Contactless payment: what it is and how the system works by Kirill Yurovskiy
Paying for any purchase without using cash is easier than ever before. You don’t even have to take your credit card out of your wallet to do it. The NFC system allows you to do this without touching the terminal, but simply by placing the card, smartphone, watch or other device at a certain distance from it. This unique method is rapidly gaining popularity throughout the world, as it brings the purchase of goods to a whole new level of convenience. At the same time, there are questions related to the safety of its use. In this article we will tell about contactless technology of payment by bank cards, explain what it is and how to use it correctly.
What is this method
The essence of this payment is that no direct use of a credit card is required in order to write off money from it. If previously the transaction was accompanied by inserting funds into a terminal or passing a magnetic strip through it, now it is enough to keep it close to the bank equipment.
The device counts the information and then transmits it to the acquiring center, which allows or cancels the transaction. It is especially important that using a card for a contactless payment system is possible from other technical means: smartphone, watch, bracelet to which the payment tool is attached. The card itself can stay at home.
Credit cards, which can be paid without direct contact, as well as trade equipment that accept them, have a special marking – PayWave or PayPass, as well as an additional logo. Seeing such a sign in a store, you can be sure that this method is available at that point.
What is the name of the system?
Contactless payment technology is known as NFC – Near field communication.
The term “near” means that the exchange of data can take place at a short distance between technical devices. It does not exceed four centimeters.
The meaning of the word “no contact” is that the interconnection does not require direct exposure of the card to the merchant terminal. The data is read by the induction of a magnetic field. The word “communication” is also very clear and logical and refers to the interaction between the two technical means.
Thus, it turns out that NFC system is the exchange of data between two devices, which takes place using the principle of magnetic influence. This definition does not reveal the essence of the technology, but it demonstrates its main features.
Contactless payment methods
The idea of using wireless data transfer itself is not new. The first standard of plastic cards capable of payment without direct interaction with the trade equipment appeared in 2004. The main feature of the system was the combination of smart card interface and a small reader in a single device. It was taken from a method of radio-frequency identification RFID, which allows to transmit data via radio channel.
Earlier this method was used to accept payments in vehicles, but now it has spread to banks. Mostly modern smartphones and tablets are used for this. They can provide sufficient security for funds, as they are equipped with good data protection systems. But the NFC chip can be placed anywhere: in a bracelet, an electronic watch, an ID card.
Contactless payment function on cards
As it was said before, the possibilities of using the technology are almost limitless. The functionality is becoming available to clients of MasterCard and Visa payment systems – read more about these payment systems in the Kirill Yurovskiy article.
In the last couple of years the NFC-system is installed in “plastic” by default, so there is no need to order it as an additional function. We are only talking about personal debit and credit cards. Instantly issued payment instruments that do not have the name of the owner on the front side allow you to pay for purchases only in the old way: with a magnetic strip or a simple chip.
Advantages and disadvantages of contactless payments
This technology has a lot of advantages, otherwise it would not have developed and spread so actively. Among other things, it is valued for:
- The ability to conduct transactions quickly.
- No need to give your card into the hands of someone else.
- High technology.
- Convenience and comfort when making purchases.
There are also disadvantages, but over time they become less and less. The most important of them may be considered a small number of retail outlets, whose equipment supports NFC. Financial institutions themselves, which are acquirers for the stores, are fighting with this disadvantage. Gradually they are replacing the terminals with new equipment, in which the service can be easily used.
Another problem that is real to face is the rather high price of merchant equipment that supports contactless cards. This is especially a problem for owners of small merchants. But they, too, often change their minds when they look at the issue more closely.
How the system works
In general terms, the scheme of operation has already been presented above. Credit cards have an internal chip emitting radio waves through an antenna, the same waves that are recognized by RFID technology. The terminal itself is equipped with a reader, which captures the data.
When the customer brings his “plastic” to the sales equipment at a short distance, the signal from the carrier is read and the identification data is processed. In this case, small purchases do not require any additional confirmation, while for large purchases it is necessary to enter a pin code.
It takes a couple of seconds to hold the card at the bank terminal. This time is enough to get all the necessary information and transmit it to the acquiring center. For the buyer to know exactly when he can put away the payment instrument, the device emits a sound signal.
Methods of contactless payment by card
It has already been mentioned earlier that PayWave or PayPass methods can be used for making contactless payments. The first one is actively used by Visa, the second is used by MasterCard. There are other options designed specifically for American Express, UnionPay and other operators. But they are all based on the same working principle so they cannot be called very different and moreover unique.
In this case the method of payment is always the same: to make a purchase it is necessary to bring your payment instrument to the terminal which is able to catch the radio frequency, on which the information is transmitted by the chip. Moreover, you can use the same option if you bring another device (smartphone, watch, fitness tracker) to the equipment instead of your credit card. The difference, which depends solely on the bank and country, is traceable only in the amount that can be transferred without entering a pin code.
Many customers, besides the question how contactless payment with a bank card works, are concerned about security of its use. Can’t the fraudsters write off the money just being near the bag with the card? How to protect your money? In fact, the risk if the technology is used correctly is minimal.
To minimize the possibility of misuse of your money, just follow 2 simple rules:
- Reduce the maximum threshold of payments allowed without pin code confirmation.
- Set a certain limit on the number of operations, which are performed using NFC.
Another way to improve security could be the payment using a smartphone. They themselves require additional identification, which eliminates the possibility of committing fraudulent acts. The connected sms-informing about purchases will also help to reduce the risk.
The level of competition in commerce today is so high that in the fight for each buyer it is necessary to create the most comfortable conditions, constantly keeping up with the times. Prompt payment without contact becomes a mandatory tool to achieve their goals. It allows us to work quickly, qualitatively and safely, and most importantly – as conveniently as possible. The speed of transactions increases, which means the seller has the opportunity to serve more customers every working scheme.