Personal touch

Contactless payments got a boost in 2020. Thanks to their simplicity, they’ll only keep rising

Early in the COVID-19 pandemic, there were a lot of unknowns about the disease. How exactly it spread was a big one. Concerns the coronavirus might transfer easily via surfaces led to a lot of hygiene theater, performative disinfecting that provided people with a sense of control and safety but functionally did not do much since the overwhelming majority of coronavirus spread is through the air, not surfaces. But when we didn’t know that, people were wiping down grocery bags and delivery boxes, and many businesses stopped accepting cash. That last part helped spark a rise in contactless payments. Like remote work and other tech-driven trends, mobile pay saw widespread adoption accelerate because of the pandemic. Worldwide, contactless payments topped $2 trillion in 2020, nearly double what they were the year before. They’re projected to approach $2.5 trillion in 2021.

Pain-free spending

In the U.S., 92.3 million people made a contactless payment in 2020, an increase of 29%. The total will top 100 million in 2021. Prior to the pandemic, retail stores had been slow to stock stores with point-of-sale terminals capable of processing contactless payments. But fears of turning off customers who might be averse to touching cash or screens prompted them to bring in contactless terminals to put minds at ease.

Those machines aren’t going anywhere, and they’ll only get more sophisticated as retailers embrace the idea that the fewer psychological layers of a purchase there are, the easier it is for people to spend money. People who pay with cash feel the pain of parting with their money more than those paying with a card who might just pay their credit card bill in one lump sum at the end of the month without agonizing over each individual purchase. If you don’t even need to pull out a physical card, but simply tap your smartphone at checkout, there’s even less of a psychological stumbling block. With Amazon One, a system in use at select Amazon Go and Whole Foods stores, customers simply scan their palms upon entry and leave when they’re finished shopping without going through a checkout line. It’s not hard to see how people might walk out having spent more than they intended.

Branching out

On the consumer side, the major appeal of contactless payment is convenience. If you’re a digital native or at least had dialup internet at home as a kid, adding a payment method to your mobile device is pretty easy. You put your credit card information into a wallet on your phone once, then after that your purchase is just a couple of taps or a thumbprint away. If you’re also doing your shopping on that phone, it’s much easier than having to type in the same address and billing info you’ve typed in a million times before.

It stands to reason then that Millennials account for 40% of mobile wallet users and that Gen Z users will make up more than 60% of the 6.5 million people adopting the technology annually over the next half-decade. Those young users have helped push contactless payments past $450 billion in the U.S. in 2020 and are the major reason that total is projected to approach $700 billion in 2023. By 2025, more than 50% of smartphone users in the U.S. will be using mobile wallets.

With such a lucrative market, the creators of our most popular mobile payment systems have launched their own branded credit cards. The Apple Card promises no annual fees, no foreign transaction fees, and no late fees. Amazon credit cards offer 3-5% cash back (depending on whether you’re a Prime member) at Amazon.com and Whole Foods, as well as 1-2% cash back on outside purchases. Peer-to-peer payment app Venmo has a debit card users can earn Venmo rewards with.

On the upswing

For consumers, the rewards and incentives are enough to make it worth their while. The extra layer of security that comes with contactless payment is enticing, too. Without carrying a physical card, you don’t need to worry about losing it. Should you lose your phone or have it stolen, there are safeguards such as multifactor authentication already built into your phone. The merchant doesn’t receive your actual card information, just a one-time token.

The card issuers can steer customers to buy more of their products. It’s no coincidence that Amazon card rewards are highest when spending at Amazon-owned marketplaces or that using your Apple Card gets you discounts on Apple products.

The relationship is beneficial for both parties. Given the rapid increase in adoption and how dominant the leading tech companies are in the U.S. economy, contactless payments will soon be the norm. The big year they had in 2020 was just scratching the surface.