Tap-to-pay transactions have become an integral part of the payments landscape, but they represent only half of the mobile payments equation. The same contactless payment chip that smartphones use to transmit payment data can also receive payments through tap-to-phone technology.
That functionality turns any mobile device into a payment terminal, and there are a multitude of use cases for that capability. As Don Apgar, Director of Merchant Payments at Javelin Strategy & Research, found in his latest report, Making the Most of Tap-to-Phone Technology, tap-to-phone represents the next evolution of contactless payments.
In-Flight Solution
One of the early use cases for tap-to-phone tech was implemented by Delta Airlines. Delta gives all its flight attendants company-issued iPhones, which they use to review flight schedules, check layovers, and register passenger counts. However, each plane also had two or three payment terminals for in-flight purchases.
If a customer wanted to make a purchase, the flight attendant would have to locate a payment terminal and perhaps wait for another customer to make a purchase. Once Delta added tap-to-phone functionality to its attendants’ iPhones, the airline eliminated the need for separate terminals.
“There’s more accountability that way, because every device is directly tied to an employee,” Apgar said. “There are no shared devices, and the airline doesn’t have to worry about a whole squadron of equipment from different manufacturers that must be charged, maintained, and updated. It takes that whole layer of management out of the process.”
Device Duplication
A similar device duplication is often found at home improvement stores like Lowe’s or Home Depot. Employees are equipped with devices that help them locate and manage inventory, then there are separate payment terminals.
“Home Depot employees have these little Zebra devices that run on Android, but they function much like a phone,” Apgar said. “They might use it to help a customer locate an item, but the customer experience could be significantly improved, especially with big-ticket purchases, if the consumer could pay for the item right there and have it brought out to their car.”
Another potential use case for tap-to-phone technology is at fast-food restaurants. At highly popular fast-food locations, the drive-thru lines can quickly escalate. Employees often try to speed the line by taking orders on a tablet, but payment is often accomplished using a separate mobile device. The operation would be much more efficient if a customer could order and pay on the same device.
There are also tap-to-phone use cases on peer-to-peer platforms like Venmo and Cash App. Instead of friends using two phones to ensure a P2P payment is sent and received, the recipient could just open their P2P app, and the sender could tap their near-field-communication-enabled card on the recipient’s phone.
Tap-to-phone can also improve the online shopping experience. Digital wallets streamline purchases on e-commerce platforms because the wallet validates the customer without extra steps.
“If a customer is shopping online and they are paying by card, why not simplify the process and have the consumer tap their card on their phone?” Apgar said. “It’s almost like two-factor authentication. One-time passcodes are an outmoded form of verification because the customer is often verifying a code on the same device they’re already using. Tapping a card on a phone could be another form of two-factor authentication.”
Business Differences
In addition to added security, tap-to-phone delivers an array of benefits to business owners, especially in the gig and creator economies. Banks like Chase have created the technology that supports tap-to-phone transactions for their business accounts, but that same functionality can also be offered to consumers who require some business banking solutions.
The issue with merchant bank accounts is that they are more expensive for banks. When a merchant opens a checking account, the bank must conduct a series of compliance checks. They must check the business against the OFAC sanctions list and authenticate the identities of the business owners.
If the merchant decides to add credit card payment support later, the bank will have to conduct the same process again. However, because there is an underwriting aspect to credit cards, the bank will have to consider those risks as well. These security measures might make sense for a high-volume business but not for an artist who sells watercolors at a local farmer’s market.
“If that artist opens a checking account and they have passable credit, they will likely receive a $5,000 line of overdraft credit with little trouble,” Apgar said. “Why not attach card acceptance capabilities to their personal account with something like a $5,000 monthly limit? The bank can give the individual two accounts and perform the underwriting and compliance checks at once instead of forcing the artist to open a business account.”
The Growing Middle Ground
One factor that hindered tap-to-phone ubiquity was Apple’s reluctance to open its contactless payment technology to outside developers. After some pressure, Apple has agreed to make its NFC technology available to third parties. Apple and Android devices should now support the nascent technology, which removes a substantial obstacle to adoption.
“Once the use cases manifest themselves, tap-to-phone will become increasingly popular,” Apgar said. “There is a growing middle ground where individuals need some business capabilities on their personal account. We’re at a tipping point where, even going into next year, we’re going to see tap-to-phone become far more prevalent than it has been.”
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