What are contactless payments and how do they work?
FinTech Tips / 03.06.2020
Research indicates that since the onset of contactless payments, billions of transactions have been made with this new method across Europe.
If you own a contactless debit or credit card or device and you’d like to find out how they work, keep reading below:
As the name implies, they refer to a method of payment where a contactless debit or credit card bearing the contactless sign is hovered over or tapped on a POS terminal which reads the relevant card, processes the information in it and enables the payment to be carried out.
The technology used to make these types of payments is either Near-Field Communication (NFC) or Radio Frequency Identification (RFID). Through this type of technology, an individual simply needs to hover their card between 2 and 10 cm above the card reader, which recognises the details and allows for the payment to go through.
But it’s not only cards that can be used to make contactless payments, certain phones and smart accessories allow for this option, too.
How to make contactless payments
With rapid technological advances in today’s society, we are faced with increasing convenience in almost all walks of life.
Payments are definitely not excluded from these advances.
Meanwhile, contactless payments are viewed as the future of payments and there are several ways in which you can make contactless payments.
They include the following:
- Debit and credit cards: all you need to do is to ensure that your card has the universal contactless sign and that the merchant who is accepting your card works with a card machine that accepts contactless payments. You then either tap the card on the payment terminal or hover the card above it. And voila! The payment has been processed!
- Smartphones: smartphones are another method of making contactless payments. In fact, with Apple Pay and Google Pay, all you need to do is download the free app, link your card’s account to your Apple or Google account, and you simply need to hold your phone near the card terminal.
- Smartwatches or fitness tracking bracelets and bands: these devices are becoming increasingly popular and are capable of doing a lot more than just showing you the time or letting you view your daily fitness achievements. You can take payments to the next level with these devices by linking your card to them and simply tapping them on the relevant card machine. The funds will be deducted from your account, transferred to the merchant, and your purchase will be complete. With this option, there’s no need to carry cards with you and you can make purchases on the go without worrying about the safety of your card or associated fraud.
- Key fobs: these items use radio waves to communicate with the card reader, just like RFID technology used to tap or hover cards above a credit/debit card machine. They have a type of electronic barcode which serves as a method of identification. Now, with key fobs, your funds are in the palm of your hand and you can not only lock and unlock your vehicles and home with them, but also make payments.
How can merchants accept contactless payments?
Merchants can accept contactless payments if they have the right card machine and reader.
In order to accept a contactless card payment, simply tap or hover the customer’s card on or over the POS terminal’s sensor for 1-2 seconds until the payment is approved.
Usually, banks and other financial companies provide these machines to merchants, but the processing times for payments can be lengthy.
In addition, these devices come with lengthy contracts and sometimes hefty fees.
Luckily, with myPOS, our wide range of devices all cater to contactless payments, allowing you to accept payments seamlessly and access your funds immediately.
Security of contactless payments
It is natural for contactless card holders to worry about fraud related to the use of their contactless card.
However, these types of payments are as secure as chip and PIN payments as they’re embedded with layers of anti-fraud technology.
Information that passes between the card and the terminal is difficult to intercept.
In addition, contactless card terminals only work within a very short space (2-10 cm) which minimises the risk of any interception of data.
Moreover, if your contactless purchases exceed 150 EUR per 24-hour cycle, you’ll be asked to enter your PIN. This limits the damage that may be caused if your card is stolen or used by a fraudster.
According to the latest European payments directive, PSD2, you’ll also be asked to enter your PIN after every five transactions.
Your bank statement will indicate all contactless payments made by you so that you can keep track of them.
Other layers of security, if you’re paying with a smart device or smartphone, will also require fingerprint identification, facial recognition or even PIN protection – depending on the device used, so you and your money are ultimately protected.
And finally, in the event that your contactless card gets stolen, you should report this to your bank immediately, and you will subsequently not be charged for any purchases made with your card by the person who stole your card.
How long do contactless payments take to process?
It could take between 2-4 business days for the payment to reflect in your account.
The time period for processing contactless payment varies on the retailer’s bank or whether the payments are taken offline.
However, with myPOS card payment devices, payment is instantaneous and you can enjoy instant settlement of your funds in your free merchant account that comes with a free IBAN and card.
Regulations regarding contactless payment limits
The payment landscape in Europe is regulated by Payment Service Directive 2 (PSD2) and Strong Customer Authentication (SCA), among others.
In terms of this directive, individuals who make five consecutive transactions with their contactless card or who make payments up to a total of 150 EUR per 24-hour cycle will be asked to enter their PIN.
This measure has been implemented to increase the security of contactless transactions as well as to cater to the need for more hygienic and safer payments acceptance in the wake of the COVID-19 pandemic.
For example, if you make a payment in the UK for under £45, you will not be required to enter your PIN. Payments above this threshold will require PIN entry.
The future of contactless payments
According to research, the global contactless payment market is projected to increase its value nearly four times by 2026. In 2020 it was valued at $13.23 billion and is expected to reach $51.07 billion by 2026. Both consumers and businesses are optimistic about the future of contactless payments.
Source: Visa Back to Business Report
Another research shows that contactless payments are a very popular payment method among the younger generation aged between 25-35 years old.
Meanwhile, it is not that popular among the older generation as yet, although there are indications that by 2028, 37% of all payments in the UK will be contactless.
This is proof that contactless payments are only set to rise as customers seek increasing ease and convenience when making purchases for goods and services.
In this blog post, we covered the ways in which contactless payments are made and accepted, as well as their security and processing times.
Keep the above information in mind the next time you make a contactless payment and your transactions will be safer, easier and faster!