Fast-tracking contactless payments
When was the last time you used your phone to make an in-store purchase? If you’re from the U.S., the likelihood that you are now using some form of contactless payment, such as tap-to-go credit cards and mobile wallets, has skyrocketed. Since the onset of COVID-19, half of all Americans now use some form of contactless payment. And once consumers start down a contactless path, the idea of going back to cash, check or swiping will seem medieval.
To keep pace with consumer demand for contactless payments, U.S. banks have a long way to go to make sure they see the benefits of its recent rapid adoption. Not only do contactless payment services, like Venmo, Zelle and Square, retain a competitive advantage because of their established presence, but many banks are lacking in the essential infrastructure to enable contactless experiences.
Fear of missing out should not be the only factor driving banks to accelerate their contactless strategies. As digital disruptors, like Apple and Amazon, make forays into credit cards and small business lending, respectively, it’s only a matter of time before they take over other facets of the industry.
Banks need to digitize quickly
According to an Innovation in Retail Banking Report, only 17% of banks have been successful in deploying digital transformation at scale. That is bad news for an industry undergoing a dramatic shift in consumer expectations towards digital experiences. In the wake of the COVID-19 epidemic, a consumer research group found a significant 30% increase in the use of mobile and online banking tools by retail bank customers. As customers trend more towards the contactless, many banks will need to reconsider their approach, as contactless payments are projected to increase eightfold within the next few years.
Right now, there is ample opportunity to address how contactless technology can fast track the future growth and competitiveness of financial institutions globally. To move forward, they will first need to get past a few hurdles.
One major challenge to widespread adoption of contactless payments is privacy. Every time a consumer uses a contactless form of payment, a ton of information is being collected, such as geolocation, identity and transaction. In the US, there are currently no federal laws limiting the amount of personal data banks can collect on consumers, as well as what they can do with that data. Digital privacy continues to be a major concern for many people, and the implementation of regulations such as GDPR in the European Union and the California Consumer Privacy Act indicates that a federal law placing limitations on data collection is a future possibility in the US.
Banks should be getting ahead of this trend to earn the trust of their customers by establishing data privacy as a core tenet of their organizational strategy. Beyond shifting left in their security approach, it’s critical that banks adopt a culture that both respects and protects customer data privacy.
Despite the lack of privacy, contactless payment platforms are more secure than alternative forms ofpayment due to their method of transaction. Banks use a technique called near-field communication (NFC) to process payments: a customer’s card sends the vendor’s reader a one-time code with information that doesn’t actually reveal the customer’s personal details. These codes are temporary and change with every subsequent purchase from the vendor.
Banks can use this tokenization approach to their benefit to further improve on security. By combining biometric security, such as facial recognition and fingerprints, with their existing payment apps, they can create an even more frictionless experience, while reinforcing the safety of their solutions.
Needed infrastructure changes
The banking industry needs to adapt to a remote employee and consumer base, bumping the role of “banker” into a truly digital experience. They can look to some of the most successful digital-first banks, which have shunned a brick-and-mortar presence to focus solely on digital experiences and save costs. Due to lower overhead costs, Ally Bank, one of the first digital-first banks, focused its resources on providing a better customer experience. This included 24/7 customer service and a more personalized experience, which has resulted in a retention rate of more than 90% over 10 years.
As consumers increasingly turn to contactless payments, the customer base will also change. They will be more tech-savvy and inclined towards self-service and online engagement. That means banks will need to meet this new breed of customers where they are at. Consumers who use contactless payments may prefer the ease of chatbots to a live agent and could opt for digital tools, such as enhanced OCR (Optical Character Recognition) for check scanning, as opposed to traveling to a nearby branch to make deposits.
The way forward
Virtual banking is still the answer for those looking to limit their interaction with other people, and newer technologies can help make it a more human-centric experience than it used to be.
The use of AI-enabled chatbots in contactless payment apps can create a more personalized experience for customers. Through chatbots, customers can quickly and easily receive direction toward resources they are looking for. In recent years, organizations across industries have implemented chatbots as a way for customers to receive service 24/7, and they have become sophisticated enough that many consumers do not realize they are not speaking to another human.
Similarly, voice-activated payment will see a significant rise in the coming years. For voice-activated payments, machine learning can understand the specific nuances of voice—including accents, slang and dialects—allowing for customers to quickly and easily access information. Among the benefits of voice activation, customers can access banking services when they normally wouldn’t be able to, such as when they are driving and can use the sound of their voice as a biometric that’s recognized faster than a thumbprint or facial recognition technology.
Contactless payment has reached a tipping point because of the COVID-19 pandemic, but with more people consistently using the technology, it will remain essential long after the pandemic has ended. Financial institutions would be smart to begin the process of digital transformation to achieve it before they fall too far behind.
About the author
Jaideep Mehta is the Director of Digital Engagement at PK. He’s an accomplished IT Leader with over 19 years of multi-national experience in delivering enterprise digital transformations, IT Strategy and creating technology roadmaps.