Tap to Pay on a smartphone: how it works and options in Australia

How does Tap to Pay work?

Tap to Pay allows you to accept contactless payments on an iPhone or Android smartphone without a separate card reader. It is not the same as tap and go, which refers to contactless payments in general in Australia.

Your phone must have a built-in Near-Field Communication (NFC) antenna, which practically all new smartphones do. You’ll also need to sign up for a merchant service supporting Tap to Pay.

When signed up, you install the EFTPOS app on your phone and log in. After entering and confirming a transaction amount, the customer holds their phone or contactless card close to your phone to pay.

Image: MobileTransaction

Tap to Pay works with both contactless cards and mobile wallets.

Essentially, the smartphone works like an EFTPOS machine by sending transaction data to a payment processor using the phone’s internet connection. Once the transaction is approved by the banks and card issuers, it’s completed.

The funds are transferred to your business account, usually within 1-3 business days, depending on the payment solution.

Tap to Pay solutions in Australia

Australian merchants have quite a few mobile phone EFTPOS options. Here’s an overview:

* Software development kit (SDK) for integrating softPOS in your own payment app.

When new technology emerges, payment providers want to stay competitive, so many popular EFTPOS companies have introduced their own Tap to Pay options. These are usually either separate apps or features added to their existing apps.

In Australia, Square, Zeller, Westpac and ANZ Worldline are the only providers offering Tap to Pay out-of-the-box on both iPhone and Android devices.

At Square, it’s available in the Point of Sale app, which also connects with Square Reader. The app allows you to send payment links and accept QR code payments too. Merchants signed up with Zeller can enable Tap to Pay in Zeller App.

Although Square offers the most adaptable, user-friendly features, its transaction rate of 1.6% for Visa, Mastercard, eftpos and Amex cards is not the lowest. SumUp matches this rate with its EFTPOS app for Android.

Zeller, Westpac, NAB and Tyro charge 1.4%, also without monthly fees or a contract (in most cases). ANZ Worldline charges even less per transaction – 1.3% – but comes with hidden fees. CommBank has the lowest fixed rate for eligible merchants, 1.1%.

Only Android users can opt for NAB and Airpay, though we don’t recommend the latter because Airpay’s fees are higher and require a year’s commitment. In contract, Tyro only offers Tap to Pay on iPhone.

Image: Square

Stripe and Adyen are both intended for developers and large businesses wanting to add Tap to Pay functionality into their own software. We therefore don’t recommend it for individual entrepreneurs or small businesses that simply just need to accept contactless payments.

For example, Xero has integrated Stripe into its accounting software, so users only need to sign up with Stripe to accept contactless taps.

Other names for Tap to Pay

Tap to Pay is sometimes confused with contactless payments in general.

To distinguish it from card machine payments, Mastercard officially refers to the feature as Tap on Phone whereas Visa calls it Tap to Phone.

Payment experts sometimes call it softPOS (software point of sale), a term that has proven too technical to take off among users.

We’ve seen a clear shift among industry players towards adopting the name Tap to Pay on iPhone or Tap to Pay on Android, probably kicked off by Apple’s decision to first name their tech Tap to Pay.

Is Tap to Pay right for everyone?

Should you use your phone as an EFTPOS machine? Not necessarily.

As exciting as the idea sounds, tap-on-phone is only suitable in certain cases.

Consider these pros and cons of Tap to Pay before you opt for it:

Advantages

Disadvantages

A couple of the disadvantages relate to customers having to touch and hold the phone.

Sometimes, a Tap to Pay app might ask for a PIN code, mainly when the transaction amount exceeds the contactless limit ($100 or $200 for physical cards). The merchant is then forced to give the customer the smartphone so they can enter the code on the touchscreen.

This is not the most hygienic solution, and customers may also be reluctant to enter their card PIN on a stranger’s phone if they’re concerned about security.

Some merchants may think about purchasing a phone to dedicate exclusively for this purpose, but then why not buy a card reader that’s cheaper and less likely to be stolen?

In addition, tap-to-phone only processes contactless payments, not chip cards that have to be inserted. If a chip card doesn’t have a contactless function, your smartphone will be useless.

Also, even the most modern smartphones need to be charged more frequently than dedicated EFTPOS readers.

So when can it be a good solution?

Tap to Pay could be considered a secondary card reader for emergency situations (e.g. during technical issues with an EFTPOS terminal or WiFi) or to accept payments from customers who can’t pay in cash (if you try to be a cash-only business).

Card reading capabilities in a smartphone is also useful for home deliveries and shops, bars and restaurants with large serving areas. Portability is, in fact, the main advantage of tap and go on phones.

Is a card reader better than Tap to Pay?

Mobile card readers are inexpensive EFTPOS terminals linked over Bluetooth with a phone that’s connected to the internet. They are extremely portable and lightweight devices designed for the sole purpose of processing card payments.

Unlike a purpose-built card reader, a phone with Tap to Pay has many apps that not only drain its battery, but also make it more vulnerable to technical issues.

Image: MobileTransaction

Inexpensive card readers connect, via Bluetooth, with a smartphone to accept card payments.

Here are 3 of the most competitive card readers available in Australia:

The most popular phone-dependent card reader, Square Reader, can be purchased for $65 incl. GST. It has no contractual lock-in or monthly fee, just a pay-as-you-go transaction rate of 1.6%.

Key benefits of Square is its instant transfer option for an added fee and many complimentary payment tools without an ongoing commitment.

Well-known for its EFTPOS machines, Tyro recently launched Tyro Reader for the slightly lower price of $59 incl. GST. It doesn’t have a monthly fee or lock-in and only charges 1.4% per Visa, Mastercard, eftpos and JCB transaction (Amex costs more).

Smart Mini by CommBank is another alternative that is sometimes offered for free, but normally costs $59 with a transaction fee of 1.1% for Mastercard, Visa, American Express, UnionPay, JCB and eftpos cards. It may have hidden fees, but could be your most convenient (and cheapest) option if you already bank with CommBank.