For a number of years lately, contactless payments is increasingly becoming the way most people complete transactions faster and securely.
Be it a purchase of a cup of coffee, groceries, or maybe a bus fare, most modern consumers prefer the convenience and time-saving nature of contactless payment methods.
This article explores what contactless payments is, how it works, and the different methods available, highlighting their advantages and disadvantages.
It also covers key details about payment limits and the devices that facilitate contactless transactions.
What is contactless payment?
Contactless payment is a form of payment technology that allows consumers to make purchases without necessarily having to swipe or insert their credit, debit, or prepaid card into the terminal at the point of sale.
As an alternative, users are able to tap their card or mobile device near a contactless payment machine.
This method uses RFID or NFC technology to provide secure data transmission of payment information between the paying device and a point-of-sale terminal.
A transaction gets completed virtually instantly and with no need for signature or a PIN; therefore, it is speedier and more efficient when compared to other methods of paying.
How Does Contactless Payments Work?
In essence, the contactless payment systems are based on NFC or RFID technology.
NFC, a subtype of RFID, enables wireless communication between two devices as long as they are a few millimeters apart.
Tapping your contactless card or mobile phone near a contactless payment machine does the following:
- Payment Initialization:
The user taps or brings the contactless card or smartphone near the terminal; it should contain a chip that can enable the NFC in them.
- Transfer of Information:
The machine used for making contactless payments sends out a signal to the card or device, requesting the payment information; it may use radio waves for doing so and is usually out at distances around 4 cm or less.
- Authentication:
In response, the card or mobile device will transmit the encrypted payment information towards the terminal.
Information contains uniquely defined details about the transaction itself: card number, date of expiry, and sometimes with the authentication code to an end.
- Transaction Completion:
Upon verification of payment information, the transaction gets cleared by the bank or paying network, at which time the consumer receives notice from the terminal by either beep or light that their pay has been successful.
For small transactions, contactless payments eliminate the need for customers to sign a document or enter a personal identification number (PIN), making them more faster and simpler than traditional card purchases.
Read about: Cashless Payment Methods: Types, Benefits, and Drawbacks
Different Forms of Contactless Payment Methods
Various forms of contactless payments have several conveniences and functionalities; some of these are discussed below:
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Contactless Cards:
These are the most common forms of contactless pay.
A contactless card looks like any regular credit or debit card but has an inbuilt NFC chip, which can communicate wirelessly with a contactless payment terminal.
Users may make payments by just tapping their card on the machine.
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Mobile Payments:
Many smartphones and smartwatches support the NFC feature and can have a credit or debit card information stored on them.
Therefore, these can also serve as contactless payment with stored credit or debit cards for making a payment through applications like Apple Pay, Google Pay, or Samsung Pay.
This application makes use of similar technology as the physical contactless card but introduces an additional layer of security, such as biometric authentication.
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Wearables:
Smart watches and fitness trackers, such as the Apple Watch or Fit bit Pay, also support contactless payments.
These devices can store payment credentials and allow users to tap their wrist to pay for goods or services.
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Key Fobs:
Sometimes, key fobs or small devices with NFC technology are modes of contactless pay.
They are very popular on transit systems where fare payments are validated with just a tap.
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Contactless Payment Apps:
Almost all banks and other financial entities have their mobile apps that allow customers to make contactless payments with the use of smartphones.
These apps may be connected directly with the user’s bank account or card for smooth transactions.
Limit of Contactless Payments
While contactless payment is fast and easy, one of the main features is the Contactless Payment Limit.
The Contactless Payment Limit means the maximum value of the transaction that can be made using contactless payments without verification, like PIN or signature.
The contactless payment limit depends on different countries, different types of payment networks, and different financial institutions.
For example:
- In the United States, it is around $100 for most of the contactless payment.
- In the United Kingdom, for most cards, it is £100.
- In Canada, the general limit is around CAD 250.
Where such limits are exceeded, transactions by necessity have to be authenticated by the user using a PIN, fingerprint, or face recognition, depending on the device or card in use.
This limit on contactless payment minimizes the risk of fraud but still offers ease associated with contactless transactions.
Read about: International Payment Fraud: Ultimate Guide For Businesses.
Benefits of Contactless Payments
Contactless payment methods have many advantages for consumers and businesses:
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Convenience
One of the big benefits with contactless payments is speed and ease of use.
The checkout procedure may be sped up and made more efficient for small transactions as no one needs to put a card into the device or enter a PIN each time.
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Security
Contactless payments use encrypted technology, hence more secure than the traditional magnetic stripe cards.
Since the card never leaves the user’s hand, there is lesser risk of it getting lost or stolen during the transaction.
Each transaction is also authenticated with a unique one-time code.
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Hygiene
Contactless payments eliminate the need to touch a public payment terminal, which can be more hygienic, especially during times when avoiding physical contact is a priority, such as during the COVID-19 pandemic.
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Reduced Queues
Since contactless payments are faster, they help reduce queues and wait times in retail environments, providing a smoother experience for both customers and employees.
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Wide Acceptance
Contactless payments are accepted in so many places, from retail stores to restaurants, on public transport, and also on vending machines, therefore are versatile and accessible.
Disadvantages of Contactless Payments
While contactless payments offer significant benefits, they are not without their flaws:
- Transaction Limits:
As mentioned earlier, the contactless payment limit can be a drawback for larger purchases.
For payments over the specified limit, users will need to authenticate the payment with a PIN or signature, which can detract from the speed and convenience.
- Risk of Unauthorized Payment:
Even though encryption and other security features make the contactless payment system almost safe, unauthorized payment is still one of the concerns.
If the contactless card or any such device of any consumer is lost or stolen, chances of a payment being drawn without authentication may occur.
- Compatibility Issues:
While contactless payment machines are increasingly common, not all merchants have upgraded to terminals that support this technology.
This can limit the use of contactless payments in certain areas.
- Privacy Concerns:
Since contactless payment cards and mobile devices transmit data wirelessly, some users are concerned that their payment information could be intercepted by hackers, especially in crowded areas.
- Dependent on Battery:
Mobile payments mean the device needs to be on charge for the transaction to take place.
This means when one’s smartwatch or smartphone is dead, there will not be contactless payments in use.
Conclusion
Contactless payment has reinvented the way we go about regular transactions. It is fast and offers security and convenience in transactions.
It is thus becoming very popular on all continents. From cards and mobile phones to wearables, the consumers now can use various ways to make their payments without having a need to insert cards or reach for cash.
Although there are a few drawbacks, such as the limit on the value of transactions and issues regarding security, the general benefits that come with contactless payments make the option very attractive to modern consumers.
As technology evolves, it is likely that methods of contactless payments will be even more widely used, secure, and user-friendly, further shaping the future of payments.
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