What Is Contactless Payment and How Does it Work?

In 2020, contactless payment gained traction in the United States as the COVID-19 pandemic ensued and once-eager consumers grew wary about shopping in public spaces. As national health precautions heightened and disinfectants flew off the store shelves, American consumers migrated to contactless payment methods in an effort to slow the spread of the virus.

Between March 2019 and June 2020, the use of contactless payments rose 150 percent. Although Americans are now feeling more comfortable with tap-and-go payment than they were even two years ago, there’s still a long way to go to catch up to the implementation of contactless payment around the world. 

After all, contactless payments are a relatively recent technology. In 2004, the U.S. launched its very first contactless credit cards. In the years that followed, Visa, American Express, and Mastercard all launched their own contactless payment systems. In 2011, Google Wallet and Android Pay took things one step further by launching mobile payment that didn’t require cards at all. Apple announced Apple Pay three years later.

To understand its recent boom in popularity, let’s take a look at what contactless payment is and how it works. 


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What Is Contactless Payment?

Contactless payment is a cash-free, tap-and-go payment method. Consumers simply tap their card at checkout to complete the transaction based on proximity to the point-of-sale terminal. No swipe or card insertion is needed. 

This “wave and pay” payment method has garnered interest in recent years. From the consumer’s point of view, contactless payment offers an efficient, flexible way to pay: Don’t waste time entering your pin; don’t bother carrying around access cash. Though consumers may have been skeptical about the security of contactless payment five or 10 years ago, understanding the technology behind contactless payment has helped consumers develop trust over time. 

Businesses also reap the benefits, enjoying operational efficiency without added costs. Contactless payment increases customer satisfaction while protecting businesses against fraudulent charges. 

Contactless payment is most popular in Australia, Canada, South Korea, and the United Kingdom, but is also taking off across other parts of the world, including the U.S. As contactless payment gains popularity in other countries, and as international travel resumes post-vaccine, it’s increasingly becoming a necessity rather than a luxury to partake in contactless payment. 


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How Does Contactless Payment Work?

Contactless payment relies on both radio frequency identification (RFID) and near-field communication (NFC). RFID consists of tags and readers that passively identify an object (your credit card) using radio waves. NFC is a short-range wireless technology that connects smartphones, tablets, wearables (e.g., Apple Watch), and payment cards. NFC technology is most commonly used for bill pay, coupon downloads, and exchanges in business cards. 

As it grows in popularity, you will likely see contactless payment being offered by more and more vendors. Stores, restaurants, bars, and even vending machines have already begun to integrate the technology here in the U.S. Cities abroad are expanding the scope; in London, for example, passengers can use contactless payment to purchase bus and metro tickets

Getting started with contactless is easy to do. The process can be broken down into five simple steps:

  • Step 1: The merchant prompts a customer to make a payment. 
  • Step 2: The customer hovers their card over the contactless payment system.
  • Step 3: Information transmits via microchip to the customer’s bank.
  • Step 4: The system accepts (or denies) the transmission.
  • Step 5: Acceptance confirmation is usually signaled with a green light, checkmark, or noise. 

Contactless chip cards today are more secure than traditional payment methods. These cards contain a one-time code that gets transmitted each time its user makes a purchase. The code is nearly impossible to replicate, and hackers are not able to steal data using a skimming device the same way they can with a magnetic stripe. 

The primary safety concern for users is that their card might be lost or stolen because contactless payment does not require the user to enter a PIN. Most banks implement robust fraud protection programs to guard against this possibility. For added protection, some cards place a conservative limit (e.g., $30) on individual purchases using contactless payment. Before you opt for contactless payment, learn about your bank’s fraud protection program. 

As you optimize the way you make in-person purchases, consider better ways of managing your money behind the scenes, too. Mobile banking offers you flexibility, accountability, and the know-how to take charge of your financial success. Manage your bills and transfers, keep track of your spending, and invest in your future. To learn more about the ways mobile banking can help you create a budget, check out FSCB’s blog posts.

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