a person making a contactless payment with a credit card
The Helcim Blog / Merchant Guides

Monetary Magic: How Contactless Credit Cards Work

Ryleigh Stangness | February 4, 2021

“Near Field Communication, or NFC for short is the technology making it faster and easier for you to accept payments.”

6 min read

Beep! You tap your Mastercard for the third time today. You didn’t even think about it. Or at least if you did, it’s only because it is the third time and you might wanna cut back on the coffee. An elderly gentleman at the till next to you pulls some coins out of his pocket and slaps them down on the counter. You try and think back to the last time you paid with cash—you don’t remember. You do remember the days before tap though, and how some of your favorite retailers were a little slow to catch on.

Most of your transactions now? Contactless. You do your big spending online and just tap tap away at anything under a hundred bucks in person. Easy, breezy, beautiful, credit card. But how does it all work?

Contactless payments: Hotter than sliced bread

Contactless payments are all the rage in the payment world. A mid-pandemic 2020 survey completed by Entrust Datacard highlighted a staggering percentage of nearly 75% of US cardholders who embodied that sentiment by opting for contactless payment methods whenever possible.

What makes contactless payments so enticing for merchants and cardholders alike? One reason could be a trending shift towards everything, “contactless,” an emerging theme due to Covid-19, and a hyper-focus on sanitation and reducing the spread.

Aside from eliminating the physical point of contact between a cardholder and a terminal, contactless payments have many enticing benefits.

The key benefits of contactless payments include:

  • Mobile
  • Quicker and easier than Magstripe and EMV (Fewer lineups at the register)
  • Secure (authenticated payment and encrypted data)
  • Convenient (mobile contactless technology means you don’t need to remember your wallet)
  • Covid-safe

What is a “contactless” payment?

Contactless payment is exactly what it sounds like.

It is a method of making a point of sale (POS) purchase without ever physically touching a payment method to the POS terminal. Some of the most common examples you may already be using include using your bank card’s “tap” feature or paying with Apple or Google Pay using your mobile phone or watch.

How does contactless payment technology work?

Near Field Communication

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

“Do you take contactless?”

“Can I tap?”

These are phrases with which we’ve all become familiar because of Near Field Communication technology.

But what is it exactly?

In a nutshell, it’s 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.

Radio-Frequency Identification (RFID)

Radio frequency generated technology named radio frequency identification (RFID) powers our contactless payments through the NFC process. It’s everywhere. For starters, your credit card is actually emitting radio frequency signals to tell a card terminal that it’s there.

There is RFID in your tap-enabled credit and debit cards, barcode scanners, your pet’s microchip, and many other uses in a plethora of industries and operations.

Picture a powerful signal emitting RFID, or invisible radio frequencies, from your card, phone, or watch and traveling the tiny ocean of about 100 millimetres to the merchant’s card reader and back to your phone- That is NFC in action. All just as fast as it takes to tap your phone to a card reader and hear that satisfying ding of approval.

Is contactless technology a secure payment method?

Despite being unnervingly easy to use contactless payments, they are a secure and authenticated payment method. Considering how widely accepted magnetic stripes were despite their susceptibility to fraud and its gradual phasing out, it’s understandable that cardholders want to do their due diligence in ensuring their transactions are secure.

So what makes contactless payments safe?

Data encryption and tokenization: One of the main benefits of contactless payment technology is its reputation for being stubbornly obsolete for hackers to obtain your data since it is encrypted and tokenized. This encrypted message is unique to your card and unique to each transaction, so only your bank can decode it. It is usually unusable even if they do since your card’s encrypted data is constantly being rejigged into new combinations.

These transmissions are so secure that you can be more worried about pickpockets swiping your waller or stealing your information over unsecured WiFi as opposed to stealing your credit card number over the airwaves.

Transaction limits: most contactless payment transactions can now approve up to a $250 purchase limit (increased from $100) depending on the cardholder’s transaction limit. This limit helps protect cardholders and merchants from hefty fraudulent transactions while providing flexibility and convenience for those times we can’t be bothered with an EMV chip and PIN (it always feels so tedious, doesn’t it?)

Cardholder verification: as an added verification step, your phone or watch will prompt you for facial, thumbprint, or passcode verification before the transaction is approved.

Proximity requirement: by near-field communication, we mean really near. Like, four centimeters near. This is why you don’t walk into a Best Buy and accidentally buy ten or twelve TVs. This distance requirement ensures that you are in possession of the card or device.

Fraud protection: if that isn’t enough to put you at ease, cardholders can have peace of mind knowing that they are not liable for fraudulent transactions, while merchant terminals will not charge cards without first prompting their POS systems.

Practice safe security habits: as a merchant, there are specific steps you can take to protect yourself from fraudulent transactions when accepting contactless payments, card-present, and card-not-present payments.

However, due to the low transaction limit, data encryption and frequent changes, and the proximity to payment terminal requirements, both merchants and cardholders are at low risk for contactless payment fraud.

How to use Contactless technology to make a contactless payment

If you’re new to contactless payments, it’s easy to get started. Most phones these days are set up to accept contactless payments and systems, including:

  • Apple and Google Pay
  • Mobile phone integration
  • Mobile brands such as Samsung have their own contactless payment options

If you’re wondering how to set up your business to take a contactless transaction, there are just a few things you’ll need to get started:

Step 1:

When setting up your POS system, ensure your card reader is NFC compatible.

Step 2:

Once set up, you can start accepting contactless payments right away. All a customer has to do is hover their phone, card, or waller next to the card reader and verify the purchase when prompted.

Step 3:

Wait for the sweet sound of approval and your terminal to record the transaction. You’re done! Record the payment in your POS system and print/email your customer their receipt! Easy, contactless, and fast.

Need a new POS system and not sure where to start? Read our guide to setting up mobile payments.

Are contactless payments right for your business?

Now that we’ve explained what contactless payments are and how they can benefit your business while maintaining the security of your transactions, you might be wondering if contactless payments systems make sense for your business. Among the benefits, we discussed how quick and easy contactless technology has become (even faster than EMV and swipe transactions), which would help free up your registers from long lines and breeze through the checkout process with your customer.

In addition, your customer will likely appreciate the flexibility of a contactless payment method in your efforts to keep your store, staff, and customers safe during the pandemic with hygienic measures in place.

Lastly, as more and more consumers opt for contactless payments, adopting this new and secure technology makes sense to keep up with consumer and business payment trends. Getting started is easy, and there are so many flexible POS system setups, including mobile tablets and phones compatible with your NFC card reader to get you set up to process contactless payments right away.

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