cards.

How do NFC mobile payments work?

NFC is similar to radio-frequency identification (RFID) technology. However, it is limited to sharing data with other devices within about four inches. That’s why a consumer who’s paying with their mobile wallet must place their device close to the contactless payment reader.

How do NFC payments work with contactless payment technology?

NFC is also similar to Bluetooth technology but differs in that NFC doesn’t require device discovery or manual syncing like Bluetooth. It also uses less power than Bluetooth. NFC can be used three different ways:

• Peer-to-peer: Two NFC-enabled devices can establish a connection and share data.
• Read/write: An active device, such as a phone, picks up data from a passive device which does not have the capability of reading information itself.
• Card emulation: An NFC device can be used like a contactless credit card.

The third use is the one that is most applicable to businesses because it allows for the acceptance of mobile wallet payment or contactless payments, which is our focus here.

Facts

1. Accepting NFC payments is easy and convenient

When EMV chip cards first came out, one of the concerns was the introduction of a new step in the checkout process. The process of “dipping” (and waiting) was initially a little awkward for consumers. Regardless of how long it actually took, consumers felt like the dipping process took longer.

Jump ahead to contactless mobile payments and voilà – consumers can skip the dip. For smaller transactions, contactless payments can skip the swipe, sign, and PIN as well. Contactless payments typically take less time than chip card transactions. And since consumers usually hate to wait – even seconds – less time per transaction means happier customers.

So how do you accept NFC mobile payments? With your NFC-enabled terminal, all a customer must do at checkout is open their mobile wallet app and then place or tap their smartphone or other smart device to the reader to engage and complete the transaction. That’s it. (Read on to Fact No.7 to learn more about the specifics.)

Digital wallets are a natural extension of the trend of the smartphone to become an all-in-one device that meets the modern consumer’s every need. The prospect of consumers ditching their wallets and using only their smartphone to pay is convenience in action.

2. NFC mobile payment technology is designed to be stable, safe and secure

Like EMV chip cards, mobile wallets are more secure than magnetic strip cards While a phone is still physically vulnerable to theft, with its passcode or biometric protection activated the device will be virtually useless to thieves.

With mobile wallets, a consumer’s payment data is exposed only once – when the card information is entered into the mobile wallet. This information is then encrypted so that every time the consumer taps their mobile wallet for payment at an NFC-enabled terminal, “virtual” payment data (meaning not real card information) is sent from their phone to the payment device. The full card number is never exposed. When this virtual data is passed to the payment terminal, it’s often immediately encrypted by the merchant’s payment processor using Payment Card Industry (PCI)-validated methods.

To summarize, data involved in an NFC mobile wallet transaction has two layers of security and protection:

• The device itself
• Data encryption

If you think about it, this is a lot safer than carrying around a physical card that can easily be stolen and used.

3. Paying by smartphone is the new consumer normal

The explosive growth in mobile technologies may drive new consumer expectations which are higher than ever. Whether you call it the “Amazon effect” or something else, what smart merchants are learning is that whatever any given consumer considers the “best” level of price and service, that’s what they expect from every merchant.

Futurists, cartoonists and movie makers have long offered many versions of what commerce might look like a century from now. Today’s reality is in many ways beyond what even the most progressive thinkers imagined. Consumers across the globe have demonstrated not only their comfort with mobile payments, but their insistence on having every available option at checkout. Paying by smartphone is, simply, the new consumer normal.

4. Accepting NFC mobile payments often deepens customer engagement

Businesses and consumers are on the same page when it comes to payments: both want transactions to be fast, easy, secure and highly convenient. Beyond the clear benefits of increased ease of use and enhanced security, accepting mobile payments helps build and maintain a trusted link with customers.

Businesses also benefit from NFC payments because it provides an opportunity to more effectively integrate customer loyalty programs into payment processing. For example, customers can redeem a coupon immediately with the tap of their phone.

NFC loyalty programs can also help businesses gather useful analytics on their customer base and locations. Based on where coupons are used, businesses can determine most profitable times of day or the locations that receive the most traffic.

5. The future is contactless payments and commerce-on-the-go – and the future is now

Commerce-on-the-go is the new reality. The smartphone is an ambassador of convenience and universal translator in a world of mobile commerce. It’s time for retailers to seize the moment and create consistently amazing experiences that delight customers.

Consumers hate to wait, and they hate lines. They value speed and personalization. Accepting mobile payments addresses key customer pain points and opens doors to deeper levels of engagement. The ability to pay by smartphone can make customers happy. Happier customers are often more loyal customers. Happier customers can help fuel the success of your business.

6. NFC payments under an “honor-all-wallets” scenario

Businesses that accept card payments are no doubt familiar with the card network’s “honor-all-cards” policy whereby merchants that accept one type of major branded credit card must accept all brands.

With the rush toward accepting mobile payments, there have been rumblings from the card networks about an “honor-all-wallet” policy that would work in a similar fashion. Such a rule would require merchants who accept mobile wallets like Apple Pay and Google Pay to accept any type of card network-branded mobile wallet.

Merchants take issue with the potential rule for obvious reasons. Imagine for example if Walmart was forced to accept an Amazon Pay payment or Target had to accept Walmart Pay? A chief concern is the potential for non-bank wallet providers (which could include competing merchants) to view the transaction data and use that information to steal customers.

Still, currently, the point is somewhat mute. So far, no official policies regarding honor-all-wallets have been released by Visa, Mastercard, American Express or Discover.

7. NFC payment equipment is priced right for small businesses

To accept mobile wallet payments, businesses need a payment terminal and reader that are NFC payment enabled, as well as a payment processing plan that accepts mobile wallet payments. Plenty of options are available. More than 67 million contactless POS terminals were shipped in 2020 and NFC payment terminals will grow from 80 million in 2020 to a projected 127 million by 2025.

NFC readers and terminals are usually also priced right for the small business merchant. Costs range from as little as $49 for a simple NFC reader to $149 or more for a terminal that also reads chip and magstripe cards.