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contactless payments

What Exactly is a Contactless Payment?

The modern credit card industry and credit card processing began in the 1950s, and the first credit cards were simply a platen upon which a number was stamped so it could be transferred to a carbon paper receipt through the use of an imprinting machine. These receipts were then “deposited” through merchant accounts to serve as records of transactions.

These machines formed the foundation of the credit card payment system for many years until electronic payment systems made it possible to read information stored on a magnetic stripe on the back of each credit card. Although manual payment machines are still in use, banks charge more to process manual transactions, which makes electronic systems more economical.

Now, the industry is ready to take the next step with a process called “contactless” payments. The new chip and PIN regulations and upgrades for credit card processing equipment and merchant accounts will make it possible for cards so equipped to broadcast an encrypted signal when placed near a machine designed to read that signal and process a transaction.

The card and the machine never need to come in contact with each other. This is why the system is called “contactless.” A second type of contactless payment system makes use of a design called a QR code. QR stands for “Quick Response.” It is a symbol unique to a certain combination of information that can be “read” optically with the use of a camera or specialized scanning equipment. To make a payment using this system, a merchant can provide a customer with a code unique to their transaction, or the customer can alternatively provide their account identity with the QR code in much the same way they provide the same information with a credit card.

The reason this kind of contactless payment system is growing so fast is because it is possible to integrate QR codes with mobile devices as easily as snapping a picture or putting the phone viewing screen in range of an optical scanner. Because the information is changeable, it also means that each transaction can be keyed to a particular customer, making fraud and inaccurate transaction records nearly impossible.

These kinds of payment systems are generally lauded for their speed, but merchants and customers are increasingly finding the enhanced security features of such payment devices are worth the extra expense and the shallow learning curve as businesses grow used to using the new card readers, optical devices and are comfortable with the use of a customer’s mobile phone as the transmission device for payments, coupons and other kinds of business-to-customer interactions.

All About Contactless Payments

A contactless payment is any instrument that is used to make secure payments via radio-frequency identification (RFID – “the storage and retrieval of data using tags attached to individual packages, animals or people; the tags contain an integrated circuit to store and process the data, and an antenna to transmit and receive such data” Wiktionary). The technology typically operates over short distances. Examples of contactless payment instruments include:

  • debit and credit cards
  • smart cards (also called chip cards or integrated circuit cards – These are cards with integrated circuits, small enough to fit into the pocket.)
  • key fobs
  • proximity cards
  • ISO/IEC 15693 vicinity cards

They are all popular because payments can be made faster than the more conventional ways of using cash, writing out a check or sliding a card through a machine and entering one’s PIN; these items need only be waved over the sensors to be accepted. They are thus the most attractive option for people who are often in a hurry.

Features

The various forms of contactless payment all come with certain features that make them not only easy and convenient to use, but also secure. The cards are full of microprocessors and memory systems that have been designed to protect the user’s personal information: Each one has a unique “key” that generates a “unique verification value” for every transaction by using standard encryption technology and is never transmitted. For extra security, the cardholder’s name is not used in the transaction. It is extremely difficult, indeed, to counterfeit transactions with contactless payment.

Instead of requiring the user to swipe the magnetic stripe of the card, contactless payment involves sending the account information to the point of sale terminal via RFID. However, if the amount of the transaction is in excess of a preset limit, the holder does have to swipe the card.

Mobile Wallets

The mobile wallet is one of the novel forms of contactless payment. It involves payments being made with a smartphone under financial regulation. In 2008 it was predicted by financial experts that the amount of money spent with mobile wallets would pass the $300 billion mark by 2013.

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