By Amit Tyagi
Contactless payments for small retailers: The world has seen a huge shift in the way people make payments in recent years. The rise of contactless payments, fuelled by technological improvements and shifting consumer tastes, has altered the retail environment. The widespread usage of mobile phones, combined with the availability of Internet services, has given digital payments a boost.
According to a report published by BCG and PhonePe in the year 2022, “Digital Payments in India Projected To Reach $10 Trillion by 2026.” Contactless payments provide a quick, secure, and simple alternative to traditional cash and card transactions, and this trend has boosted the growth of retailers, especially the small ones. According to a report by Precedence Research, “the global contactless payment market was valued at $29.89 billion in 2022 and is expected to reach over $132.42 billion by 2032 and is projected to register a CAGR of around 16.1 per cent from 2023 to 2032.”
Contactless payment refers to a method of payment that allows consumers to make transactions by simply tapping or waving their contactless-enabled cards, smartphones, or wearable devices near a compatible payment terminal. The expansion of digital payments in India, as well as the availability of many simple and convenient digital payment alternatives, has facilitated ease of doing business to the retailers along with financial inclusion, and commercial and economic growth. During the pandemic, the existence of contactless digital payment technologies like BHIM-UPI permitted social distancing and commercial continuation, particularly for small retailers.
Several factors have contributed to the exponential growth of contactless payments worldwide:
a) Speed and Convenience: Contactless payments eliminate the need to physically insert a card or enter a PIN, cutting transaction time dramatically. Retailers along with consumers value the convenience with which the transactions are done, making it an appealing option for quick retail transactions.
b) Seamless Integration: As there is an increase in the usage of smartphones followed by quick improvements in mobile payment technologies, contactless payments are now available to a wider set of retailers. Many payment apps, such as Apple Pay and Google Pay, include contactless capabilities, providing customers with a familiar and simple platform. The ease of usage of mobile phones and the applications developed for contactless payments can be outlined as one of the major reasons that are driving the adoption of contactless payments by retailers.
c) Rewards and Incentives: Nowadays retailers are incentivized to adopt contactless payment methods by numerous financial institutions through loyalty programs, cashback awards, or unique discounts. These incentives encourage them to embrace the ease of contactless transactions even more.
d) Push by The RBI: The Reserve Bank of India (RBI) has played a pivotal role in propelling contactless payments adoption across India, particularly among small retailers. By increasing the per-transaction limit for contactless card payments from ₹2,000 to ₹5,000, the RBI incentivized businesses to adopt this convenient and secure mode of payment. The introduction of ‘Tap-and-Go’ functionality and the enhancement of transaction limits for contactless mobile payments also facilitated smoother transactions for retailers and consumers alike. Notably, small retailers embraced this shift, with a notable surge in contactless transactions at MSMEs by over 125% in January 2023 as compared to January 2022.
e) Pandemic and Safety Concerns: The pandemic acted as a catalyst for cashless transactions among small retailers in India, reshaping their payment preferences. With safety concerns paramount, digital payments surged, reflected in a 58% increase in Unified Payments Interface (UPI) transactions in 2020 compared to the previous year. The number of digital transactions at Point of Sale (PoS) terminals also rose by 72% during the same period. This shift triggered by the start of Covid-19 is still going on.
f) Enhanced Customer Experience: With shorter payment times and reduced friction at the payment counter, contactless payments offer an improved customer experience which has always been a key factor in the exponential rise in retail transactions. The improved service has led to higher customer satisfaction, fostering loyalty and repeat business for small retailers.
g) Lower Cash Handling Costs: Cash transactions necessitate handling, counting, and depositing, which can be time-consuming and error-prone. Small retailers have reduced the need for cash transactions by accepting contactless payments, resulting in cheaper cash handling expenses and better cash flow management. This has provided retailers with an option to further expand their business.
g) Adoption of NFC Cards: NFC cards are revolutionizing contactless payments for small retailers. With swift and secure transactions through a simple tap, they enhance customer experience by reducing checkout times. Furthermore, their compatibility with existing payment infrastructure makes them accessible to small retailers, streamlining operations and fostering customer satisfaction. Globally, NFC card adoption has been on the rise due to the increasing popularity of contactless payments.
h) Expanded Customer Base: Accepting contactless payments allows small retailers to reach a larger consumer base. As contactless payments grow increasingly common, retailers who accepted them became more appealing to tech-savvy and safety-conscious customers which resulted in a larger consumer base.
i) Fraud Protection: Contactless payments come with robust security features, such as tokenization and encryption, reducing the risk of fraudulent transactions. Small retailers got benefited from this added layer of protection, safeguarding both their business and their customers which acted as an appealing factor for the small retailers to consider contactless payments as the mode of transaction.
j) Competitive Edge: As contactless payments become more common, retailers that offer this payment option can gain a competitive edge. Customers are increasingly expecting the convenience of contactless transactions, and retailers that don’t provide this option may risk losing business to competitors.
k) E-Commerce Synchronization: Small retailers that have both physical stores and online platforms can create a seamless shopping experience by using the same contactless payment methods across channels. This synchronization enhances customer satisfaction and brand consistency.
Also read: UPI a big hit with retailers: Neogrowth’s Digital Payments Study
India’s adoption of contactless payments is showing impressive momentum, aligning favourably with the global landscape. With a combination of technological advancements, policy initiatives, and changing consumer preferences, India has rapidly embraced contactless payment methods. The introduction of the Unified Payments Interface (UPI) and initiatives like ‘Digital India’ have been pivotal in driving this transformation. India in the year 2022 accounted for 46 per cent of the global real-time payments, adding that the digital payment transactions in India are more than the other four leading countries combined.
Contactless payments are becoming a transformational force in the retail business, revolutionizing the way transactions are handled. This mode of payment has numerous benefits to small retailers, ranging from improved customer experiences and lower costs to increased security and market reach. As consumers appreciate the simplicity and security of contactless payments, retailers must adapt to be competitive in a shifting environment. Accepting contactless payments can help retailers speed up their transaction processes and develop a more resilient and future-ready business.
Amit Tyagi is the CEO of PayWorld. Views expressed are the author’s own.