Evidence suggests that contactless payments are booming and becoming the preferred means of transacting for many customers. However, this is creating problems for many small traders, suggests a new vendor report.

Contactless payments grew by 150 percent in the US between 2019 and 2020, according to data published last year on Forbes, and £66.5 billion in contactless transactions took place in the UK alone in the first six months of 2021, said a Guardian report last month.

This year, the UK raised the spending limit on contactless transactions to £100. That was good news for the many companies that enable it for their customers, perhaps, but bad news for businesses that lack the technology to deal with non-cash-based purchases. 

Those companies or sole-traders – retailers, restaurants, bars, cafes, stalls, live events, street performers, and local transport providers among them – may now be missing out on transactions of up to £100 from the many customers who now rarely carry notes and coins.

During pandemic lockdowns most high-street premises were closed, while consumers were dissuaded from using cash or ATMs and encouraged to use contactless systems to avoid spreading the virus. Meanwhile, online and mobile retail boomed as people worked from home, deepening the trend of switching to mobile commerce. As a result, many of us have stopped carrying cash entirely, particularly loose change.

The result of this transformation in behaviour is that it is hard for any small businesses or micro-merchants who lack contactless payment technology to remain competitive – despite many consumers’ desire to support small, local, and community ventures. 

That’s according to a new report from tap-to-mobile FinTech service provider NMI. “Many of these businesses are cash-only or may be unable to afford feature-rich payment terminals that accept contactless payments,” says the company.

This also impacts many retailers at festivals and other events: many customers won’t be carrying cash, and so stalls, pop-up shops, and other small outlets could be missing out on large amounts of business if they are unable to accept contactless payments onsite.

Taxi or ride-share drivers may also lose essential income if they are unable to take passengers who don’t carry cash, worsening their financial worries if they can’t afford to invest in contactless technology.

To compound the problem, some specialist hardware is unwieldy, fragile, and prone to breaking or malfunctioning: a problem if you are a merchant onsite at an event.

Tap-to-mobile technology, which enables traders to accept payments from contactless cards, mobiles, tablets, and wearables via an app on their smartphones, could solve many of these issues, says NMI.

Clearly, NMI has a vested interest in pushing this viewpoint, which also ignores the potential problems of patchy Wi-Fi connectivity at large events. But that is not to say that its solution is wrong.

NMI recently surveyed 300 small business owners and 1,000 consumers in the US and UK to ascertain their attitudes to tap-to-mobile systems, and the results are revealing and informative.

While it is still an emerging technology, both small business owners and consumers alike expressed a strong desire to use it: 95 percent of SMB owners said they would consider using a tap-to-mobile app, including 92 percent of current cash-only businesses.

“Additionally, 83 percent of consumers said they would likely use tap-to-mobile payment if it were offered by a business, while 85 percent said they would be more likely to shop at a business that offers tap-to-mobile as a payment option,” says the report. 

Convenience (cited by 76 percent of respondents) and speed (73 percent) were the key drivers for adopting the technology, with restaurants, deliveries, and events being the top three most common contactless payment scenarios, followed by street vendors, in-home appointments, charitable donations, and street performers. 

Interestingly, other retailers – such as local shops – did not figure strongly in the survey, suggesting that most respondents expect to see traditional contactless terminals, rather than tap-to-mobile apps, in those locations.

Despite the apparent enthusiasm for such a system, over one-third of SMB owners in the US (34 percent) said they don’t offer contactless payments of any kind, compared to just nine percent of UK SMBs: this is one tech market where the UK is significantly ahead of the US.

Asked why their businesses are unable or unwilling to accept contactless payments, most naysayers (55 percent) said they haven’t upgraded their systems, but 37 percent of SMBs said they don’t see any need to offer them. 

NMI’s survey suggests the laggards should rethink that approach: 89 percent of UK consumers and 76 percent of their US counterparts say they prefer using contactless payments, a trend accelerated by the pandemic. 

Meanwhile, over half of consumers in both markets (59 percent) said they are less likely to return to a business that doesn’t offer their preferred payment options, while nearly three-quarters of respondents (72 percent) said the availability of their preferred method is important when they leave an online review.

So, for many consumers, not offering contactless payments is a red flag against a business. The top locations where customers were unable or unwilling to make a purchase because of the lack of contactless options were (in descending order) food trucks; local restaurants and cafes; farmers’ markets; street vendors; bars; festivals; transportation (eg taxis/Uber); street performers; concerts; sporting events; and landscaping services.

However, at least one of these scenarios poses complex problems that may not be solved by tap-to-mobile apps. The challenge facing street performers is severe: with revenues from music streaming low – a fraction of a cent per stream – and paid gigs hard to find, many musicians now rely on street performing for cash. 

For those people – some of whom may be professionals – the switch to contactless or tap-to-mobile payments isn’t straightforward, as it removes the potential for passing pedestrians to simply drop cash into a hat. 

Performers would also have to stop playing in order to accept a payment, or employ someone to collect money from a mobile or card. Logic suggests that many people would be unwilling to engage with performers in this way, as it means making a commitment to them rather than simply dropping cash and moving on. 

It may also create resentment, not to mention security risks if pedestrians feel obligated to take out their phones to make a payment in the street. The risk of having a phone stolen by opportunistic thieves extends to performers too.

Despite these anomalies, contactless payments aren’t going away. In the UK, contactless credit/debit card payments were consumers’ most used methods for in-person purchases, cited by over three-quarters of respondents. 

In the US, contactless credit/debit is used regularly by over one-third of consumers (36 percent), second only to credit/debit cards with chips (81 percent). So again, the UK is in the vanguard of this fintech movement.