In a wireless financial transaction known as a contactless payment, the customer approves monetary payment for a purchase by placing a security token close to the point of sale (PoS) reader of the merchant. Chip-enabled bank cards and smartphone digital wallet applications are common security tokens for contactless payments. Other names for contactless purchases include touch-free, tap-and-go, and proximity payments. Frictionless checkout is the term used to describe a transaction in which goods or services are bought using a contactless payment.
Due to the fact that the customer does not immediately share billing or payment information with the vendor, contactless payments are renowned for being secure. Instead, all transactions are tokenized with one-time transaction numbers and all correspondence is encrypted. The one-time code that was used to identify a specific transaction will be the only information that an attacker will obtain from a wireless communication if it is intercepted.
Due to COVID-19 and customer demand to avoid direct human interaction when making in-store purchases, the adoption of contactless payment has accelerated. The technical requirements for smart payment cards and the PoS readers that accept them are established by the U.S. Payments Forum and EMV (Europay, Mastercard, and Visa).
History of Contactless Payment
When a few stores began using the technology, contactless payments got their start in the late 20th century. The UPass system, which gave users of public transportation in Seoul, South Korea, a practical method to pay for their bus rides, was one of the first contactless systems ever put into use. Since then, the technique has become widely used. In addition to their prepaid contactless Oyster Card system, the London transport agency began giving commuters the option to use contactless debit and credit cards as payment methods in 2014.
Contactless transfers are available in the US as well, and they have become increasingly common in recent years. For instance, Visa revealed in the middle of 2020 that contactless payments for routine purchases, like those at supermarkets, had increased by more than 100% year over year.
In the first quarter of 2020, contactless transactions increased globally by 40%, according to a similar Mastercard survey. Given that contactless usage increased by 150% in the U.S. between 2019 and 2020, it is possible that this form of payment will continue to spread.
What are different types of contactless payment?
Apple Pay is arguably the most well-known instance of wireless payment. It functions with NFC-enabled devices like the Apple Watch, iPhone 6, and iPhone 6 Plus. Apple’s Touch ID fingerprint recognition technology is also built into the iPhone 6 and 6 Plus, ensuring that even if your phone is taken, no one can access the credit cards you’ve saved in your app. Simply hold your device up to the payments reader with your finger on the Touch ID button after the light on the reader goes on to complete a purchase with Apple Pay.
You must spend money on a scanner if you want to accept Apple Pay at your business. Apple Pay and EMV cards are both accepted by the Square contactless and chip scanner.
Other Types of Contactless Mobile Payments
One of the more well-known NFC mobile payment applications is Google Pay, which is Google’s mobile wallet technology. All NFC-capable Android smartphones running version 4.4 or higher are compatible with it. Customers only need to open the Google Pay app on their phone (which calls for a secure lock screen) and finish the transaction by holding their device over the payment reader to use the service.
On more recent Samsung Galaxy smartphones, Samsung Pay functions. Also compatible with NFC contactless devices is Samsung Pay. In contrast to Google Pay and Apple Pay, Samsung Pay requires a swipe up from the main screen to initiate an NFC contactless transaction. Samsung Pay currently does not support app-based internet purchases.
How do contactless payments work?
An RFID microchip, transponder, and antenna are embedded in contactless payment cards and approved mobile devices. The customer must be near to the vendor’s reader in order to make a purchase. Both Google Pay and Apple Pay do not handle or approve transactions. As an alternative, they tokenize the customer’s payment card and merely forward that data to the relevant credit card network.
Every time a card or other authorized device is used in a transaction, the microchips used in contactless payments produce fresh verification values. This method of data transmission differs significantly from that of magnetic stripe cards. Each time a conventional magnetic card is swiped, the billing information of the client is sent to the card reader. That information might be sold on the dark web or intercepted and used by another individual. However, when a transaction is carried out wirelessly, the only data that can be intercepted is the special authentication number that proves the transaction actually took place.
Every time a chip card is used, a new code is created, making it very challenging for thieves to attempt to copy the card and make purchases. It is simply not possible to replicate the dynamic authentication technology in a way that would yield dynamic codes identical to those that would be returned by a legitimate chip card. Additionally, smartphones will include additional security measures that require the user to authenticate their identity using a method like FaceID before starting contactless payments.
Besides security, what other benefits do contactless payments offer?
Over 60% faster than cash purchases, contactless payments take between 30 and 50% less time than regular credit card payments. They are therefore suitable for low-value transactions and micropayments. It is common practice to use contactless payment methods at parking garage checkout stations, road toll booths, and turnstiles for public transportation to improve throughput. Even though the actual time saved per transaction might only be a few seconds, the minutes saved can add up and greatly lessen the amount of time consumers must wait in lines.
Nontraditional banking institutions and third-party payment processors like PayPal have started to experiment with methods to enhance frictionless checkout as the technology becomes more widely used. For instance, some payment service providers are looking into how GPS technology can be incorporated to assist mobile users in finding financial services, such as ATMs, or sign up for loyalty programs run through tailored geofenced campaigns.