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NFC and Contactless Payments Explained

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Danny Randell | June 2, 2021

“Learn about NFC and contactless payments. Discover how this technology enables merchants to accept payments securely, and much more easily.”
4 min read
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    Last Updated on February 24, 2023 by Ryleigh Stangness

    Most transactions in the world today are contactless. People do their big spending online and just tap away at anything under a hundred bucks (in some cases more) in-person. Gas, groceries, snacks; quick purchases like these are all made easy thanks to credit cards and some built-in technology.

    But how does it all work?

    The answer is Near Field Communication, or NFC for short.

    Most people refer to NFC payments as "Tap and Pay," or simply "Tap," because of the tapping motion cardholders perform on a credit card terminal during a transaction.

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    What is Near Field Communication (NFC)?

    In a nutshell, NFC is a highly secure electronic transmission that allows funds to pass from your bank to a retailer in exchange for a product or service. And although most consumers don't see beyond the simple prompt and approval message, there's a lot going on behind the scenes enabling you to make that purchase through a POS system. With NFC, customers no longer need to enter their pin or provide a signature, but these transactions are generally considered more secure because they use the same security infrastructure that EMV (or chip & pin) employs.

    How Does NFC Work? Answer: Radio-Frequency Identification (RFID)

    For starters, your credit card is actually emitting radio frequency signals to tell a card terminal that it's there. Don't worry, when we say "near-field", we mean really near. Like, four centimetres near. Which is why you don't walk into a Best Buy and accidentally buy ten or twelve TVs.

    In addition to the distance requirement, these card signals also have to actually be activated by another chip (inside the card reader) and are encrypted before they pass through the air (this is so that your bank info isn't floating around unprotected).

    This encrypted message is unique to your card and unique to each transaction, so only your bank can decode it. These transmissions are actually so secure that you can be more worried about bad guys nabbing the cash out of your pocket or stealing your information over unsecured WiFi as opposed to stealing your credit card number over the airwaves.

    In an interview with creditcards.com, Jack Jania, VP of product management at CPI Card Group explained contactless transactions this way: "The bank decides, "˜This is one of my cards, and this is one of my clients' transactions.' It's a handshake between the point-of-sale terminal and the card issuer. All of this magic happens in literally 300 milliseconds."

    How to accept contactless payments

    It is becoming increasingly common for customers to pay with digital wallets and other payment methods, such as a contactless chip card.

    Debit cards

    Debit cards can still be used to make a contactless purchase with tap to pay, however, most financial institutions don't yet offer mobile wallet options such as Apple pay or Google Pay. Visa Debit cards can be used similarly to credit cards for digital wallet payments; however, if you process a physical card, it will be processed as a debit card.

    Credit Cards

    Credit cards such as a Visa card offer more options for customers to make contactless payments. Online banking makes it easy to load cards into mobile wallets or copy and paste credit card details into apps.

    This makes it easier than ever to tap to pay, whether through a tokenized card or through a mobile app which might allow customers to rack up and redeem rewards for certain businesses. In today's age, consumers use contactless technology to pay for everything from public transit fare to lunch. A contactless enabled payment terminal is all a business needs to accept contactless payments. A cashier would run a transaction through the card reader as usual, and the customer can bring their google or apple watch, phone, or card to the terminal to pay. After a few seconds, the contactless symbol will appear, and the terminal will process the tokenized payment information and send it through to the right banks and card networks to process the transaction.

    3 Reasons Why Tap & Pay is Awesome

    With mobile payments growing at 40% per year, there are many benefits to accepting Tap and Pay transactions:

    1. Faster Transactions

    Compared to payments made with cash or chip and PIN cards, payments made using tap are significantly faster because you don't have to wait for a customer to key in their PIN or search for cash. This helps customers complete their transactions quickly and allows you to help the next customer faster.

    nfc tap to pay

    2. Acceptance of "Wallet-less" Customers

    Many customers are now adding their debit and credit card information to their mobile devices using Apple Pay, Google Pay, Samsung Pay, and other "alternative" payment methods. To be able to accept these customers payments you need to have a payment terminal that accepts tap. nfc tap to pay

    3. Secure Transactions

    NFC technology ensures that tap and pay transactions are secure. Both Visa and Mastercard require the customer to hold the card within 4 cm of the card reader for the transaction to go through. The transactions also include a unique security code for each transaction to protect against fraud. Finally, cardholders also have protection for their purchases from the card providers.

    nfc tap to pay

    Final Thoughts

    NFC is making our lives easier every day through a range of payment methods, including wearable payments technology. In addition, radio frequency technology helps facilitate secure transactions, so you don't need to worry about compromising on security just to tap your credit card.

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