NFC and Contactless Payments Explained

Last Updated on July 15, 2024 by Darren Belgrave

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.

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?

In short, the answer is 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, some financial institutions don't offer NFC-enabled cards or mobile wallet options such as Apple pay or Google Pay yet. Debit cards that have credit rails (meaning they have the Mastercard or Visa symbol on the card) can be used similarly to credit cards for digital wallet payments, therefore, can be used to tap to pay; however, if you process a physical debit card, it will be processed as a normal debit card and can require PIN.

Credit Cards

Credit cards such as a Visa card offer more options for customers to make contactless credit card 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 contactless payment-enabled credit card, mobile wallet, or wearable device 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.

Tap to Pay on iPhone

Tap to Pay on iPhone enables businesses to seamlessly and securely accept Apple Pay, contactless credit and debit cards, and other digital wallets simply by using an iPhone and a partner-enabled iOS payment app.

Tap to Pay on iPhone.

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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.

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.

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.

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.

FAQ.

is NFC secure?

Making a payment through your mobile device for the first time can be intimidating. However not to worry, Near Field Communication (NFC) is a secure technology, especially when used properly. Here are a few important points regarding NFC Security.

1. Short Range: NFC operates within a very short range (usually about 4 cm or 1.6 inches), which makes it difficult for unauthorized users to intercept the communication.

2. Encryption: Many NFC-enabled devices and applications use encryption to protect the data being transmitted. This adds an additional layer of security against eavesdropping and tampering.

3. Authentication: Some NFC applications, such as mobile payments, require user authentication (e.g., entering a PIN, using fingerprint recognition) before a transaction is completed. This helps ensure that only authorized users can make transactions.

4. Secure Elements: NFC devices often include a secure element (a dedicated chip) that stores sensitive data and performs cryptographic operations. This enhances the security of transactions and data storage.

5. Data Integrity: NFC protocols include mechanisms to ensure the integrity of the data being transmitted, reducing the risk of data corruption or alteration during communication.

While NFC is generally secure, it's important to use it with trusted devices and applications, keep your device's software up to date, and be cautious of potential threats, such as NFC skimming or malicious tags. Taking these precautions will help you enjoy the convenience of NFC while minimizing security risks.

What is the difference between NFC and RFID?

NFC (Near Field Communication) and RFID (Radio Frequency Identification) are both wireless communication technologies used for data exchange, but they have some key differences:

1. Range: The first big difference between NFC and RFID is range. Simply put NFC operates at a very short range, typically up to 4 cm (1.6 inches). RFID however can function at various ranges depending on the type of system implemented.

2. Communication: NFC supports two-way communication, allowing both devices to send and receive information. RFID is typically used for one-way communication. This technology is best used for tracking and identification, like inventory management and asset tracking.

3. Applications: Despite the similarities between these two technologies, the way they are applied is quite different. NFC is commonly used in contactless payment systems (like Apple Pay and Google Wallet), electronic ticketing, access control, and data sharing between devices. RFID on the other hand is widely used for inventory management, supply chain logistics, pet microchipping, toll collection, and access control in various industries.

In summary, while NFC and RFID share some underlying technology, they are used for different purposes and have distinct characteristics. NFC is ideal for secure, short-range communication and interactive applications, whereas RFID is better suited for longer-range tracking and identification tasks.