How contactless card transactions work


Contactless card transactions have quickly emerged as popular payment methods in recent years. Instead of swiping your card or using a chip, you can simply scan the card or use a mobile device without touching anything. This technology has many advantages over other payment methods.

Estimated reading time: 5 minutes

Let’s take a closer look at how contactless card transactions work.

The Technology Behind Contactless Card Transactions

Contactless payments rely on either radio frequency identification (RFID) or near-field communication (NFC) technology. RFID deals with physical card payments, while NFC allows you to make payments from a card on your smartphone.

As long as traditional credit and debit cards are still around, RFID will be the main technology for contactless payments. RFID includes small readers with antennas that emit radio waves and receive signals from a tag inside the card reader. The antennas pick up the tag’s signal when they get close to the card reader, allowing the transaction to take place.

NFC leads to the same outcome, but it uses a different approach. NFC utilizes short-range wireless connectivity that enables two devices to share information over small distances. In this scenario, the two devices are your smartphone and the payment terminal. You simply have to open your card’s app and hover the screen over the terminal to complete the transaction.

You can also use NFC to make contactless payments if you have a smartwatch, wristband, ring, or fitness tracker. These devices can download apps like Google Pay with built-in NFC technology and communicate with payment terminals just like your smartphone can.

Whether you use a physical card or a mobile device, it generates a unique cryptographic code every time you make a purchase. The payment terminal then transfers that code to your card provider’s processing network. The provider checks for possible fraud and sends an approval message to the payment terminal in just a few seconds.

Advantages of Contactless Card Transactions

How contactless card transactions work

Contactless card transactions are changing the way that people make their daily purchases. Although some might prefer swiping the card or using a chip reader, taking the contactless approach has many advantages over these traditional payment methods.

1. Speed

The most apparent advantage is speed. Contactless transactions can be up to ten times faster than other payment methods. Instead of waiting for the payment terminal to process your card’s information after swiping or inserting the chip, you only have to hover your card over the terminal for an instant scan.

With contactless payments, you also don’t have to enter your card’s four-digit code. Each contactless purchase has a 100% unique encrypted code, so no further information is required. You just scan your card or phone and let the RFID or NFC technology do the rest.

2. Safety

Contactless card transactions bring a new level of safety to your daily purchases. Instead of touching a germ-ridden payment terminal and potentially contracting viruses and bacteria, you don’t have to touch anything. Everyone should still do their best to avoid transmitting illnesses in the wake of COVID-19.

It’s not a coincidence that contactless transactions got a big boost during the height of the pandemic. In 2020, almost eight in 10 people said they were using contactless payments, and 74% of people said they would keep using them.

3. Reliability

Contactless transactions put much less wear and tear on your credit cards. Swiping or using a chip will slowly cause the card to fade and discolor. After enough damage, the card no longer works, and you need to get a new one. Nobody wants to see the “card declined” message when trying to make a purchase.

There are no such issues with contactless transactions. Your cards will stay in good condition. They will also never malfunction when you’re standing at the payment terminal with a long line of customers behind you.

4. Overseas Travel

When traveling overseas — especially in Europe and Australia — most self-serve terminals you encounter only take chips or contactless credit cards. If you have an outdated card, you might not be able to make certain transactions. Contactless cards are quickly becoming the norm in other countries, so you need to have one if you’re making overseas travel plans.

5. Money Management

Contactless cards can help you with money management, especially if you use an app on your smartphone. Apps like Google Pay include budgeting features and monitor your spending habits, making it easier to identify reckless spending and helping your credit card provider identify fraudulent purchases more quickly.

Addressing Security Concerns

credit card scores

Critics of contactless card transactions have raised concerns about their security. The concerns seem valid on the surface because contactless payments are so easy and simple. One would think that a smart fraudster could find a way to beat the system, but contactless transactions are more secure than any other payment method.

The biggest concern about contactless transactions is that if someone steals your card, they don’t have to know your four-digit code to make purchases. To address this problem, most credit card companies have put a firm spending limit on contactless payments. American Express has a $200 limit in the U.S., for example.

Your card provider’s fraud protection policy also covers fraudulent charges, so there’s nothing to worry about if your card gets lost or stolen. Just follow the same protocol and deactivate the card as soon as possible.

Switch to Contactless Transactions Today

If you’re still swiping your cards or using chips, take this article as a sign. It’s time for you to switch to contactless transactions and make your purchases in a quicker and safer fashion. Talk to your credit card provider about getting a new card so you can start making contactless payments as soon as possible.

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