In the wake of the COVID-19 pandemic, card companies and banks are pushing near-field-communication (NFC) based payment options for customers in a bid to avoid debit or credit card swipes at retail outlets. While Google Pay has launched a tokenised card option with Axis Bank, SBI Cards and Kotak Mahindra Bank, HDFC Bank alongside Visa have now enabled merchants to accept contact-less card payments via their smartphone, according to a press release.

NFC-based card payments allow customers to “tap and pay” on point-of-sale devices, therefore reducing human contact when buying goods and services. Both Visa and Mastercard said that transactions through contact-less payment methods, globally, have increase manifold in the last six months due to a shift in consumer preferences in the wake of the pandemic. According to a statement by Visa, around 55% of Indian consumers surveyed said they would prefer to use a “tap to phone” payments. Both card companies have been engaged in marketing campaigns for the last two years pushing customers to

While NFC technology has been around for nearly two decades and the first smartphone with NFC technology was launched a decade ago, the adoption of this technology in India for payments is only now gaining steam, despite some early attempts. The use of NFC in smartphones for digital payments had not taken off for three reasons. The first is the low penetration of digital payments, the second is the low penetration of NFC smartphones among consumers and the third, is the low penetration of NFC enabled POS devices.

However, a decade later smartphone penetration in India has grown exponentially and is expected to reach 820 million in the next two years, while the number of POS devices has grown more than 10 times from around 500,000 in 2010 to 5.1 million as of August 2020, as per RBI data. Similarly, digital payment penetration has grown exponentially in the last decade from less than 200 million debit cards in 2010 to over 858 million debit cards as of date and from less than 17 million credit cards in 2010 to around 58 million credit cards as of August 2020. Further, the advent of UPI and other digital payment platforms have gained prominence in the lives of consumers in the last four to five years.

Back in March 2017, Samsung Pay launched its app which supports NFC payments, through card tokenisation, across a range of smartphone models and in partnership with several banks.

Growing the merchant and payments network

While most NFC-based payment solutions require merchants a POS device to accept payments, banks and payment companies are now pushing NFC payments on smartphone devices as it reduces the cost of merchant acquisition.

“If you look at the acceptance infrastructure beyond Tier-2 areas, we see a wide prevalence of smartphones especially through UPI and Bharat QR and not POS. So these partnerships are looking at expanding the payments infrastructure beyond cards and the POS. By adding a new way to pay and accept payments, banks can expand their network. So I don’t see this strategy as a cost driver but more on the lines of expanding the merchant and acceptance network,” says Deepak Sharma, president and chief digital officer, Kotak Mahindra Bank.

The prevailing circumstances have hastened the need to deepen the digital payment eco-system in the country. The MSMEs and merchant segments form a critical backbone of the economy and it is imperative that they have access to the latest platforms available to enable digital payments. This global first Tap to Phone deployment, using smart phones, is part of our endeavour to provide affordable platforms for small merchants. — Parag Rao, country head for payments, business, consumer finance, digital banking and marketing, HDFC Bank.

Google Pay on its part is working with banks and card companies to primarily increase debit and credit card acceptance across the country, Ambarish Kenghe, director of product management, Google Pay said in an emailed statement.

“In tandem we are also working with merchants, payment gateways and POS aggregators to expand the acceptance ecosystem so that in addition to security which prevents a user’s actual card details from getting transmitted through the network, ease of use can also be enhanced through the tap-and-pay functionality,” he said.

Ashwini Kumar Tewari, managing director and chief executive officer, SBI Cards and Payment Services said that their partnership with Google Pay will allow their credit customer to use a tokenized version of their cards to pay online or physically at merchant outlets. Through this partnership, the company hopes the acceptability of SBI Cards as a payment mode will increase, he said.

Targeting smartphones over POS devices

In June this year, Mastercard launched a soft-POS solution, with Axis Bank and Worldline India, which allows merchants to use their smartphones as POS devices. It allows transactions through physical means, Bharat QR-codes and NFC payments among other services.

Kaushik Roy, country leader, South Asia and head of strategic initiatives, Global Growth Markets, ACI Worldwide, said in an emailed statement that NFC based payments through tokenised cards is a more user-friendly form of contact-less payment as it protects sensitive financial data and reduces the risk of theft or loss of cards. “With Bharat QR, which is also an accepted form of payment on these apps, smaller merchants can accept payments using NFC based apps which reduces their overall running costs. Further, banks also benefit since they can focus on issuing virtual cards, which reduces the operational and logistical costs associated with managing plastic cards,” he said.

According to an August 4 report by Mint, the National Payments Corporation of India is also working on an NFC solution for the UPI platform that will be used on POS devices.

At present, transaction limits on NFC payments have been restricted to a maximum ₹2,000 per transaction since there is no second factor authentication for “tap and pay”, as per Reserve Bank of India guidelines.