Also known as proximity payments, they stand out for their versatility, speed, and security—and adoption continues to grow  

Mobile proximity or contactless payments use a technology that allows payments to be made by placing a card, smartphone, or smartwatch near a point-of-sale terminal. They can adapt to different devices and are fast, secure and convenient when it comes to making payments.  

This technology is advancing by leaps and bounds. Mastercard reported processing one billion more contactless transactions in the first quarter of 2021 compared to the same period in 2020, and it highlighted the growth in markets such as the US and Brazil, where this method of payment almost tripled the year-ago period, when combining both countries. 

Contactless payments include both NFC (Near-Field Communications) and QR (Quick Response) code capture with a smartphone.  

Here, we’ll learn more about a financial technology that’s set to become the standard for electronic payments. 

HOW DO NFC PAYMENTS WORK?

Many devices such as cell phones, smartwatches and credit or debit cards use NFC technology that allows, at a distance of approximately five centimeters, contactless payments to be made between the issuing device and the point-of-sale terminal.  

Apple capitalized on this trend when it announced that iPhones, through their NFC-enabled Tap to Pay feature, will start to be used as a payment method in the US this year. This shows the growing adoption of, and interest in, this type of technology for accepting payments. 

Similarly, card giants Visa and Mastercard have also added NFC technology to their plastic cards and, by placing them close to the POS, users can make purchases at a range of businesses.  

In addition to being faster and more convenient for users, contactless payments succeeded in reducing fraud by 33% between 2017 and 2018, according to Visa, which says that every transaction includes a unique cryptographic code that guarantees payment security.  

These mobile payments are also protected by a token, i.e., a random code that replaces the actual transaction information data and can only be used once, thereby preventing data cloning.  

The security and versatility of NFC technology can also be incorporated into smartwatches, such as those of technology company Garmin, which recently unveiled its Garmin Pay service. The company has partnered with Banco Promerica in Guatemala to add its bank cards to the watch, enabling customers to make payments by holding their wrist close to the POS terminal.    

Looking into the not-too-distant future, Visa says that banks will have to embrace “the combination of tokenization, biometrics, NFC, and other available platforms to enhance the consumer experience.” 

HOW DO QR CODE PAYMENTS WORK? 

Another form of contactless payment is the scanning of QR codes with a smartphone camera, a solution that has become more popular due to the high penetration of smartphones in Latin America.  

Cell phones have become one of the preferred methods for young people to access bank services and are becoming increasingly important for making payments through digital wallets. 

The trend has caught the attention of big tech firms such as Meta, which in June 2021 enabled peer-to-peer payments via QR codes on its Messenger app for users in the US.  

To join the service, users must link their Facebook Pay wallet to a Visa or Mastercard debit card or to a PayPal account, among other alternatives.   

As for Latin American examples, it was estimated that more than 12 million Peruvians were using a digital wallet by mid-2021, out of a total population of approximately 32 million, according to data collected by BBVA.  

For QR payments to work, the starting point is to identify each individual or companies using a unique code linked to a bank account, so that the financial system has the exact “address” of each user 

Similarly, in August 2021, Argentina’s central bank, the BCRA, made it mandatory to create QR codes for company accounts and digital wallet users in order to massify contactless payments through the capture of the code, as part of the Transfers 3.0 system.  

Three months later, the BCRA initiated the interoperability of payments with QR codes and, in less than two months, more than two million transactions were made—numbers that showed the high adoption rate that this type of payment was already enjoying in the Argentine market.  

The drive for a greater use of proximity payments comes not only from banks and FinTech firms but, more importantly, from the approval and adoption of users themselves. It’s safe to say that cash has found a major rival in contactless payments.  

Andy Tran