What Is a Contactless Credit Card?
Contactless payment options have been used in countries such as Australia and Canada for more than a decade. However, it is only within the last five years or so that credit card issuers have begun to embrace the technology in the U.S. market.
“COVID drove lots of people to contactless payments,” says Jay Klauminzer, CEO of Raise, the company behind the Slide mobile payments app. According to a 2020 poll conducted by Mastercard, 79% of respondents worldwide said they were using contactless payments due to safety and cleanliness. Klauminzer adds that adoption of these payment methods isn’t just limited to younger generations.
If you aren’t familiar with contactless credit cards or are concerned about their security, keep reading for everything you need to know about how they work.
What Is Contactless Payment?
As its name suggests, contactless payment doesn’t require consumers to hand over a card or touch a payment terminal. It’s touted as being faster and more convenient, as well as a way to maintain social distancing in a pandemic-conscious society.
“The deployment of contactless payments has been crucial,” says Greg Cohen, CEO at Fortis, a payment services firm. “Customers and retailers … need a safe, easy and seamless experience.”
Contactless payments generally fall into one of three categories:
- Contactless payment cards.
- Mobile contactless payments.
- Payment by code.
There are other methods – such as ordering online or over the phone – that are contactless as well, but discussion around contactless payments typically centers on in-store purchases.
What Is a Contactless Credit Card?
Using a method known as tap-to-pay, a contactless payment card eliminates the need to physically touch a payment terminal. This payment option requires that a retailer have a sales terminal equipped with near-field communication, or NFC, technology and that a customer have a compatible credit card.
How Contactless Cards Work
When checking out with a retailer, the customer holds the card over the terminal to complete a payment. The terminal, which also has an NFC chip, sends out a signal that creates an electromagnetic field. This energy is picked up by the antenna around the chip in your card, which powers it to exchange encrypted data with the terminal and complete the transaction within seconds. In fact, it’s about 10 times faster than swiping or inserting your card.
For security, contactless cards use a method called tokenization to secure the payment information transmitted during each transaction. Tokenization creates a unique, one-time code that’s used for the transaction instead of transmitting your actual card details. That makes these transactions as safe as swiping or inserting the card into the terminal.
MSD Cards vs. Contactless EMV Cards
While they may not differ much in terms of the consumer experience, contactless payment cards can fall into two categories:
- Magnetic strip data (MSD).
- Europay, Mastercard, Visa (EMV).
MSD cards use an older contactless technology that is largely phased out. “EMV is a global standard,” Klauminzer says. “It’s slightly more secure.”
In 2019, Visa and Mastercard updated their contactless rules to stipulate that EMV contactless payments are the only ones to be supported by new merchant terminals going forward. As of the end of 2021, there were 12 billion EMV chip cards in global circulation.
Benefits of Contactless Credit Cards
Contactless credit cards offer a number of benefits, both for consumers and businesses.
- Convenience. One of the biggest benefits of contactless cards is that they’re a quick and easy way to make transactions. With just a tap or a wave near the contactless reader, your payment is processed. There’s no need to enter a PIN or sign a receipt for small transactions, making it perfect for on-the-go situations like at the coffee shop or on the bus.
- Hygiene. Especially relevant in the era of the COVID-19 pandemic, contactless payments can help limit the physical contact between people. By using a contactless card, consumers can avoid touching shared surfaces like payment terminals and PIN pads.
- Security. With contactless payment, the card never leaves your hand. This can reduce the risk of fraud that can occur when the card is out of sight. Additionally, unlike magnetic stripe cards, contactless cards use tokenization, which makes it much harder for criminals to steal usable data from cards.
Drawbacks of Contactless Cards
Despite their major benefits, contactless credit cards still come with some downsides and risks you should be aware of.
- Safety concerns. Though contactless credit cards have advanced security features such as encryption and tokenization, they’re still vulnerable to unauthorized transactions if they get lost or stolen and end up in the wrong hands.
- Technical issues. Like any technology, contactless cards can fail. If the card’s chip or antenna is damaged, the contactless functionality might stop working. Fortunately, just because your card is equipped with contactless functionality doesn’t mean you have to pay that way. You also have the option to swipe or insert your card.
- Transaction limits. Some financial institutions impose limits on the value of contactless transactions to mitigate the risk of theft. If you need to make a large purchase, you may be unable to do so without inserting your card and entering a PIN.
Are Contactless Credit Cards Really Secure?
There’s no need to worry about someone standing close to you and skimming data from your contactless payment card. The card itself – including the chip – can’t be used to process a payment unless it’s within one or two inches of a payment terminal.
Once it is that close, the power from the terminal “wakes up” the chip and prompts it to relay data. EMV transactions also include a one-time code that adds an extra layer of security, Klauminzer says.
Beyond that, data from a contactless payment card or mobile device isn’t something that can be intercepted and deciphered without a point-of-sale device. Plus, a terminal with the capability of reading credit card information must be registered with a merchant account.
Even in the post-pandemic world, contactless payments are likely to continue to be popular. According to RBR, a financial research and consulting firm, it is projected that 81% of cards will be contactless by 2026.
From U.S. News & World Report | https://money.usnews.com/credit-cards/articles/what-is-a-contactless-credit-card