NFC Payments: Challenges to Merchant Acceptance

NFC is more than just a payment technology. When combined with mobile wallets and loyalty apps, NFC becomes an avenue for added value, for both merchants and consumers. Once merchants realize the benefits contactless payments bring to their business, they will be eager to adopt this technology.

In the US, merchants have been hesitant to adopt NFC payments for three main reasons: hardware/training expense, security concerns, and lack of understanding of the added value. These issues are absolutely understandable. Fortunately, they can also be addressed and answered.

Hardware and Training Considerations

If a retailer has a working terminal at the point of sale, it’s a safe bet that they have little interest in replacing it. New terminals can cost hundreds of dollars, plus there’s a requisite learning curve and training required after the purchase.  No one is going to rush out and purchase new POS technology, if it’s not absolutely necessary.

However, in many cases, it can’t be avoided. The EMV shift is forcing the migration of millions of payment terminals to EMV compliant devices. While the October 2015 deadline is long past, the migration continues steadily. As of January 2016, 43% of US retailers had upgraded to EMV terminals (2). The EMV shift is providing the momentum needed for retailers to obtain NFC capable equipment, at the same time that consumers are increasingly demanding this payment option. The good news is that there are a number of upgrade options that won’t break the bank.

The vast majority of new terminals are manufactured with NFC technology as a standard feature. Therefore, as the EMV migration continues over time, a majority of merchants will possess NFC capability - an unexpected bonus of the upgrade cycle. It is estimated that by 2018, 55% of installed POS terminals will be NFC capable (1). Not all merchants will be aware of this, or interested in it, but the potential will be there.

The same holds true for the consumer side of technology. Retailer and consumer technologies are converging, just in time to meet the growing demand for mobile payments. Mobile wallet use increased 249% in just one year (4). This trend will continue, as consumers become more reliant on smartphones for payments, whether in-app or point of sale. Just as with payment terminals, virtually all new smartphones have built-in NFC functionality. Thus, as people upgrade their smartphones over time, they’ll also acquire NFC capability. Merchants can’t afford to ignore this momentum.

NFC transactions are easy for consumers at the point of sale. Actually, they’re easy for merchants too, but there’s no getting around a learning curve for new technology. It’s always important to carefully evaluate which payment technologies are worth your time. Because NFC is gaining market share exponentially, NFC is clearly worthwhile.

In a retail environment with fast turnover, you have to minimize and streamline what’s expected of your employees. It seems as if adding NFC payments could add another layer of “things that can go wrong.” Fortunately, it’s just the opposite.

Adding NFC payments streamlines the checkout process in several important ways:

  1. It’s easier. In many point of sale systems, employees have to swipe cards, print signature slips, hand them off to be signed, etc. With NFC, the customer handles the payment, from terminal to phone. Merchants are hands-off.   
  2. It’s faster. NFC payments are much faster than chip card payments. Chip payments take an average of 10 seconds (5). NFC payments, on the other hand, take 2-5 seconds. No cards, no paper slips, no hassle. In a fast paced retail setting, every second counts.
  3. It’s more accurate. Because transaction data goes directly from the consumer’s mobile wallet to the payment terminal, mobile payments greatly reduce the chance of human error. There’s no manual entry of transaction amounts or CVV codes, making checkout more accurate.  

Security Concerns

Merchants are wise to be vigilant about protecting their POS systems. It seems like every week, we hear of yet another hack, compromising customer accounts and financial data. Social engineering attacks are on the rise. Big names like Home Depot, Target and Wendy’s have all been impacted. No merchant wants to be the next name on the list.

Because of the technology protocols in place, contactless payments do not open the merchant up to any additional vulnerability.  NFC payments use tokenization at the point of transfer to protect data. So as long as a merchant follows EMV rules, transactions will be properly encrypted and protected at all points.

It’s natural that merchants would worry about the “contactless” aspect of NFC payments. After all, sensitive information is traveling wirelessly, from a phone to the payment terminal. Couldn’t it be intercepted? Actually, that’s not a problem.

NFC is a subset of RFID technology. But it differs from RFID, in that NFC radio transmissions can only be accomplished within just a few centimeters of physical distance. So, someone sitting across the room would not be able to hack into an NFC transmission, unlike a public WiFi, or even an RFID tag.

Even if somehow a hacker intercepted a NFC transmission, it wouldn’t do him any good. Mobile wallet data is tokenized, meaning that the mobile wallet and the payment provider exchange tokens at the beginning of a transaction. These tokens are dynamic: they change with every single transaction, and they can only be used once. So even if a hacker intercepted a token, it would be worthless.  

Merchants may also worry they could be held liable if a stolen phone is used to make contactless payments. Fortunately, mobile wallets have an excellent security feature to prevent this: fingerprint recognition. Simply holding a phone up to an NFC terminal can not authorize a payment. Someone would have to steal the phone, password and thumb: an unlikely scenario!  

Added Value Tips the Scales

While retailers have various concerns about NFC technology, these obstacles can be addressed and overcome through education and information. However, NFC won’t reach full market penetration unless retailers become excited about offering it. The key to bringing about this excitement is to explain the added value NFC technology brings to your merchants’ businesses.

Contactless payments, combined with mobile wallets and store loyalty programs, allows retailers to build branding. By offering loyalty programs that integrate seamlessly into mobile wallet payments, retailers will increase customer participation. Integrated loyalty programs provide an easy way for customers to keep track of points, promotions, and coupons - without the hassle of pulling out a separate membership card or trying to remember a password. It’s convenient and beneficial, and when something is convenient and beneficial, it will get used. This in turn benefits the retailer.

Mobile payment apps allow retailers to collect valuable information about customers and their shopping habits. With this data, retailers can create effective marketing and targeted promotions. Personalized marketing is useful to consumers, and it provides a valuable incentive to shop.

Exciting Case Study: Walgreens

You might not think a drugstore loyalty program could be described as exciting, but Walgreens is a great example of the synthesis of NFC technology with mobile payments and customer loyalty programs.

Walgreens has 85 million customers enrolled in its Balance Rewards program (6). This program is integrated with both Apple and Android Pay for NFC based payments. With Balance Rewards, discounts, special offers and points are stored in the customer’s account, and applied seamlessly at checkout. So far, so good. And fairly typical. But wait… there’s more.

Walgreens goes further. Customers can also earn Balance Reward points by exercising, quitting smoking and making various other healthy choices. These points can be redeemed at checkout, just like any other points. Balance Rewards shows an innovative way of using technology to increase customer interaction with the brand. By broadening the focus of the program from “savings” to “wellness,” Walgreens builds goodwill and adds value for the consumer.

Help Your Merchants Succeed

Contactless payments are here to stay. NFC is a trusted and reliable technology, perfectly suited for the point of sale payment environment. As we move toward a mobile payment-based society, NFC will become a standard and expected payment option in retail settings.

Incorporating contactless payments now is good strategy for merchants. NFC acceptance opens the door to great benefits to merchants, in terms of branding, loyalty and data collection. Put NFC on your merchants’ roadmaps, and plan ahead for success.


  1.  “US Point of Sale Transformations 2015.” Medici. Oct. 20, 2015
  1. “Steady Growth in NFC POS Terminals.” Let’s Talk Payments. Accessed 09-21-16.
  1. “Who Uses Mobile Payments.” Pew Charitable Trusts. May 26, 2016.
  1. “July 2016 Consumer Spending Snapshot.” Bank of America, July 31, 2016.
  1. “One in Five Consumers Say Paying With Chip…” Harbortouch. Accessed 09-26-16.
  1.  “Program Details.” Walgreens, accessed 09-26-16.

in Industry News, Security, Technology, Best Practices

Get Social
Access Payment Industry Info
& Merchant Insights.