The Evolution, Benefits, and Real-World Uses of Contactless Payments

Julia Kagan is a seasoned financial and consumer journalist, formerly a senior editor specializing in personal finance at Investopedia.

Understanding Contactless Payments

Contactless payment is a cutting-edge and secure way for consumers to buy goods or services using debit cards, credit cards, smartcards, or other payment devices powered by radio frequency identification (RFID) and near-field communication (NFC) technologies.

This payment method involves tapping your payment device close to a point-of-sale terminal enabled with contactless technology. Commonly called tap-and-go or simply tap, this approach is gaining traction among banks and retailers worldwide.

Key Insights

• Contactless payments utilize RFID and NFC tech for secure transactions via cards or other payment devices.
• Users complete purchases by tapping their card or device near a compatible terminal.
• This method speeds up checkout by removing the need for PIN entry.
• While widely adopted in countries like Australia, Canada, South Korea, and the UK, the US market is still gradually embracing this technology.

How Does Contactless Payment Work?

Contactless payments allow shoppers to buy items without swiping cards or entering PINs, using chip-enabled cards or compatible devices. Terminals supporting this feature display a unique symbol resembling a sideways Wi-Fi icon.

When prompted to pay, customers hold their card or device near the symbol. The terminal wirelessly communicates with the card’s chip, sending encrypted data to the bank for authorization. A confirmation beep, light, or checkmark signals approval, completing the transaction.

Modern devices like smartphones, smartwatches, and fitness trackers can also store payment info via apps such as Apple Pay, enabling seamless tap-to-pay experiences.

Transaction limits for contactless payments vary by country and financial institution. Some retailers impose lower caps to reduce fraud risk, while larger purchases might require signatures for validation.

Pros and Cons of Contactless Payments

Traditional magnetic stripe cards are vulnerable to cloning and fraud. Contactless payments significantly reduce these risks by encrypting data transmitted during transactions, making interception and duplication far more difficult.

Although criminals can attempt to skim card data through close-range devices, the short reading distance and encrypted data make it nearly impossible to replicate contactless cards. Chip-and-PIN cards remain the gold standard for security, as they require unique data not stored on the card itself.

Consumers can dispute unauthorized charges and obtain replacement cards. Protective wallets and sleeves that block RFID signals add extra security. Since 2015, merchants and card issuers without chip technology face liability for fraud, encouraging widespread adoption.

The Journey of Contactless Payments

Contactless payment technology has been evolving since the 1990s, initially limited to a few merchants but now embraced globally by banks, retailers, and credit card companies.

Seoul’s transit system pioneered contactless payments in 1995 with the UPass card, streamlining bus fare payments. Mobil’s Speedpass, launched in 1997, allowed customers to pay for fuel quickly using a special fob.

The UK boosted contactless adoption with the Oyster Card for public transit, later expanding to accept contactless credit and debit cards starting in 2014.

In contrast, the US has been slower to adopt contactless methods. According to a 2018 A.T. Kearney report, about 20% of transactions in countries like Australia, Canada, South Korea, and the UK use contactless payments. Meanwhile, Americans still rely heavily on cash, with nearly 50 billion cash transactions annually, representing 26% of all consumer payments. The fragmented US market presents challenges for widespread contactless adoption.

Pro Tip

Protect your digital wallet like you would physical cash—enable device security features and set up fraud alerts on your credit cards.

Popular Contactless Payment Platforms

Beyond banks, tech giants have developed their own contactless payment solutions. Google and Android introduced NFC-based payment systems in 2011, while Apple launched Apple Pay in 2014, revolutionizing digital wallets.

Apple Pay

Pre-installed on most Apple devices, Apple Wallet lets users securely store credit and debit cards on iPhones and Apple Watches. It supports in-store, online, and in-app purchases, and even allows peer-to-peer money transfers via iMessage.

Google Pay

Although Google Pay is no longer available in the US, it remains active in select countries. It enables secure payments at participating retailers by sharing encrypted card information instead of actual card numbers, and supports sending money using email or phone contacts.

Samsung Pay

Samsung’s digital wallet stores payment card data for tap-to-pay transactions at merchants. Users can also earn cashback and rewards. Card details can be added by photographing the card or scanning barcodes, simplifying setup and checkout.

Is Contactless Payment Secure?

Contactless payments are among the safest payment methods available. Each transaction generates a unique encrypted code, making it extremely difficult for hackers to replicate. However, since PINs are not required, lost or stolen contactless cards can be vulnerable to unauthorized use.

How Many Contactless Transactions Are Allowed Daily?

There is no set limit on the number of contactless payments you can make in a day. Occasionally, providers may prompt you to enter your PIN to verify identity and prevent fraudulent activity.

What If the Terminal Doesn’t Support Contactless?

Your contactless card still functions as a traditional chip or swipe card. Simply insert or swipe it and enter your PIN to complete the transaction.

Final Thoughts

Contactless payments eliminate the need for cash or physical card swipes, enabling quick, hygienic transactions by tapping your card or smartphone on a compatible reader. Most modern smartphones are equipped with this technology, linking directly to your bank account for instant purchase approval.

Using RFID or NFC technology, contactless payments offer enhanced security compared to magnetic stripe cards, which are more susceptible to cloning.

Look for the contactless symbol—four curved lines—on payment terminals to know where you can tap and pay effortlessly.

Discover engaging topics and analytical content in Banking as of 26-06-2019. The article titled " The Evolution, Benefits, and Real-World Uses of Contactless Payments " provides new insights and practical guidance in the Banking field. Each topic is meticulously analyzed to deliver actionable information to readers.

The topic " The Evolution, Benefits, and Real-World Uses of Contactless Payments " helps you make smarter decisions within the Banking category. All topics on our website are unique and offer valuable content for our audience.