A contactless payment is a wireless financial transaction that allows customers to make purchases by moving a security token, such as chip-enabled bank cards or smartphone digital wallet apps, in close proximity to the vendor’s point of sale (POS) reader. This form of payment, also known as touch-free or tap-and-go, offers a secure and convenient way to pay without the need for physical contact or swiping cards. With contactless payment, customers can experience frictionless checkout, enabling faster transactions and reducing wait times.
When making a contactless payment, secure communication, encryption, and tokenization are employed to ensure the safety of the transaction. Instead of sharing personal and payment information directly with the vendor, all communication is encrypted, and each purchase is tokenized with a one-time transaction number. This provides an additional layer of security, protecting customers from fraud and identity theft.
Wireless transmission and technical standards, such as the EMV (Europay, Mastercard, and Visa) standards, enable the seamless interaction between the security token and the POS reader. These standards govern the technology, ensuring compatibility and security across different contactless payment methods.
The adoption rate of contactless payment has significantly increased, especially during the COVID-19 pandemic. With the aim of reducing person-to-person contact, contactless payment methods have gained popularity among consumers and businesses alike. This shift towards contactless payments not only provides convenience but also promotes a safer shopping experience in physical stores.
Whether using chip-enabled bank cards or smartphone digital wallet apps, contactless payment offers a secure, fast, and convenient way to make transactions. As more retailers and businesses embrace this technology, contactless payment systems continue to evolve, ensuring a seamless and secure payment experience for customers.
History of Contactless Payment
The history of contactless payment can be traced back to the mid-1990s when the Seoul Bus Transport Association introduced the world’s first contactless payment card. This innovative solution aimed to simplify the payment process for commuters, allowing them to tap and pay for their bus rides without the need for physical cash or traditional tickets. This marked the beginning of a revolution in the way we make transactions.
In 1996, the EMV security standard was established, which set the groundwork for secure contactless transactions. This standard introduced chip-enabled bank cards and provided a secure framework for contactless payments. It laid the foundation for the secure communication, encryption, and tokenization that are essential for contactless transactions.
The first use of contactless cards in the United States occurred in 2004, whereby major payment networks such as Visa, American Express, and Mastercard began offering contactless credit cards to consumers. These cards incorporated the latest advancements in technology, making it possible for users to simply tap their cards at the point of sale to complete transactions quickly and securely.
With the advent of smartphone technology, contactless payments underwent another major transformation. In 2011, the launch of Google Wallet and Android Pay introduced the concept of using smartphones as payment devices. This enabled users to store their payment information digitally and make contactless payments through their mobile devices.
The implementation of EMV in the United States in 2015 further accelerated the adoption of contactless payments. As merchants upgraded their systems to comply with the EMV standards, many also incorporated Near Field Communication (NFC) terminals that supported contactless payments. This shift provided a seamless payment experience for customers, reducing transaction times and enhancing convenience.
In 2018, Google Wallet and Android Pay merged to form a unified payment system known as Google Pay. This consolidation streamlined the contactless payment landscape and provided users with a seamless and consistent experience across different devices and platforms.
More recently, the COVID-19 pandemic has contributed to the increased adoption of contactless payments. With concerns about person-to-person contact and the need for social distancing, consumers have turned to contactless payment methods to minimize physical interactions during transactions.
Standards and Technology for Contactless Payments
Contactless payments rely on various standards and technologies to facilitate secure and convenient transactions. These include NFC (Near Field Communication), RFID (Radio-Frequency Identification), magnetic secure transmission, and quick response codes.
Most retailers in the U.S. now accept some form of contactless payment, enabling customers to make payments swiftly and easily without physical contact.
Well-known payment networks such as Visa, Mastercard, and American Express offer contactless-enabled bank cards, providing users with a seamless payment experience. These cards can be used for contactless transactions at any retailer with the necessary technology.
Furthermore, digital and mobile wallet apps are gaining popularity, offering contactless payment options for smartphone users. Some of the most prominent apps in this space include Apple Pay, Google Pay, Samsung Pay, and Venmo. These apps allow users to link their bank accounts or credit cards and make contactless payments by simply tapping their phones.
Benefits of Contactless Payment Technologies
There are several advantages to using contactless payment technologies:
- Convenience: Contactless payments enable fast and hassle-free transactions, saving customers time at the checkout. With a single tap or wave, the payment is processed, eliminating the need to insert a card or handle cash.
- Security: Contactless payment methods incorporate advanced security measures to protect sensitive card data. Each transaction is encrypted, and tokens are used to represent the payment information, reducing the risk of fraud.
- Hygiene: In light of the COVID-19 pandemic, contactless payments have gained popularity as they minimize physical contact during transactions, promoting public health and reducing the spread of germs.
- Flexibility: Retailers that accept contactless payments provide customers with the flexibility to choose their preferred payment method, whether it’s a contactless-enabled bank card or a digital wallet app.
| Payment Technology | Key Features |
|---|---|
| NFC (Near Field Communication) | All contactless-enabled bank cards and smartphones use NFC technology for seamless wireless communication between the payment device and the point of sale terminal. |
| RFID (Radio-Frequency Identification) | RFID tags embedded in contactless cards or wearables allow for quick identification and communication with compatible readers, facilitating secure transactions. |
| Magnetic Secure Transmission | This technology enables smartphones to mimic magnetic stripe cards, allowing contactless payments to be accepted on traditional magnetic stripe terminals. |
| Quick Response Code (QR Code) | QR codes displayed on smartphones or printed media can be scanned by compatible readers, enabling contactless payments through digital wallets or mobile banking apps. |
Benefits and Advantages of Contactless Payments
Contactless payments offer several benefits and advantages. In terms of improved security, contactless payments provide a secure method of payment as the customer’s billing and payment information is not shared directly with the vendor. The communication is encrypted, and each purchase is tokenized with a one-time transaction number, ensuring the safety of sensitive data.
One of the key advantages of contactless payments is the frictionless checkout experience they offer. Unlike standard credit card payments or cash transactions, contactless payments take less time, making the checkout process faster and more convenient for both customers and retailers.
Contactless payments are particularly suitable for fast and convenient transactions, especially for micropayments and low-dollar-value purchases. They eliminate the need for customers to carry loose change and minimize the time spent in payment queues, reducing both transaction times and customer wait times.
Moreover, contactless payment methods contribute to increased throughput for public transportation turnstiles, parking garage checkout terminals, and road tolls. By enabling quick and effortless transactions, contactless payments help streamline the process, resulting in reduced wait times and improved efficiency for commuters and travelers.
In addition to speed and convenience, contactless payments have the potential to enhance the overall customer experience through loyalty promotions and targeted geofenced campaigns. With contactless payment technology gaining acceptance, nontraditional banking institutions and third-party payment providers are exploring innovative ways to further improve the customer journey. Features such as GPS technology to locate nearby ATMs and the option to opt-in for personalized deals and promotions through geofenced campaigns are some examples of how contactless payments can enhance customer engagement and satisfaction.
FAQ
What is contactless payment?
Contactless payment is a wireless financial transaction that allows customers to make purchases by moving a security token, such as a chip-enabled bank card or a smartphone digital wallet app, in close proximity to the vendor’s point of sale (POS) reader.
Is contactless payment secure?
Yes, contactless payment offers a secure method of payment as the customer does not need to share their billing or payment information directly with the vendor. All communication is encrypted, and each purchase is tokenized with a one-time transaction number.
How has the COVID-19 pandemic influenced the adoption of contactless payment?
The COVID-19 pandemic has accelerated the adoption of contactless payment as consumers seek to avoid person-to-person contact during in-store purchases.
Who sets the technical standards for contactless payment?
The U.S. Payments Forum and EMV are responsible for setting the technical standards for smart payment cards and POS readers that accept contactless payments.
When did contactless payment first emerge?
The history of contactless payment dates back to the mid-1990s when the Seoul Bus Transport Association launched the world’s first contactless payment card for commuters.
What are the different standards and technologies used for contactless payments?
Contactless payments are supported by various standards and technologies, such as NFC, RFID, magnetic secure transmission, and quick response codes.
What payment methods are accepted for contactless payments?
Most retailers in the U.S. accept some form of contactless payment, including contactless-enabled bank cards offered by Visa, Mastercard, and American Express, as well as popular digital and mobile wallet apps like Apple Pay, Google Pay, Samsung Pay, and Venmo.
What are the benefits of contactless payments?
Contactless payments offer improved security, a frictionless checkout experience, faster and more convenient transactions, reduced wait times, increased throughput for public transportation and parking, and the opportunity for improved customer experiences through loyalty promotions and targeted geofenced campaigns.