What Are Frictionless Payments and How Do They Work?

As technology evolves and consumer preferences change, so do business’ payment systems — and how shoppers use them. In today’s global market, digital payments account for $17.7 trillion and it’s anticipated that figure will climb to $36.75 trillion by 2029. With more and more transactions now taking place online, from restaurant delivery orders to health insurance payments, consumers expect apps and websites to give them a fast, frustration-free checkout experience. 

For evidence of this trend in the US, look at the increased demand for frictionless payment options, such as using digital wallets or buy now, pay later (BNPL) services. These payment methods are soaring in popularity, with the Federal Reserve reporting that digital wallet transactions more than quadrupled from 2.9 billion in 2018 to 14.4 billion in 2022. 

Technological innovation is a driving force behind this trend, such as the evolution from magnetic stripe cards to contactless cards. As technology gets smarter and starts integrating more tools like AI, consumer demand for frictionless payments is likely to increase even more.

Frictionless payments are payment methods that emphasize speed, simplicity, and convenience, such as tap-to-pay or mobile wallets. The purpose of enabling frictionless payments is to encourage customers to complete purchases by removing friction, or obstacles, from the checkout process.

For example, if checkout is too long, too slow, or too complicated, it creates friction that increases the risk for cart abandonment. By making payments frictionless and streamlining transactions, businesses can simultaneously boost customer satisfaction, improve brand loyalty, and increase revenue.

Some common examples of apps and websites that use frictionless payments include Lyft, Uber, PayPal, Venmo, Google Pay, Apple Pay, and Amazon. A region-specific example is OMNY in New York City, which allows Metropolitan Transportation Authority (MTA) riders to instantly pay subway or bus fare by tapping their phone at the turnstile reader.

With a frictionless payment process, there’s no need to carry cash, swipe a card, complete a time-consuming checkout, or even remember a PIN. Instead, users are automatically charged in the app using saved payment information. This allows customers to make convenient, on-the-go purchases with just a tap or click.

Now, let’s take a deeper look at five frictionless payment methods in the next section of this guide.

There are multiple ways your business can provide a frictionless payment experience for customers, such as offering shoppers a wider and more convenient variety of payment options. By enabling some or all of the following payment methods, you can help create a smoother checkout process for shoppers: 

• Digital wallets

• Mobile apps 

• Contactless card payments

• Buy now, pay later (BNPL) services 

• Payment links

Digital wallets

Instead of storing physical cards inside a traditional wallet, a mobile wallet lets shoppers store virtual cards digitally on their smartphones. This provides a convenient way for shoppers to make purchases using their mobile devices, without needing to carry physical debit or credit cards. 

Not only are digital wallets convenient for shoppers, they also offer benefits for merchants. By speeding up transactions, digital wallets boost customer satisfaction and loyalty, which encourages repeat purchases. And because transactions are encrypted and tokenized, digital wallet payment methods provide an added layer of security to users.

Mobile apps

Intel from several sources, including Top Design Firms and Fingent, indicate that between 48% to 62% of U.S. businesses currently have or are developing a mobile app. One of the reasons mobile apps are so popular is because they make it faster and easier for shoppers to complete online and in-store purchases. For example, a customer can place an order in the app and pick it up at the store, conveniently avoiding long lines. Many mobile apps give shoppers the option to save card information or pay using digital wallets, simply by authenticating their identities with Face ID or a passcode. 

Contactless card payments

Contactless credit cards are powered by a type of wireless technology called Near Field Communication (NFC). They let customers make fast, frictionless payments simply by holding the card near the terminal. This eliminates the need to physically enter a PIN, allowing a higher volume of customers to check out in less time. Contactless payments are also called “tap and go” or “tap to pay” systems.

Buy now, pay later services

Buy now, pay later (BNPL) services like Zip give shoppers a convenient option to make online¹ or in-store¹ purchases, then repay them through a short series of installments. The checkout process is fast and frictionless, allowing customers to sign up for an installment plan and complete their purchase with just a couple of taps or clicks. 

Thanks to the flexibility it offers, BNPL has exploded in popularity over the past few years, growing from a $37 billion market in 2021 to a projected $97.25 billion market by 2025 according to Emarketer forecasts.

Payment links

A payment link can be shared as a URL, a “Pay Now” or “Make a Payment” button, or a QR code that mobile users can scan on-the-go. Payment links support frictionless payments by enabling customers to quickly and easily complete transactions, without having to remember old logins or passwords. Merchants can provide payment links for monthly bills or subscriptions, or use them for one-time purchases, making them a flexible option for businesses of all sizes and types.

There are numerous ways your business can benefit from providing customers with a frictionless payment experience. By creating a frictionless checkout process, merchants can help improve their conversion rates, make transactions more secure and efficient, and increase customer loyalty by delivering a better user experience.

Increased conversions

When customers encounter obstacles at checkout, like too many steps to make a purchase, they’re more likely to abandon carts and cancel transactions. Your business can prevent this scenario and improve conversion rates by ensuring that customers have a virtually seamless payment experience. For example, you can make the checkout process faster and easier for customers by accepting digital wallet payments.

Better user experience

Giving customers the option to make frictionless payments can help create a better, smoother experience for them. A frictionless payment process eliminates the need for customers to carry cash, remember a PIN, or leave a signature. Instead, shoppers can get through checkout quickly and effortlessly with just a few taps, which may encourage them to return and make additional purchases in the future. 

Improved efficiency

A frictionless payment process can allow customers to complete transactions faster. That means you can serve more shoppers in less time, enabling your organization to increase its efficiency and revenue — especially during peak hours or busy holiday seasons.

More convenient

Frictionless payments are convenient for shoppers because they help to make the checkout process faster, easier, and stress-free. By ensuring that transactions are quick and easy for shoppers to complete, frictionless payment systems help deliver a more enjoyable customer experience. And since satisfied customers are more likely to leave positive reviews or refer friends and family, providing a frictionless payment experience can help you acquire new customers.

Increased customer loyalty

Frictionless payments not only increase your efficiency, they also provide a better experience for shoppers, which promotes brand loyalty and customer retention. Merchants can strengthen customer loyalty even more by integrating reward programs with the frictionless payment experience, which can be an effective strategy for encouraging repeat business.

Improved payment security

Thanks to a process called tokenization, frictionless payments can offer more privacy and security than traditional credit or debit card payments. Tokenization is a digital process that allows merchants to substitute sensitive customer data – such as credit card numbers or email addresses – with non-sensitive “tokens” like random characters. Using tokenization, businesses can protect customer data without sacrificing transaction speed or efficiency.

While frictionless payments offer numerous benefits, they also have some potential drawbacks for shoppers and merchants. For example, a frictionless checkout process can give rise to user privacy concerns. Here are some of the challenges associated with frictionless payments — and how businesses can mitigate them. 

Privacy concerns

Collecting data helps businesses to provide customers with more personalized shopping experiences, such as making product recommendations based on previous purchases. It also allows customers to make frictionless payments, including using saved credit card numbers. However, to minimize the risk of data being stolen or breached, consumer privacy laws strictly regulate how businesses can store and share customer information. To keep your customers’ trust — and keep compliant with regulations — businesses must take appropriate steps to safeguard shoppers’ data, such as tokenizing payments or ensuring transactions are encrypted.

Reliance on technology

Frictionless payments rely on a combination of sophisticated technologies, such as NFC, biometrics, and radio frequency identification (RFID), to ensure that they function properly for users. To avoid downtime or other glitches that could interrupt sales and frustrate customers, it’s essential to ensure your team has the technical expertise necessary to launch, test, back up, and maintain the system. It’s also important to offer traditional payment methods, such as the option to pay with a debit card, for shoppers who prefer more familiar ways of completing transactions.

Fraudulent transactions

Frictionless payments enable customers to make online or in-store purchases with a single tap or click. Unfortunately, that also opens doors for fraud if a customer’s mobile device or account information ever gets stolen or compromised. 

To counter these risks and prevent unauthorized transactions, it’s important for businesses to use technology that combats fraud, such as biometric identification. Fingerprint or facial recognition can help prevent unauthorized purchases, without disrupting the frictionless payment experience for authorized users.

To create a truly frictionless payment process for shoppers, it’s important to follow a few best practices, which helps ensure that customers enjoy a positive checkout experience. These practices include:  

• Offering customers a variety of payment options, such as digital wallets, contactless cards, payment links, and BNPL options 

• Having an intuitive, easy-to-navigate app or website that allows for a fast and frictionless checkout

• Incorporating strong user security and fraud prevention features into your system 

• Providing best-in-class customer service and support, such as live representatives, instant messaging features, and a self-serve help center

Thanks to its efficiency and convenience, more and more companies are adopting frictionless checkout, changing the face of ecommerce for businesses and consumers. Cash payments dropped by 8% in 2023, while the digital wallet market is projected to grow by more than 28% every year through 2030, when its value is forecast to exceed $51 billion. 

As the technology that powers frictionless payments grows faster and more secure, digital payments will continue to offer a seamless shopping experience for customers. Make sure your business is ready with Zip, the BNPL app that helps give your customers more flexible payment options.

Zip gives your customers more options to pay, potentially helping you drive sales and boost revenue.  Zip provides short-term financing solutions for over 6 million users worldwide, boosting your customers’ purchasing power so that they can place larger orders.

Zip supports frictionless payments for thousands of popular brands and retailers, including Apple, Amazon, Walmart, Target, and more. The app integrates with leading payment platforms like Shopify, Salesforce, and WooCommerce, making implementation a snap with no-code and low-code options. Learn more about Zip for businesses and how BNPL can help you grow your brand.

When businesses make payments frictionless for customers, it creates a win-win situation for both shoppers and merchants. Shoppers enjoy a secure, effortless checkout process they can complete in seconds, even when they’re on the move. And businesses complete transactions faster, boosting efficiency while simultaneously providing a better customer experience. By embracing frictionless payments, customers can shop more quickly and conveniently, while businesses can boost revenue and customer loyalty.