During the pandemic, contactless payment was a godsend for the world. It is a method for customers to pay for goods and services using contactless payment and RFID technology. Customers can use contactless payment to make payments without using cash or swiping a card. These cards are among the most commonly used payment methods for in-store purchases. These cards make transactions easier by enabling customers to pay with contactless technology.
Did you know? Security tokens for contactless payments are typically digital wallet apps for smartphones and bank cards with integrated chips.
What is a Contactless Transaction?
The majority of consumers are unfamiliar with the definition of a contactless transaction. During a contactless transaction, the consumer authorizes payment for the purchase by moving a security token extremely close to the retailer's PoS scanner. Contactless payments are also known as touch-free, tap-and-go, and proximity payments.
Contactless payments are well-known for their security. Instead, all transactions and communication are tokenized with one-time numbers. If a wireless communication is intercepted, the former code used to identify a specific trade will be the only information obtained by an attacker.
Because of COVID-19, contactless payment has accelerated, as consumers prefer to avoid direct human contact when making in-store purchases.
Also Read: What Is a Usance Letter of Credit? A Detailed Guide For You
History of Contactless Payment
When using a contactless payment to purchase goods or services, a frictionless checkout process is used. The following is the history of contactless payments:
- The Seoul Bus Transport Association introduced the first contactless payment card for commuters worldwide in 1995.
- The first iteration of the EMV security standard was released in 1996.
- ICICI Bank launched the first contactless card in India on January 8, 2015.
- Google Wallet and Android Pay enabled contactless payments using smartphones rather than cards in 2011.
- Google Wallet and Android Pay merged in 2018 to form Google Pay.
- COVID-19 concerns drove up the use of contactless payments in India since 2020.
How do Contactless Transactions operate?
RFID (Radio Frequency Identification) technology is used in contactless payment cards. Contactless payment cards and authorized mobile devices contain an RFID microchip, transponder, and antenna. When the card is held close to a card reader, it connects with it to complete the transaction. The information on the card is validated when it is touched or waved in front of the card reader. When a card or other authorized device is used in a transaction, the contactless payment microchips generate new verification values. This data transmission method differs significantly from magnetic stripe cards.
The transaction is then transmitted to the card issuer via the merchant's point-of-sale system. The card issuer approves the transaction after reviewing it. When a conventional magnetic card is swiped, the card reader receives the customer's billing information. That data could be sold on the dark web or intercepted and used by someone else. When a transaction is conducted wirelessly, however, the only data that can be intercepted is the special authentication code that proves the transaction occurred.
Every time a chip card is used, a new code is generated, making it more difficult for thieves to copy the card and use it to make purchases. It is simply not possible to replicate the dynamic authentication mechanism in such a way that the dynamic codes produced are identical to those produced by a chip card. Furthermore, smartphones will include additional security measures that will require the user to validate their identity using a technique such as FaceID before making contactless payments.
Also Read: What is UCP 600 (Uniform Customs and Practice for Documentary Credits)?
Benefits of contactless payments
Contactless payments are roughly twice as fast as traditional card payment methods and can be completed in less than 15 seconds. Transactions are completed more quickly, turnover is likely to increase, and queues are less likely to form when there is less cash processing and handling. Because pin codes are no longer required and transactions only require a touch on a scanner, the number of workers behind the registers can be reduced and distributed throughout the store to improve other aspects of customer care and the shopping experience.
Contactless payments are gaining popularity due to their ability to allow customers to complete transactions quickly. Customers can make payments more quickly because they do not need to enter their PIN. Customers are also not required to carry cash. Contactless payments eliminate this hassle, simplifying transactions.
The use of Contactless payments is not limited to cards. Contactless readers using NFC technology can communicate with phones and linked devices like watches and rings.
The wireless technology used for mobile payments is also recognized as near-field communications technology (NFC), and it connects via radio waves. Because payment terminals in stores are NFC-enabled, they can communicate with and transfer data to other NFC-enabled devices.
With the introduction of Apple Pay in 2014, customers could make purchases even if they had lost or forgotten their card by utilizing their phone to complete the transaction. This was further enhanced with the introduction of the Apple Watch. The option to make a purchase directly from your wallet without taking out your card simplifies the payment process even further for the consumer.
3. Brand positioning and higher sales for banks
Banks can not only offer their customers more contactless options, but they can also offer added-value services that set them apart from their competitors. They can also appeal to affluent and VIP customers by introducing new upscale contactless smartcards, such as metal cards, to the market.
People may believe that Contactless payment is not safe because anyone can steal their credit card information. However, contactless payments are extremely safe. Because they are validated payments, they are difficult to hack. The card's information is encrypted. As a result, it is more difficult to perform unauthorized logins and steal card information. You can either freeze the account or contact your bank, which will ignore and correct fraudulent payments if your card is lost or stolen. The risk of fraud or theft appears to be much higher because all the user has to do touch the card to the reader. A limit that is initially set at a low amount and remains that way protects the customer from larger, unauthorized purchases.
5. Overall satisfaction of customers
Businesses can experience an increase in throughput and a decrease in abandoned sales as the average transaction value (ATV) rises when a consumer is not restricted by the amount of cash they carry and the efficient payment process. Most contactless transactions do not require verification or the printing of a receipt upon authorization unless the customer requests it or the transaction has a higher value. Customers spend less time at the register as a result.
Also Read: Know What is a Sweep Account - Features & Eligibility
What Additional Advantages Do Contactless Payments Provide Besides Security?
Contactless Payments are more than 60% faster than cash purchases and take between 30 and 50% less time than traditional credit card payments. As a result, they are ideal for low-value purchases and micropayments. To increase throughput, contactless payment systems are commonly installed at parking garage checkout stations, road toll booths, and public transportation turnstiles. Even if the actual time saved per transaction is only a few seconds, the minutes saved can add up and drastically reduce the number of times customers must wait in lines.
As the technology becomes more widely used, non-traditional financial institutions and third-party payment processors such as PayPal have begun experimenting with ways to improve frictionless checkout. For example, some payment service providers are investigating how GPS technology could be used to assist mobile users in finding financial services such as ATMs or signing up for loyalty programs run through targeted advertising.
The article discussed all aspects of contactless payments, including their development, use, and benefits. You should now have a firm grasp on contactless payment and whether it is safe to use. Furthermore, contactless payments can be used to expedite payment processing. Contactless payment is only a problem when a PIN or other authorization form is unavailable. Contactless Payments are just as simple and secure as traditional Chip & PIN transactions.
Follow Khatabook for the latest updates, news blogs, and articles related to micro, small and medium businesses (MSMEs), business tips, income tax, GST, salary, and accounting.