US telco Verizon and Mastercard plan to work together to harness fifth generation (5G) mobile network technology to deliver smartphone-enabled payments for merchants and consumers.[i] The two companies will work to scale up “Tap on Phone” capabilities which enable retailers to accept payments from many contactless cards or electronic wallets (eWallet) from the customer’s NFC enabled device with no extra Point of Sale (PoS) hardware or infrastructure required.
The move should help further to accelerate the adoption of contactless payments in the US. Forecasts from eMarketer suggest that the number of proximity-based mobile payment users in the country swelled 29% year on year in 2020 to reach 92.3m, representing over 40% of all American smartphone users.[ii]
That expansion was driven by consumers and merchants anxious to avoid touching shared surfaces (including credit/debit cards) and handling currency in retail outlets during the coronavirus pandemic. While subsequent growth rates may be markedly less pronounced over the next five years, eMarketer still predicts the number of US proximity-based mobile payment users will reach 125m by 2025.
Similar initiatives to those by Verizon and Mastercard are already in play elsewhere. Square offers plug-in readers that allow merchants to accept mobile and contactless payments on their own Android and iOS devices. Another company that provides a reader that turns smartphones and tablets into an NFC enabled contactless POS terminal is Zettle (formerly iZettle), which PayPal acquired for US$2.2bn in May 2018.
At the time, Zettle gave PayPal an in-store presence in 11 markets in Europe and Latin America. Another Paypal owned firm – Venmo – launched a contactless card with support for both NFC and QR code chips embedded into the plastic allowing its users to receive payments and split purchases with friends.
Digital native Gen Z consumers favour contactless
Digital money services and eWallets have also added support for NFC based contactless payments over the last few years. Samsung Pay is currently the second most popular NFC payment solution behind Google Pay, additionally offering contactless Magnetic Secure Transmission (MTS) on legacy POS devices that don’t support NFC.
Others have opted to collaborate with other providers rather than support contactless payments directly. While PayPal doesn’t offer NFC transactions directly from its app, it partners Google to allow Android smartphone users to connect fund PayPal transactions from their Google Pay accounts.
Accepting contactless payments is critical for merchants trying to attract “digital native” consumers like Gen Z and Millennials. Both age groups are more likely to see this as a factor in deciding where they shop.
Contactless payment technology may extend beyond NFC
For contactless payments in physical stores to continue flourishing, much may depend on customer smartphones having embedded NFC capabilities. These have been common in Android handsets since 2012 and subsequently adopted by Apple to coincide with the introduction of Apple Pay on the iPhone 6 in 2014.
Other wireless technologies for contactless payments may also come to the fore, however. Earlier this year, Apple also introduced AirDrop, which uses Bluetooth to establish a WiFi connection between two Apple devices within up to 30 feet of each other, subsequently protected by a firewall and encryption processes.
The feature was initially designed to let Apple device users securely send and receive data from each other, specifically photos, video clips, documents, notes, website URLs, map locations and other files and information. But it could equally be harnessed to support secure, in-store contactless payments in the future.
Apple also spent up to US$100m on the acquisition of Canadian SoftPOS company Mobeewave in August 2020. Mobeewave technology lets users accept contactless payments by tapping an NFC-enabled smartphone against either another smartphone or a credit/debit card that also has an NFC chip.
Apple has not yet revealed its plans for Mobeewave, while there is also speculation that Apple will soon allow iPhone users to make payments using QR codes and traditional barcodes. That mechanism is much more prevalent in Asia (and especially China) than it is in the US, a key target for expanding Apple’s revenue and customer base.
The average spend per user for proximity mobile payments in the US is now set to increase as more retailers switch to contactless systems. Having expanded 10% to US$1,974 in 2020, eMarketer is forecasting it will reach US$2440 this year  and US$4,064 by 2025. The only thing that might hamper that growth is merchants which cannot accept contactless and mobile payments. Those barriers should be largely removed with new solutions available from Verizon, Mastercard, Square, Apple, and others.
[i] Verizon Business and Mastercard Partner to Bring 5G to the Global Payments Industry, Verizon, 13th July 2021
[ii] US payment users will surpass 100 million this year, eMarketer, 30th March 2021