Learn how contactless payment systems work

Key takeaways

• Contactless payment allows customers to use chip cards or smartphones to complete transactions 
• Contactless payment is quicker and more secure than credit cards and reduces the risk of physical contact 
• Investing in hardware and software solutions for contactless payment can help the transition go smoothly

As a small business owner, it’s crucial to stay up-to-date with new technologies that benefit your business. This is especially true when it comes to payment processing.

Customers expect speedy service and minimal physical contact during their transactions. Contactless payment processing is one solution that speeds up checkouts and minimizes physical contact between employees and customers.

Contactless payment involves using chip cards (also called smart cards) or other devices that don’t require customers to swipe a credit card. Nearly 80% of consumers now use contactless payment when making purchases. According to a Mastercard study, customers are embracing contactless payment because it’s fast, secure, and minimizes physical contact when completing transactions—a safety concern that many experts predict is here to stay.

This guide will help you determine if contactless payment makes sense for your growing business, including how it works and what it costs.

What is contactless payment?

Contactless payment is a secure payment method that allows consumers to complete transactions without touching the payment terminal.

Instead of swiping a credit or debit card or using cash, a customer can simply hold their chipped debit or credit card, smartphone, or another device near the payment terminal—typically around four inches away—and it will process the payment with their financial provider.

How does contactless payment work?

Contactless payment works through an exchange of radio waves—a process known as near-field communication (NFC).

The payment device uses radio frequency to communicate with the payment terminal, also known as a radio frequency identification (RFID) reader. In just a few seconds, the smart device sends information to the RFID reader and the corresponding point of sale system (POS) used to complete transactions with customers. You may not have been aware, but NFC and RFID have been a part of your daily life for years. Scanning items at the grocery store, checking out a book at the library, and scanning the tags on your luggage at the airport all use this same technology.

Here’s how the transaction process works:

• Both the payment terminal and the customer’s card or device must be equipped with NFC technology. Your payment terminal will prompt the customer to pay for their transaction.
• The customer’s chip card or device is connected to their bank and will then transmit information electronically to the payment terminal.
• The payment terminal then indicates a successful transaction with a green light, beep, or checkmark.

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Types of contactless payment systems

There are two ways to process contactless transactions: chip cards or mobile wallets and apps that store credit card information on a device.

Contactless payment cards

Contactless payment cards—or chip cards—are credit and debit cards that have the ability to communicate with payment terminals through NFC. A chip card will have a wave-like symbol similar to the Wi-Fi symbol on its back, signifying it can be used for contactless payments. These contactless cards are connected to a customer’s bank account and securely transmit data without needing to swipe.

Mobile wallet or app

Customers can also connect their payment information to mobile devices, smartwatches, and other smart, wearable devices.

Popular payment apps include Apple Pay, Google Pay, and Samsung Pay. Mobile wallets work the same way as contactless payment cards: The customer taps their device near the payment terminal to complete their transaction.

Benefits of contactless payment systems

Contactless payment systems offer many benefits, including added security. Traditional credit card readers run the risk of fraud and identity theft since hackers can install malware to steal cardholder information. However, with contactless payment systems, the personal information from a customer’s card or device is encrypted and constantly changing, which means it’s incredibly difficult to hack.

Contactless payments are also more hygienic because they reduce physical contact between you, your customers, and communally used surfaces. In the aftermath of the COVID pandemic, it remains important to reduce the spread of germs and viruses.

Businesses and customers both agree: The pandemic has spurred a 30% increase in contactless payments. Big box companies like Taco Bell, Starbucks, and H&M have all adopted contactless payment, with smaller retailers following suit.

As a business owner, you and your employees have many close encounters with customers every day. Follow CDC guidelines to minimize safety risks and limit your physical interactions with customers.

And if security and hygienic business practices weren’t enough, contactless payment also speeds up transactions and gets people out the door in a fraction of the time. No more long queues for customers.

What technology do you need for contactless payment?

To install contactless payment for your small business, you’ll need a compatible point of sale system that supports NFC processing. If you already use a POS system or credit card processing company, check what options they offer. Most services will provide contactless payment solutions.

Each POS system offers unique pricing and features, but not all POS have contactless payment capabilities. Talk to other business owners in your area to learn about their payment solutions. You can start by researching Helcim and Square, which both offer contactless payment.

Helcim and Square are two leading credit card processing companies that accept payment from all major credit card issuers—Visa, Mastercard, American Express, and Discover—as well as Apple Pay and Google Pay.

Helcim costs a flat rate of $20 per month plus interchange fees, which you pay for with each transaction. Fees range from 0.25% to 0.3% plus 7-8 cents per transaction, depending on how many payments you make. The more transactions you complete, the lower your fees will be. Helcim’s payment calculator can help determine how much you’ll owe per month with this solution.

Square offers free POS software and a wide range of hardware options, including different credit card readers and payment terminals that accept contactless payments.

Square favors businesses that have fewer monthly transactions by charging a flat fee for each transaction regardless of how many transactions you complete. You’ll pay 2.6% of transactions plus 10 cents per transaction. For example, if you process 100 transactions worth $5,000 in one month, you’ll pay $140 in fees.

You’ll also need to pay for Square hardware, such as a card reader for contactless payments, which costs $49.

Start accepting secure contactless payments

Contactless payment systems can elevate your business and accommodate the many customers who have embraced this new technology since the pandemic. 

If your current POS doesn’t support contactless payment, you can explore other payment processing solutions. Running smooth and safe transactions will give you a strong foundation as you continue to promote your local business and increase your sales.