COVID-19 boosts the prospect of contactless commerce

Retailers have pushed mobile payments as a means to reduce contact

Anxious about the spread of COVID-19, consumers are being cautious about what they touch in public. The virus can live on plastic and stainless steel for up to three days, according to a study published in the New England Journal of Medicine in April. While many retailers have instituted new policies around cleaning card readers and terminals, consumers have expressed concerns about touching more in a store than they have to.

The “hygiene-centric value proposition” has led contactless payments to experience a sudden surge in adoption, says Jordan McKee, research director at 451 Research. Since mid-March, many major retailers have pushed mobile payments as a means to reduce contact.

Curbside pickup options — such as those being used at Best Buy, Office Max and Target — encourage consumers to pay ahead of time and minimize human interaction. Burger King and Chick-Fil-A have both implemented contactless payment options through apps. Publix Super Markets rolled out contactless payments to its 1,200 stores in the southeast, and in late March, Walmart made changes to the Walmart Pay app so customers no longer had to touch a screen at self-checkout.

When executed properly, consumers can conduct entire transactions on their mobile devices without touching anything else.

Richard Crone, CEO of Crone Consulting, estimates the use of contactless payments has grown by 20 percent since the start of the pandemic. While primary players like Apple Pay, Samsung Pay and Google Pay have reported increased use, so have others. Smaller retailers and businesses are also rolling out new contactless payment options through providers like Square and Venmo.

Nearly all of these contactless methods enable consumers to download an app, connect a bank account, then tap the device near a contactless reader to make a payment. When executed properly, consumers can conduct entire transactions on their mobile devices without touching anything else.

“Consumers want safety, and they want to know when they have to touch something that it’s sanitized,” Crone says. “There’s nothing more assuring than their own phone.”

According to the Deloitte State of the Consumer Tracker, some 40 percent of U.S. consumers feel safe going into stores right now. While Deloitte originally forecasted contactless payment trends to be a few years away, they have been accelerated due to COVID-19, says Zachary Aron, payments leader in the banking and capital markets practice for Deloitte.

“Overall, we do believe there will be an accelerated adoption, coming from retailer push and customer demand in this space,” says Rob Harrold, senior manager with Deloitte’s strategy and operations practice. “What was more of a convenience option has now turned to a ‘safety’ feature.”

Incentivizing usage

Prior to the pandemic, contactless payments didn’t fully resonate with merchants or consumers. While many retailers had installed contactless-enabled terminals, and younger consumers showed interest, mainstream adoption never came as quickly as anticipated.

Many shoppers found it just as easy to pull out a plastic card as their phone. “For the vast majority of consumers that didn’t consider themselves early adopters of technology, contactless payments really weren’t that exciting,” McKee says. “They just didn’t see a true need.”

Starbucks’ payment app, which had more than 25 million users in 2019, cultivated strong adoption with prepaid convenience and rewards.

Part of the challenge in adoption has always been a “chicken and egg” syndrome, where both merchants and consumers waited for each other to take the next big step, McKee says. Retailers that were most successful with mobile and contactless payments were the ones that offered a value proposition beyond the transaction itself. For example, Starbucks’ payment app, which had more than 25 million users in 2019, cultivated strong adoption with prepaid convenience and rewards.

“What I’ve seen more in recent years is definitely a more open mindset around payment acceptance, but again, ensuring you have those incentives to guide your customers toward whatever’s going to be the most favorable for you from a payment standpoint,” McKee says.

Most larger retailers have adopted contactless payment infrastructure in recent years. And while accessibility has improved for small businesses, there hasn’t been an impetus to invest in contactless options when few consumers were using it. That has rapidly changed in the past couple of months, McKee says.

In the short term, retailers can work with merchant-acquired technology to reprogram point-of-sale terminals to enable contactless payments. Mobile wallet providers can also support QR codes where consumers can scan the merchant’s code from their phone. As they adopt these new systems in tandem with cash and cards, retailers might also need to institute new policies in addition to training and support for staff.

“Merchants will also need to review their risk levels and requirements to determine if they can reprogram their POS terminal to eliminate some of the steps currently in place, like signatures, key entry and total confirmation,” Aron says.

There’s growing evidence that the sudden leap to contactless payments could lead to a permanent shift in the retail industry. Eight in 10 consumers say they are using contactless methods due to safety and cleanliness concerns, and three-quarters will continue to use contactless post-pandemic, according to an April consumer survey by Mastercard. Many consumers have been slowly introduced to touchless payments through transit and are becoming more comfortable with it in retail, says Blake Rosenthal, global head of acceptance solutions at Mastercard.

Many consumers have been slowly introduced to touchless payments through transit and are becoming more comfortable with it in retail.

“We call them ‘tappers’ and they cite speed, convenience and safety,” Rosenthal says. “Once they adopt that behavior, they rarely go back. COVID is another catalyst and tipping point for many people.”

An ‘inflection point’

As the growing desire to minimize human contact leads to an increase in touchless fulfillment models, consumers’ mobile devices have become the primary portal for ordering, payments and updates.

“Check-in has become the new checkout,” Crone says. “If someone is using their mobile app to order ahead and pick up, you have to check in. Just knowing the customer offers an opportunity to augment their shopping journey.”

Due to contact tracing, there could be an increasing need for retailers to count and know who is in the store. Check-in apps could enable retailers to better serve customers by identifying where they are going, what they are looking at and what their previous purchasing patterns might be.

“We see the app as being like the concierge for customer service,” says Heidi Liebenguth, managing partner and research director at Crone Consulting. “Because we’re moving to this melding of ecommerce with the in-store experience, the focus is moving to a check-in strategy.”

While retailers have often struggled with the “creep factor” of some technologies, the new reality of social distancing and COVID-19 health concerns has limited that, Crone says. Consumers now have more reason to download apps, if it means being able to help reduce contact by more quickly moving through the store and getting out as soon as possible.

“COVID-19 has teed this up. For those retailers that have been already working on this, they are going to see dramatic increases in adoption,” Crone says.

In much of the retail industry, payment and checkout remains one of the last main points of friction that can cause delays, frustrations and customer dissatisfaction. COVID-19 has created an “inflection point” in adoption of contactless payments where muscle memory is already conditioning consumers to use it, McKee says.

“Once you use it in a few locations, you start to replicate that behavior across different merchants, you become accustomed to it as a consumer,” McKee says. “I do think a large majority of consumers who have adopted contactless payments during the outbreak, or increased their usage of it, will continue as we push into this new normal.”

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