What is a contactless payment - How it works and its advantages

Digital modes of payment like contactless payments are increasingly becoming commonplace in India. Quick and secure contactless payments are the result of an evolution of online modes of transfers over the years. Some of the popular modes of online transfers include payments via banking cards (debit and credit cards), USSD (unstructured supplementary service) payments, AEPS (Aadhaar-enabled payment system), UPI (unified payments interface) payments, and payments through mobile wallets.

Contactless payments are the most evolved of all modes of online transfers since they are extremely fast, highly secure, and require no physical contact between the sender and the recipient. Customers can use a contactless credit card to make contactless payments. 

What is a contactless payment?
 

A contactless payment (using credit card) is made when a customer taps their credit card or phone on (over) a credit card reader. The card reader or terminal then communicates with the bank to make the payment towards the merchant. Credit card companies use RFID (radio frequency identification) technology to help customers make contactless payments using their credit card. Customers can also use their mobile banking apps (linked to their credit cards) to make a contactless payment.  

All IDFC FIRST Bank credit cards come with contactless payment options that can be activated or deactivated via the mobile app. You also get a digital card option with IDFC FIRST Bank’s FIRST SWYP credit card  that is issued instantly after approval. This EMI credit card comes with a with a fixed monthly conversion fee without any interest charges on various EMI-eligible purchases, making it one of most affordable credit card options for your everyday expenses. With this card, you also enjoy various reward benefits and offers on travel, food delivery, and online shopping.   

How does a contactless payment work?
 

One can understand how contactless payments work by knowing the procedure to be followed to make such transactions. Here are the steps that a customer must follow to make a contactless payment –

1. Signing up for a contactless credit card: Contactless credit cards come with various benefits of which the primary benefit is the ability to make online transfers without any physical contact with the recipient. These cards also offer better operational efficiency for businesses. As the first step, one must sign up for a contactless credit card.
   
   
2. Linking one’s contactless credit card to a mobile banking app: Next, the customer should link their contactless credit card to a mobile banking app. They can also directly use their credit card for payments if they wish to do so.
   
   
3. Waving or tapping the card to make the payment: Finally, once a customer’s contactless credit card is active, they can tap or wave the card over a credit card reader to make their payment.

Types of contactless payments

There are two main categories of contactless payments using credit cards in India –

1. Contactless payments using mobile wallets: A customer can link their contactless credit card to a mobile wallet or a bank’s mobile banking app and make a contactless payment. Mobile wallets like Google Pay support contactless payments. Mobile wallets are the most convenient mode of making a contactless payment. While choosing a mobile banking service to make contactless payments, customers must assess accessibility to customer services and the security of online transfers.
   
   
2. Contactless payments using credit cards: Customers can also make contactless payments directly through their credit cards provided that the credit card be a contactless credit card. Customers must analyse the features of various contactless credit cards online and compare those features before choosing their card. Banks offer various attractive offers on contactless credit cards. One must check the relevance of these offers too before choosing their contactless credit card.

What is a contactless transaction in credit cards?
 

Credit card companies and banks use NFC (near-field communication) technology to help their customers make contactless payments. Customers can make contactless payments using their credit cards in two ways – using the credit card or using a mobile wallet linked to the credit card. Once their credit card is active, they must simply tap or wave their card over a card reader to make the payment. If they wish to use their mobile app wallet, they must do exactly the same thing using their mobile app or wallet.

How do contactless cards work?
 

Here is how transactions are made using contactless credit cards –

1. When a customer taps a contactless credit card on a merchant’s credit card terminal, the terminal generates a unique code to initiate the transaction.
2. The card reader transmits the data to a card processing network (e.g. - VISA or Mastercard).
3. The network checks the data for any possible fraud and if everything is verified, forwards the request to the card issuer (the bank).
4. The bank checks the available balance before authenticating the transaction. It also checks the possibility of the card being stolen or flags the card in case a purchase is being made from an unusual location.
5. Once all validations are complete, the bank approves the contactless payment.

Benefits of contactless credit card payments
 

Here are the key benefits of contactless credit card payments: -

1. Contactless credit card payments are extremely fast: UPI payments are now popular all over India thanks to their overall security and speed. Contactless credit card payments are just as fast, and they require no physical contact between the sender and recipient.  
   
   
2. Customers can benefit from increased security by opting for contactless payments: Contactless payments, besides being fast, are also extremely secure. They ensure that the customer’s data is not leaked at any stage of the payment process.
   
   
3. Business owners benefit from better operational efficiency: Business owners can benefit from contactless payments in two important ways – they can streamline their cash flow and increase their number of customers. Contactless payments also have the added advantage of employing fewer employees to process payments.
   
   
4. They protect customers from fraud: Contactless credit card payments also help customers avoid all forms of online fraud. These are secured and encrypted transactions that are highly secure that significantly reduce the chances of fraud.
   
   
5. Contactless credit card payments are an extremely convenient mode of online transfers: Maintaining a contactless credit card is extremely convenient too. Customers need not keep their cards in their wallets and can manage these cards directly through their mobile banking apps or mobile wallets.

Misconceptions about contactless transactions
 

While contactless payments are secure, fast, and extremely reliable, customers must also be aware of the misconceptions surrounding them so as to not be swayed by misinformation. Here are four misconceptions about contactless transactions that you should know –

1. Contactless payments are not secure: For every transaction made by a customer, a contactless credit card creates a one-time password which is sent to the customer. When a customer makes a contactless payment, their name, billing address, account number, or any other sensitive information is not shared with any stakeholder such as the credit card network or the bank. The one-time password prevents POS devices from skimming a customer’s credit card information, thereby keeping customers’ data safe.
   
   
2. A customer’s data can be easily stolen while they make a contactless payment: The bank offering a contactless credit card and every other stakeholder involved in the process of helping a customer make a contactless payment does not receive access to any sensitive information.
   
   
3. One can get charged an amount even while passing through a contactless payment terminal: Another widely held myth is that a contactless credit card terminal can simply deduct an amount from the account of a customer who is passing by it. Every contactless payment requires customers to authenticate the transaction before making the payment. Therefore, it is very unlikely that such an event might occur. It is advisable for all customers to store their contactless credit cards in wallets or cases to avoid such an occurrence.
   
   
4. Individuals often get overcharged without even realising it: It is untrue that an individual who uses a contactless credit card can be charged multiple times without even realising it. Remember that the individual has to authorise any given payment for any amount to be deducted from their account.

Future of contactless payments
 

A few trends are set to shape the future of contactless payments in India –

• Increased adoption of contactless payments by business owners: Just as UPI’s meteoric rise revolutionised digital payments in the past few years, contactless payments will soon be accepted by more merchants and business owners.
  
  
• Contactless payments will soon be commonplace in rural India: These payments are likely to penetrate the rural Indian market. One could soon see people make contactless credit card payments in Tier II and III cities in India.
  
  
• Financial institutions and banks might collaborate with startups to create a more integrated payment environment: Banks, startups, technology companies, and governmental organisations might soon get together in multiple ways to make contactless payments more convenient and secure for customers in India.

Conclusion
 

Contactless payments, powered by advanced technologies like RFID and NFC, are transforming the way we transact. With IDFC FIRST Bank credit cards, you experience the convenience and security of contactless payments, making every transaction seamless and efficient. Whether tapping your card or using a mobile banking app, you can enjoy instant, secure payments with no physical contact. Embrace the future of digital payments with an IDFC FIRST Bank credit card, designed to enhance your payment experience while ensuring top-notch security.