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Pros & Cons of Contactless Payments

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The GoCardless content team comprises a group of subject-matter experts in multiple fields from across GoCardless. The authors and reviewers work in the sales, marketing, legal, and finance departments. All have in-depth knowledge and experience in various aspects of payment scheme technology and the operating rules applicable to each. The team holds expertise in the well-established payment schemes such as UK Direct Debit, the European SEPA scheme, and the US ACH scheme, as well as in schemes operating in Scandinavia, Australia, and New Zealand. See full bio

Last editedMar 20222 min read

Contactless payment cards have become the dominant means of facilitating in-person transactions. In 2021, contactless payments accounted for around 90% of credit and debit card payments in the UK. On average, contactless users made 180 contactless payments throughout the year, worth a total of £2,293.

Contactless payments offer ease, speed and convenience to consumers’ in-person transactions. Plus, they enable customers to pay using their smartphones if they do not have their credit or debit card to hand. But do the benefits of contactless payment also come with some caveats? Here we’ll take a look at the advantages of contactless payment as well as the disadvantages.

How do contactless payments work?

Contactless payment cards use Near-Field Communication (NFC) technology and Radio Frequency Identification (RFID) to communicate payment data between contactless-enabled cards and readers. This data can only be exchanged within a range of around 4cm, preventing the accidental reading of cards and devices that are not intended for use.

E-Wallets like Apple Pay and Google Pay also use this technology, with NFC capabilities built into devices like smartphones and dedicated digital wallets.

What are the advantages of contactless payment?

The immediate benefits of contactless payments for consumers are fairly obvious. But contactless payments also benefit merchants by enabling them to provide a superior in-store experience. One that makes transactions faster, smoother and easier.

Advantages of contactless payment for both consumers and merchants include:

fast and efficient payment
convenience as customers can use their smartphone in lieu of their payment card
less likelihood of long queues during busy times
Covid-safe and hygienic
easier payments may result in more unplanned/impulse purchases
there are no additional processing fees associated with contactless payments for merchants
a growing majority of consumers clearly prefer to make contactless payments. When merchants adopt their favourite payment methods, consumers are more likely to show them loyalty
there’s scope to use NFC technology to enhance customer loyalty programs, allowing merchants to send personalised digital vouchers to customers’ smartphones

Contactless payments are also highly accessible, and can help lower the barrier to entry for new small businesses. The rise of mobile payment systems like Square and SumUp make it easier than ever for microbusinesses to accept contactless payments without the need to open a merchant account.

What are the disadvantages of contactless payment?

Contactless payments are clearly here to stay. Their abundance of benefits and widespread adoption shows that this payment method really strikes a chord with shoppers. But despite its advantages, there are also certain disadvantages of contactless payments.

These include:

Potential security concerns

Because contactless payments require neither PIN nor signature authorisation, lost or stolen contactless cards can be used to make fraudulent transactions. With the contactless payment threshold raised to £100 in late 2021, this means that thieves and opportunists can use a lost or stolen card to make substantial purchases.

Hackers can also modify the NFC tags on smart devices, enabling the transfer of users’ private data to an unauthorised device.

Limitations

While the new limit of £100 should be amply sufficient to cover most day-to-day purchases, contactless payments cannot be used for larger payments. Moreover, smartphone users may be unable to make contactless payments if their device has a low battery charge.

Not for everyone

Many older consumers may still be distrustful of contactless payments. Generations who have spent most of their lives making cash purchases may see contactless payments as a disproportionate security risk. They may also lack the technical know-how to use NFC technology on a smart device.

We can help

If you’re interested in finding out more about the pros and cons of contactless payments, get in touch with our financial experts. Discover how GoCardless can help you with ad hoc payments or recurring payments.