DEFINITION of Contactless Payment

Contactless payment is a secure method for consumers to purchase products or services via debit, credit or smartcards (also known as chip cards), by using RFID technology or near-field communication (NFC). To make a contactless payment, a person simply needs to tap their card near a point-of-sale terminal – leading to the nickname “tap-and-go”. Since contactless payments do not require a signature or a PIN, transactions sizes on cards are limited. The allowable amount for a contactless transaction varies by country and by bank. Examples of non-credit or debit card contactless payments include transit cards, Apple Pay, Android Pay and Google Wallet.

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BREAKING DOWN Contactless Payment

Contactless payment has become a popular payment method for smaller purchases. Most banks offer contactless payment cards and the new payment terminals are equipped for tap. Although there are still smaller shops that do not offer tap capabilities, many national chains have moved to tap capable payment terminals. The main advantage of contactless payment is that it speeds up transactions by taking out the step where a customer must enter his or her PIN. Tap customers speed up the line, so to speak, so that both the merchant and the customer see a time savings when contactless payment is used. Another benefit of contactless payment cards - at least for the banks and credit card issuers - is that consumers who tap tend to use their cards more frequently.  

Security Measures for Contactless Payment Transactions

Even with the convenience of contactless payment, many consumers are worried about the security of the cards. There have been stories in the media about criminals skimming card data using smartphones to read the tap cards in consumers' wallets. For this reason, cardholders have zero liability if their tap card is used without their authorization. Moreover, the range at which a card can be read is very short and, even if the criminal is close enough to grab data and do a transaction, he cannot create a copy of the card. This is not true of magnetic strip cards. That said, the chip and pin card is still the most secure, as they can't be duplicated and they require data (your pin) that is not contained anywhere on the card.

If the skimmer gets your card data, his next step is to find a website that doesn't require the three digit code printed on the back of the card and run transactions under the credit limit. If a criminal steals your physical card, he'll likely head to the nearest store to buy $20 gift cards using tap. While annoying, you can dispute the transactions and get a new card issued. There are also protective card sleeves and wallets that block readers from getting to your card data in the first place.