What is Contactless Payment - How it Works and Advantages

Contactless transactions involve no physical contact between the payment device and the point-of-sale terminal. This eliminates fraud risk, as the card and terminal never come in contact. Additionally, the transaction is much faster and more convenient, as the user does not have to enter in any information or wait for the terminal to read their card.

Digital transactions have revolutionised payments in India, and this has trickled down to impact credit card transactions as well. Welcome to the age of contactless payments, where there is no physical contact between the credit or debit card and the point-of-sale terminal!

In this article, we shall discuss the rising significance of contactless transactions in the context of credit cards. We shall also discuss how these transactions function and their advantages. Along the way, we will also help you dispel certain misconceptions about these transactions. Sound interesting to you? Keep reading.

What is a contactless transaction in credit cards?

Contactless transactions go by several names – contactless payments, contactless transfers, tap payments, etc. – and is based on an efficient technology called Near Field Communication (NFC). Contactless transactions allow consumers to pay with credit cards with just a touch or tap on merchant payment terminals, without a PIN. In addition to reducing transaction times, it also offers better security than traditional magnetic strip transitions. Payments can also be made through smartphones.

How does a contactless transaction function?

Contactless transactions follow a smooth, easy payment process. Consumers must tap or wave their card over a card reader to initiate a contactless transaction. Post this, the terminal will establish a connection with the issuer bank account and the payment will be effectuated. The Reserve Bank of India, through a recent notification, has increased the per-transaction contactless transaction limit across India to ₹ 5000.

What are the advantages of a contactless credit card transaction?

There must be a reason why people increasingly opt for contactless transactions with their credit cards. The reasons are plenty! Here are the advantages of contactless transactions:

• Contactless transactions are fast

India is no stranger to quick money transfers. Mobile banking apps like the IDFC FIRST Bank mobile banking app have features that help you transact lightning-fast speeds. However, contactless transactions do not require a PIN to complete a transaction. This makes transactions faster.

• These transactions are safe

With the speed of transactions, there comes a question that often troubles consumers – are our transactions safe? You need not worry about contactless transactions since tap-to-pay technology is more reliable than most other modes of payment.

• Contactless transactions are more convenient

Gone are the days when we carried multiple cards in a bulging wallet or purse. You can pay only with a smartphone by choosing the contactless payment method.

• Contactless credit card transactions offer better operational efficiency for businesses

If you own a business, you must definitely consider making it contactless and transaction-friendly. Any business can easily adapt to tap-to-pay technology and can use fewer employees to process payments.

• Contactless transactions protect customers from fraud

Another compelling reason for setting up contactless transaction-friendly facilities for your business is to protect your customers from fraud. Contactless transactions are secure and encrypted, making them secure for consumers.

Misconceptions about contactless transactions

In this section, we try to address some misconceptions concerning contactless transactions. We suggest you read through each point carefully to rid yourself of any doubts you might have.

1. Contactless transactions are unsafe

Contactless cards create a one-time code accompanied by your payment information for each transaction, just like regular credit and debit cards. This code is transmitted along with your account number when you “tap” to pay. Your name, billing address, and card verification code will not be transmitted. With this one-time code, contactless credit cards are safer than traditional magnetic stripe cards. It prevents POS devices from skimming your credit card information - a common security threat with credit cards.

2. Your personal details are not safe while making contactless payments

Your personal details such as your name, identification number, bank account number, etc. are not shared with the merchant when you make a contactless transaction.

3. You can get charged even as you pass through a contactless payment terminal

It is recommended to place your card in contactless wallets. In wallets and cases, RFID shielding can prevent a card from being skimmed when not in use. However, it is highly unlikely that you be charged just as you walk past a payment terminal, as every transaction requires you to authenticate it either by waving or tapping the merchant’s contactless payment terminal.

4. People often get charged multiple times without realising it

Since every transaction requires you to authenticate it by tapping or waving, you need to be a few centimetres away from a terminal to initiate a payment.

Physical possession of the card poses the biggest security risk with contactless credit cards. In the event that your credit card is lost or stolen, it could be used by someone else without the requirement for a PIN or signature. Therefore, a limit should be set on the amount that can be paid via contactless payments. In the event that your credit card is stolen or you see fraudulent activity on your card, immediately contact your card issuer.

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.