Dec 18, 2023

The Next Great Disruptor to the Payments Ecosystem

Businesses are continually looking to take advantage of new and emerging digital solutions. Streamlined ‘bring your own device’ strategies are allowing companies to leverage the increasing power and functionality of commercially available off-the-shelf (COTS) devices, such as smartphones, to create solutions that mitigate the need for investment in expensive purpose-built hardware.

The payments industry is no exception. With contactless payments expected to grow by 221% by 2026 – half of which will use payment-enabled mobile devices or wearables – merchants and traders of all sizes must make sure that they have the necessary means to participate in the digital economy. However, legacy point-of-sale (POS) terminals are costly to purchase and maintain, making them an unsustainable option for a large number of merchants and sole traders.

Reader Mode Payment, also known as Tap-on-Mobile or SoftPOS, bridges the gap between the need to boost digital payment acceptance and the barriers of affordability. This software allows merchants to use their COTS device as a payment terminal. But how does it work? And why are many stakeholders championing SoftPOS as the next great payment ecosystem disruptor?

What is Reader Mode Payment?

Reader-Mode Payment is a software-based innovation that allows users to harness the Near Field Communication (NFC) connection of their COTS device to transform it into a payment acceptance terminal. Merchants need only download an app, register through their acquiring bank, and start accepting digital payments.

The experience for the customer is equally simple. All it takes is a tap of their contactless card or mobile wallet and the payment is taken with the exact same user experience as legacy POS terminals provide today. And thanks to the bidirectional compatibility of active mode NFC, a smartphone operating as a payment terminal still has the power sharing capabilities to allow battery-less payment cards to harvest power, meaning they operate identically to legacy POS devices.

What is the benefit to merchants?

Reader Mode Payment enables all merchants, regardless of size, with an opportunity to accept cashless payments. It removes the need to invest in expensive designated POS terminals enabling all merchants to enhance the payment channel options to meet changing customer preferences.

This enhanced inclusion also extends beyond nations with established digital payments ecosystems. The affordability of SoftPOS positions it with a unique opportunity to disrupt payments in developing economies. Simply, as a smartphone handset can operate seamlessly as a payment terminal anywhere in the world with internet or cellular connection, emerging nations without established digital payments infrastructure or fixed-line high-speed internet connectivity do not require significant traditional POS investment to onboard and offer contactless payments.

Are there any benefits for larger merchants?

Yes. Reader Mode Payment also unlocks unparalleled flexibility for merchants and a way to rethink the shopping experience. The affordability of COTS devices in comparison to legacy POS terminals mean that it is now a feasible option to issue more staff with terminals, allowing them to bring the payment to the customer. In retail, for example, shop assistants can take payments from customers on the shop floor itself, eliminating the need for them to queue up at a checkout, one of the main points of friction in the checkout process. These innovations will allow retailers to “bring checkout to the customer.”

Other markets, such as transit ticketing have the potential to be transformed by allowing ticket collectors to take fares from passengers on board the service, removing the need for passengers to queue at ticket machines.

The power and versatility of NFC technology means that Reader Mode payments will also benefit from upcoming enhancements to the wider contactless ecosystem. One such example is multi-purpose tap. This is an emerging concept that enables several actions to be combined and delivered simultaneously with just one tap, such as accepting a payment and delivering a receipt direct to the customer's device, or updating loyalty and rewards when a transaction is made.

How quickly could Reader Mode Payment be deployed?

Reader Mode Payment is being deployed today in some markets around the world but as always, wider market adoption takes time.  It is also vital that those looking to implement it remain mindful of certain key concerns. For example, the convenience and affordability that SoftPOS unlocks cannot come at the expense of security. Furthermore, users may need time to become comfortable tapping payment credentials and, in some cases, entering their PIN into a COTS device rather than a dedicated “trusted” traditional payment terminal.

Thankfully, Implementors can take many of the learnings from contactless technology deployment to promote consumer confidence. Practices such as visual indicators for where to tap can be standard practice, making the user experience more intuitive and familiar to build trust in the entire process.

What is the role of NFC Forum?

The modernized device-to-device communication functionality of NFC enabled smartphones has the potential to transform how we deliver and enhance digital payment experience. Merchants previously locked out of the ecosystem are enfranchised like never before thanks to convenient, affordable SoftPOS solutions. However, it is vital that there is a balance between convenience and security.

The PCI SSC certification released in November 2022 has reinforced this emphasis on compliance and security. Mobile Payments on COTS (MPoC) enhances SoftPOS functionality by enabling support for both PIN and PINless transactions, offline transactions and manual card data entry on NFC COTS devices. This has reemphasized the importance of NFC Forum Standards as the fundamental technology upon which this entire ecosystem is being built.

NFC Forum is at the heart of reliable Reader Mode Payment solutions. Its members represent a cross-section of the payments ecosystem, bringing together hardware manufacturers, software providers, end users, and other stakeholders from throughout the NFC value chain. The Forum creates a platform for strong industry-wide collaboration to create interoperable standards that harmonize the ecosystem and help create seamless, secure payment experiences.

Want to learn more about SoftPOS? Listen to our recent podcast with EMVCo and PCI SSC.

Eager to join the discussion? Become a member of NFC Forum.