What is contactless payment and how does it work

Understanding Contactless Payment

If a consumer wants to make a contactless payment, they don’t need to swipe their credit card or debit card. Any card with a magnetic stripe or a chip can be used with this technology, but contactless methods eliminate the need for physical contact. Simply holding a contactless card or device near the terminal completes the transaction — this is why it’s often called tap to pay.

What is a Contactless Card?

A contactless card uses RFID or NFC technology to complete secure and rapid transactions. You can make a contactless payment with just a tap or a wave of the card in front of the payment terminal. Most cards have a contactless symbol that indicates compatibility with tap to pay readers.

Why Are Contactless Payments Secure?

1. Encryption: Data in a contactless transaction is encrypted and secure from unauthorized access.
2. Tokenization: Sensitive data is replaced by a one-time-use token, making intercepted data useless.
3. Transaction Limits: Contactless cards have limits that require PINs or signatures beyond a certain amount.
4. No Physical Contact: Reduces the risk of skimming and tampering by avoiding card swiping.
5. Two-Factor Authentication: Many devices require face ID, fingerprints, or passcodes for mobile wallet payments.
6. Zero-Liability Policies: Banks often cover unauthorized contactless payments under their fraud protection policies.

Types of Contactless Payment

1. Contactless Cards: Most tap-to-pay purchases are done with contactless credit cards or debit cards using RFID chips.
2. Mobile Wallet Transactions: Payments made through apps like Apple Pay, Google Pay, and Samsung Pay using smartphones.
3. Wearables: Smartwatches like the Apple Watch use NFC to make contactless payments using mobile wallet data.

How Does Contactless Payment Work?

Whether you're using a contactless card, smartphone, or wearable, the contactless payment process involves a financial institution and wireless technology to transfer data.

1. Customer Presents Contactless Card: The RFID-enabled card or NFC device is held near the compatible payment terminal.
2. Card Information is Transmitted: The RFID chip transmits encrypted card data to the terminal.
3. Payment Terminal Contacts Issuing Bank: The merchant's system sends a payment request to the bank.
4. Authorization or Denial: The bank approves or rejects the contactless transaction based on available funds or credit.

Once the transaction is approved, the terminal may beep or show a confirmation to complete the tap to pay process.

Conclusion

While contactless-enabled terminals are common in large retail stores, they are not yet universal among small businesses. This is why it’s still advisable to carry cash or a traditional credit card or debit card as a backup for purchases where contactless payment is not supported.