A cursory glance at consumers' mobile wallet usage rates might make merchants feel uneasy. It seems like the average person isn't very interested in smart device-enabled payments - or other ways to pay with NFC technology. However, if you look a bit closer at the data, especially on the POS side of things, the conversation isn't so simple.
The short of it? Many merchants across the U.S. do not accept NFC payments.
Merchants Need to Create Stronger NFC Experiences
At the end of 2015, only 17 percent of payment terminals installed across the US supported EMV and NFC technology according to Lets Talk Payments.
What's encouraging is that more businesses order NFC-enabled terminals every year. A study from Berg Insights, a Swedish technology research company, discovered that North American businesses purchased 2.6 million NFC-compatible devices last year.
Meanwhile, a report from PYMNTS released on March 18, 2017 said there are only 2 million active contactless terminals in use in the U.S.
Many merchants haven't activated their POS terminals' NFC settings, according to Berg. So even if NFC-supported POS stations are out in the wild, people visiting those businesses don't know if they can pay with their smartphones or contactless cards.
Brendan Miller, a principal analyst at Forrester, maintained businesses need to be "much more proactive" in encouraging customers to use NFC payments. A huge part of doing so involves developing more convenient, attractive experiences for customers who are accustomed to paying with magstripe, EMV and even cash.
Thomas Husson, another Forrester principal analyst, agreed with Miller's analysis.
"The list of new [NFC] use cases is long: convenient transport experiences, next-generation shopping experiences, authentication and identity management solutions, or immersive marketing experiences," said Husson.
Developing NFC Experiences
One of the first steps to developing NFC experiences involves encouraging people to use the technology. Miller recommended tying loyalty programs to NFC payment systems.
For example, at checkout lines, notify customers that they can get 5 percent off any purchase if they choose to pay with Apple Pay, Android Pay or another mobile wallet. This creates an incentive for people to use NFC technology.
The Forrester analyst also advised POS developers to configure every terminal's business application logic to support the debit and credit Consumer Device Cardholder Verification Method. This actually provides an additional layer of security, as it ensures the people using the device are the true owners of that phone.
Here's how CDCVM works. Whenever customers use their phones to pay for something, the smartphone and terminal must agree on how to verify the transaction. To do this, the two devices compare which verification methods they support, and find the first set that matches.
Apple took CDCVM one step further with its own mobile wallet. Instead of having the terminal verify the customer's information, the iOS device handles this transaction. This shifts liability off of the merchant, assuming they already support EMV.
Overcoming Barriers to Accepting NFC Payments
Some mobile wallets may have better data security functions than others. Security concerns are the primary reason that merchants have been hesitant to activate the NFC capabilities on their POS terminals.
The Merchant Advisory Group noted the Honor All Cards merchant acceptance rules are throwing a metaphorical wrench in NFC acceptance efforts. The rule also applies to mobile wallets. This means that whenever a business turns on an NFC setting on a POS terminal, it's essentially agreeing to accept any mobile payment application.
"The problem with that is merchants have no control over the security, cost and liability associated with the wallets being presented in their store," said Merchant Advisory Group CEO Mark Horwedel.
Of course, the reality is that mobile wallets are often more secure for both the merchant and consumer than standard cards because the bulk of wallets employ a form of tokenization which removes all sensitive cardholder data from the store environment. Instead of passing card data (encrypted or otherwise) through the store's payment system, the mobile wallet utilizes tokenized card data to process the payment.
The migration to EMV generally implies PIN Pad hardware upgrades for the merchant, which is a perfect opportunity to add support for NFC-based mobile payments, tokenization and point to point encryption. To cut down on certification costs, work with payment integration providers that offer systems with semi-integrated payment interfaces that handle payments security and on-going certifications on your behalf.