Contactless payments provide protection for both businesses and consumers
The holiday shopping season is upon us, and amid the COVID-19 pandemic, businesses are seeking to adjust to the “new normal” of retail sales. Due to the increasing prevalence of e-commerce, concerns over data security and fraud are more pressing than ever.
Driven by the need for safe, secure, and contactless payment options, consumers and small business owners are relying on the electronic payments industry to safeguard their financial information and make transactions. Luckily, the industry hasn’t hesitated to rise to the challenge.
While the prevalence of contactless payments has increased dramatically—Mastercard experienced a 40% jump in transactions during Q1 of 2020—fraud is on the rise as well. In a single month, e-commerce fraud increased by 4.4%, up from 3.7% the year prior. Indeed, occurrences of digital fraud in 2020 will likely outpace its 2019 counterpart—a troubling fact given that, in 2019, online payment fraud attempts increased by a stunning 73%.
It’s become clear that, amid COVID-19, fraud protection and data security are more important than ever before. To protect consumer data, the payments industry continues to advance its tokenization technology. Tokenization safeguards the data of digital transactions and encrypts both businesses’ and consumers’ financial information. That way, sensitive financial information is inaccessible to hackers and other unsavory actors.
For their part, financial networks had already started to adopt this technology prior to the pandemic. But as COVID-19 has persisted, Accenture and other organizations have begun fervently advocating for tokenization. Furthermore, Visa recently announced that it would lower interchange rates for certain card-not-present credit transactions processed via tokenization technology. In this way, Visa hopes to incentivize further use of tokens, bolstering security and strengthening businesses’ anti-fraud protections.
Members of the electronic payments industry are also investing heavily in other technologies, including Click to Pay, artificial intelligence (AI), and 3-D Secure for authentication and anti-fraud protection. By analyzing merchant data and prompting consumers to verify their identity for high-risk transactions, 3-D Secure technology provides merchants, consumers, and financial institutions with more data to prevent fraud. And the results speak for themselves: Using 3-D Secure, shoppers experience an 85% decline in transaction time as well as a more secure digital checkout experience. Click to Pay has manifold benefits for consumers and merchants—small merchants in particular.
For consumers, it provides a highly secure, streamlined checkout experience at online merchants of all sizes. For merchants, it relieves them of liability for fraud and the need for PCI compliance while at the same time greatly reducing shopping cart abandonment and false declines. It also permits new and small online merchants to offer the same checkout experience as the very largest merchants.
The industry’s efforts to invest in security technology are paying off. Data from Verisk Financial found that contactless transactions in the United States are likely to increase by 256% in 2020, growing to an estimated 4.9 billion transactions. What’s more, Verisk estimates those transaction totals will almost double by 2021. And these projections were made before the pandemic; with trends like that, it’s clear consumer preference for contactless payments will stick around even after COVID-19.
Yet, while the benefits of electronic payment security innovation are evident, they nevertheless don’t come free of cost. Financial institutions need resources to invest in research and development in order to keep financial transactions safe. And these technological advancements are funded by interchange.
A 2% to 3% fee on merchants’ credit transactions (and even lower for debit), interchange plays an important role in permitting card companies and other financial institutions to fund their research and development operations. As a result, individuals can safely use tap-to-pay or contactless technology, and small businesses can implement secure electronic payments. Many merchants rightly recognize the importance of interchange and understand that it is a standard cost of doing business. In reality, it goes way beyond that, contributing to innovation in payment technology and helping to ensure that Americans’ sensitive financial information is well protected.
Without a doubt, the electronic payments industry is an invaluable resource during an unpredictable and challenging time for our country. Interchange, one of three basic income streams that support the global payments system, facilitates business, supplies critical financial innovation, and allows people to ensure the safety of both their financial and personal health during the global public health crisis. Consumers deserve to have their most sensitive information defended, and with advanced innovation in AI, tokenization technology, and contactless payments, the electronic payments industry is paving the way to do just that.