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Contactless Payment - Consumer Adoption is Growing

By Jim Lanman

12/01/20

Consumer behavior is changing, and businesses are adjusting to these new behaviors. While contactless payment has been around for many years now, the United States has been slow to adopt. As consumers adjust to the new reality thrust into the forefront by COVID-19, businesses are looking for options to respond.

CONSUMER TRENDS

Seems like everywhere you look these days, you can’t help but recognize more and more attention being focused on offering consumers options to interact with businesses with minimal physical contact. You see it with plexiglass at the cashier, contactless delivery, and even empty stands at sporting events. A recent study of 1,000 U.S. consumers published by Mastercard [1] indicates:
• 51 percent of U.S. consumers polled say they are now using contactless payment
• Contactless payments grew 3X between February and March 2020
• 77 percent of those polled view contactless payment as a cleaner way to pay
• 56 percent of U.S. consumers polled say they will continue to use contactless payment post-pandemic

While the pandemic has driven more consumers to contactless payment methods, once adopted, consumers are finding these methods more desirable. As stated in a report published by PaymentsSource.com [2] in May 2020: “Last month, 50 percent of U.S. consumers reported using contactless at least four times, with 69 percent agreeing contactless payments were more convenient than cash.” The report goes on to say: “With 60 percent of U.S. consumers feeling more comfortable with using contactless after having used it during the pandemic, the sentiment may trigger a domino effect on nationwide adoption.” The same report also indicated, “A further 77 percent also agreed mobile wallets were more convenient than contactless, with 85 percent predicting they will be using mobile wallets to make payments in two years’ time.”

There are many reports that have been published recently that support similar findings. While the United States has been slow to adopt mobile payment options, recent events are changing consumer opinions of these options. As with anything, once it surpasses that “early adopter” phase, it becomes more mainstream. With consumer opinions changing about contactless technology, a shift in behavior is likely to follow. According to a report published by the Motley Fool [3] in June 2020:
• 55 percent of consumers are worried about handling cash
• 80 percent of contactless payments are less than $25
• 74 percent of people plan to continue using contactless payments post-COVID
• 27 percent of small businesses report an increase in contactless payments in April of 2020

Further supporting the push to mobile, a report published by Hewlett Packard Enterprise [4] in May 2020 claims:
• Contactless payment will overtake cash
• Contactless payment will overtake traditional credit card payments
• Contactless payment will be more widely adopted in the United States

U.S. retailers are recognizing these changes and working to incorporate contactless options. The car wash industry is not immune to this push for contactless interactions.

CONTACTLESS PAYMENT DEFINED

So, what do we mean when we say contactless payment? Just as the term suggests, these are methods offered by merchants to allow consumers to perform transactions with minimal if not zero physical contact. There are several options currently available. Many of these options are well established and have been around for years. Here are a few examples of technology that drives contactless payment:
• NFC — Near Field Communication
• RFID — Radio Frequency Identification
• Smartphone Apps
• E-commerce — Web services supporting purchases over the Internet

This article will not go too deep into the technical details of each option but, as with any system, there are pros and cons to each. So which mobile payment platform is right for your business? A quick summary of each might be helpful.

NFC

NFC systems come in all shapes and sizes. The hardware required for these systems are usually built into some type of POS (point of sale) system. For example, a pay station might be equipped with the hardware required to utilize NFC technology. The pay station would be equipped with the hardware and software to manage these transactions. Being that the NFC technology works in conjunction with applications on the consumer’s mobile device, there would also be an accompanying application the user would need to install on their mobile device to utilize the services. The tools come with many options (e.g., Apple Pay, Google Pay) and require compatibility with the mobile devices.

RFID

RFID systems generally do not rely on interaction with the consumer mobile devices and instead rely on physical tags to communicate with the POS system. As with any system there are hardware requirements to make the whole thing work. With traditional RFID technology, the tags are attached to the vehicle and then are read by the RFID readers when in proximity to the POS system. These systems are also equipped with software to manage the payment processing and equipment communications.

A recent advancement that is similar to the RFID technology is LPR (license plate recognition). With these systems, there is no need for the tags as the system utilizes camera technology to read the license plate of the vehicle. As with the others, there is hardware and software that is utilized to process the transactions to the POS system.

Smartphone Apps

Smartphone Apps have gained traction as of late. While app-based systems have been around for a several years now, the contactless movement has drawn more attention to these services. Like the other systems, these too require hardware and software to process transactions to a POS system.

E-Commerce

E-commerce solutions come in many forms. These can be as simple as a website to sell wash books and codes to be used with existing pay station POS systems. These options have been around for some time now and also offer options to reduce contact.

CHOOSING A SOLUTION

As with any change in business strategy, it’s important to look at your options and determine the optimal solution for your business and consumer base. When looking at process-improvement initiatives, there are several goals at play.

Business efficiency is always front of mind, but you must keep in focus what solution your customers will gravitate towards versus what your resources can effectively manage.

Resources come in many forms. Capital (money) is one resource, while your employee base (time) is another. The trick is to find a solution that offers the level of investment you are comfortable with and also allows your current time resource to be as or more efficient. A simple rule of thumb is your revenue should be greater than your time + your investment. For example, if a system requires time that you don’t have, then you will be forced to increase your investment in time to benefit from the additional revenue the system can provide.

It’s a balancing act to match the right system to your needs while working to capture the most revenue. Revenue comes in the form of customer acquisition and retention.

Positioning your business for maximum customer acquisition/retention is critical to business success. As with any capital project, ROI (return on investment) or cost justification must be analyzed. There are several options available to increase customer acquisition, but sacrificing efficiency for the sake of this acquisition can create a cost to benefit ratio that is not economically sustainable. As with any solution there are pros and cons that must be considered. The wash format employed will likely sway the direction of these decisions. For example, tunnel washes are usually staffed, so incorporating a system that requires manual interaction with the customer base is likely less of a burden then the same system at an unattended self-service-bay location. The key is to find the balance that works for your business needs.

All of the above options are great tools to help you transition your business to a more contact-free experience for your customer. With the demand for these services on the rise, it will be important to weigh the different systems and align them to your needs and goals. Each of those outlined has additional features besides contactless payment, so be sure to look at all the options available to you. With all these options, there is a system that can help you achieve your goals. Many operators have made, or are in the process of making, these changes. We hope that this article will help you on your journey.

 

[1] https://mastercardcontentexchange.com/research-reports/2020/contactless-consumer-perceptions/

[2] https://www.paymentssource.com/opinion/its-not-just-coronavirus-thats-accelerating-contactless-payments

[3] https://www.fool.com/the-ascent/research/contactless-payments/

[4] https://www.hpe.com/us/en/insights/articles/five-predictions-for-the-future-of-contactless-payment-2005.html

 

Jim Lanman is co-owner of Normal, IL-based Touch4Wash, a provider of payment solutions to the car wash industry. You can contact Jim at (612) 787-7278 or visit the company on the web at www.touch4wash.com.



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