What Are Contactless Payments? A Guide to Convenient and Secure Transactions

If there’s one thing credit companies are great at, it’s making it easier for you to spend money. Whenever I tap my credit card to make a payment at the grocery store, all I think about is how simple that was, not the hundreds of dollars I just dropped on weekly necessities — except for that Milky Way candy bar.

Tapping your credit card to pay is a form of contactless payment, which means you don’t have to insert your card or enter a personal identification number (PIN). 

Since the pandemic, more businesses have transitioned to contactless payments, mostly for security and ease, but also a little for hygiene. In this article, I’ll explain the technology behind contactless payments and why they’re becoming the standard for transactions around the globe.

In technical terms, contactless payment involves holding a credit card or mobile device close to a contactless-enabled device when making a transaction.

Near-field communication (NFC) and Radio Frequency Identification (RFID) technology allow the terminal to read your credit card information when your card is close by. 

Not that you should, but imagine whispering your credit card number into a friend’s ear. If you whisper from too far away, your friend won’t hear the number.

RFID and NFC technology allow your credit card to “whisper” your credit card number to a terminal.

Contactless payments can be made wherever a contactless symbol (which looks like a sideways wifi symbol) appears, including retail shops, vending machines, public transport systems, and other merchant locations.

Credit Cards vs. Mobile Wallets

Mobile wallets and credit cards use similar technology, but in different ways, as I’ll cover below. I’ll also dive into a little bit of the history of the technology — did you know it was originally designed to accept bus fares in South Korea? I didn’t think so.

Credit Cards

You can pay with a contactless credit card wherever you see a symbol on the terminal. You simply place your card near it and wait for an indication (typically a beep or a green light).

The whole process takes seconds, and you shouldn’t have to enter your PIN.

A contactless credit card provides extra security and convenience because it generates a unique code for every payment you make. That means a much lower chance of fraud than when you swipe with a magnetic stripe. 

Encryption and tokenization in contactless transactions protect your information from being intercepted. This is a fancy way of saying that you won’t fall victim to any careless whispers.

Mobile Wallets

Mobile wallets work in a similar fashion. The NFC technology allows you to make contactless payments from your smartphone or wearable device. The first time I paid for gas using my Apple Watch, I definitely felt like I was driving away without paying. But it has since become second nature.

The first step to using a mobile wallet is to load your credit card information by scanning your card or entering details manually. After your card has been added and verified, you can use your mobile device by holding it near a contactless terminal.

And I recommend learning how to get to your mobile wallet quickly and practicing. I have taken more than a few screenshots on my phone while trying to access my mobile wallet. 

Mobile wallets provide features beyond contactless payments. It may add security layers, including biometric fingerprint or facial recognition authentication. They can also store multiple credit cards, loyalty programs, and even transit passes in one place for convenient use.

The Technology Behind the Transaction

If you’re like me, the more complex a technology, the less you think about it, and RFID and NFC definitely fall into that category.

RFID uses electromagnetic fields to read the information on your credit card. NFC is a type of RFID technology that functions in a much shorter range, mainly at a distance of a few centimeters. That shorter range is important for credit card transactions because it makes stealing your information nearly impossible.

Near-field communication (NFC) is a type of Radio Frequency Identification (RFID) technology that only transmits information a few centimeters.

Contactless payment communication protocols are sophisticated and secure, providing plenty of peace of mind. All of this tech ensures a fast transaction that I can forget about before I get my receipt. 

More Built-In Security

Other than the nuts and bolts, contactless payments include other digital provisions to protect your payment information. In addition to transmitting your credit card information a minuscule distance to a terminal, that information is encrypted.

That means even if unauthorized parties steal it, they can’t understand it. This would be like whispering something into your friend’s ear in a secret language that only the two of you understand.

Mobile wallets may even use biometric authentication, typically your face or your fingerprint, to confirm your identity before a transaction takes place. This adds another layer of security because only you can authorize a transaction with your card. 

If your card has a symbol with four curved lines on the front, you can use it for contactless payments. It is officially called the EMVCo Contactless Indicator, but I just call it a sideways wifi symbol.

To pay, you simply hold your card over the matching symbol on the payment terminal, wait for a chime, and the payment is complete.

If your card doesn’t have the symbol, ask your issuer for a contactless card. Many banks and financial institutions now offer contactless-enabled cards, so I recommend upgrading if you can. 

Regardless of whether your card is contactless, your issuer may offer a mobile wallet app that allows you to use your phone for contactless transactions. You can also use any of the popular mobile wallet apps, such as Google Pay, Apple Pay, or Samsung Pay.

Contactless payments have such a wide range of benefits that it makes sense to boil them down and put them in one place. Here is a list of the biggest advantages I think contactless payments provide: 

• Quick Transactions: Customers spend less time waiting in checkout lines, which boosts efficiency for merchants, too.
• Ease of Use: With contactless payments, people of different ages and abilities may find it easy to use because of the friendliness in easing the transaction process.
• Encryption: Coupled with other security measures, this reduces its risk of fraud, ensuring consumer trust in the payment system.
• Business Efficiency: Merchants can improve operational efficiency and customer satisfaction, leading to higher sales and better resource allocation.
• Cleanliness: Minimizes the risk of spreading germs, promoting a healthier environment for customers and staff, which is especially important in high-traffic areas.
• Reduced Wear and Tear: This increases the card and device lifetime,  reducing the replacement cost.
• Compatibility with Multiple Devices: This flexibility increases convenience by allowing users to go for the payment mode that serves them best.
• International Acceptance: Travelers can use their money easily in another country without the inconvenience of handling or exchanging cash. 
• Environmental Impact: Reducing paper use and decreasing dependency on cash paper lead to greener ecosystems.
• Increased Spending Efficiency: Could cause an increase in overall sales for the merchant and benefit business growth. 

Many of these benefits make contactless payments valuable for both customers and merchants. They enhance speed, security, convenience, and could be the future of everyday transactions.

RFID technology was actually designed to make contactless payments possible in the early 1990s. This was even before making payments over the internet was commonplace. Since then, RFID has found many applications in payments, tracking, and security. 

In 1995, the Seoul Bus Transportation Association in Seoul, South Korea, started using RFID technology to enable contactless payments and decrease the wait times for riders.

The first use of an RFID-based system for contactless payments in public transport fare collection was in 1995 in Seoul, South Korea, with the Seoul Bus Transportation Association. The experiment proved that contactless payments could decrease wait times.

Early Adoption

The next decade saw more strides in contactless payment technology. Mastercard developed PayPass in 2003, a pioneer mainstream credit card contactless payment system. Visa developed Visa Contactless, initially known as Visa payWave, in 2004. 

These technologies from the industry’s biggest players let customers tap their contactless cards on marked terminals to make rapid and secure payments. These transactions were so quick and easy that consumers instantly loved them, particularly in places with heavy traffic, such as retail outlets and public transport.

The Rise of Mobile Wallets

Contactless payments have exploded in popularity as all of us started walking around with smartphones in our pockets. Google Wallet launched in 2011 for contactless payments and started the trend of storing credit card information in smartphones. 

Apple joined in with Apple Pay in 2014, which integrated fingerprint (and now facial) scans for extra security and has become one of the most popular options on the market. In 2015, Samsung followed with Samsung Pay, which is now Samsung Wallet, to provide a digital payment option for people around the world who own Samsung devices.

Global Expansion and the Pandemic Boom

Contactless payment is now a worldwide phenomenon, with wide acceptance in Europe, Asia, and North America, thanks to a push from governments and financial institutions. 

Contactless payments exploded in popularity during the COVID-19 pandemic when people were wary of touching point-of-sale terminals.

In 2020, contactless payment adoption was a matter of public health as we all scrambled to not touch anything that could be contaminated with COVID-19. That demand sparked a rapid increase in the technology, and it looks like it’s here to stay.

Today, contactless payments are the norm for modern commerce, a way to ensure frictionless, secure, and clean transactions. 

As is the case with most tech, contactless payments will continue to develop — until something even better comes along. For now, broad worldwide adoption and new regulations are framing it as a solution that will be with us for a while.

Emerging Technologies

The latest wave of contactless payment innovation involved mobiles and wearables. Most modern smartphones have been built with NFC technology that can store payment methods, loyalty programs, and even transit passes.

Customers can manage their finances and daily activities using only one device. Wearable technology, such as smartwatches and fitness trackers, also plays a significant role in adopting contactless payment.

In the future, retailers could improve experiences by allowing robots to serve (and take contactless payments from) customers.

On the more distant horizon, contactless payment will likely integrate with even more devices — think robots and AI-powered vendors. For example, retail and hospitality robots could accept payments directly from customers, which could be wonderful or dreadful depending on how much you enjoy interacting with people. 

But there’s one thing I’m sure of: As this technology develops, paying for a transaction with a credit card will be almost as easy as breathing. 

Global Adoption Trends

As I briefly discussed earlier, contactless payments have seen diversified adoption rates: Europe has taken the lead, and more than 80% of card transactions in the U.K. are now contactless. 

High levels of adoption are also being reported in countries in Asia-Pacific, such as Australia and Singapore, where their populations are tech-savvy and policies support emerging payment technologies. 

More than 89% of transactions in the U.K. are contactless and implementation is widely expanding in both Africa and Latin America.

Contactless payments are also becoming even more common across North America, with banks and retailers upgrading their systems. Mobile platforms are growing, and smartphone use is increasing in places such as Africa and Latin America, where the technology is now being widely implemented. 

Regulatory Landscape

On the political front, contactless payment legislation aims to guarantee consumer security and protection. In the European Union, the Payment Services Directive 2, enforces strong customer authentication protocols. 

It includes multi-factor authentication for electronic payments, including contactless transactions over a certain price. The regulation seeks to curb fraud and boost security by adding steps to verify your identity when you make expensive — or a lot of inexpensive — purchases. 

The United States rolled out the Payment Card Industry Data Security Standard. It regulates payment data, including contactless transactions. It is important that businesses comply with the PCI Data Security Standard because it keeps consumer data safe and makes people confident when they shop.

With contactless payment adoption rising, plenty of new issues could develop. Emerging risks, technologies, and customer demands may lead to more regulations and security. 

As we all know, governments are slow to make changes, but with contactless payments here to stay, they may need to move faster to keep people and businesses safe.

Contactless payments may be the most convenient and secure way to pay with a credit card — and card issuers like it that way. You don’t even need to know how the sophisticated RFID and NFC technologies work to enjoy paying with a tap. 

As regulations take shape and innovation continues, who knows what the future holds for the payments industry. All I know is that one day when I tell my grandchildren about PINs and swipes, they might not believe me.