The consumer moves a security token near the vendor’s point of sale (POS) scanner to complete a purchase using a contactless payment, which is a wireless financial transaction. Digital wallet applications for smartphones and bank cards with chips are common security tokens for contactless payments.
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Other names for contactless payments include proximity, tap-and-go, and touch-free. A frictionless checkout is the term used to describe the process of purchasing products or services using a contactless payment method.
Because the client does not provide the merchant their invoicing or payment information directly, contactless payments are renowned for being safe. Rather, every transaction is tokenized with a unique transaction number, and all correspondence is encrypted. The one-time code used to identify a specific transaction is the only information an attacker will have if a wireless communication is intercepted.
The COVID-19 epidemic and consumers’ desire to minimize in-person interactions when making purchases in-store hastened the spread of contactless payment methods. The technical standards for smart payment cards and the POS readers that accept them are set by the U.S. Payments Forum and EMV, which is called for the companies that founded it, Europay, Mastercard, and Visa.
Contactless payment history
The following are significant occasions in contactless payment history:
1995 saw the introduction of the first contactless payment card for commuters worldwide by the Seoul Bus Transport Association.
1996: The EMV security standard’s initial iteration is released.
2004: The United States sees the introduction of contactless cards.
2008 saw the launch of contactless credit cards from Visa, American Express, and Mastercard.
2011. With the release of Google Wallet and Android Pay, contactless payments using smartphones instead of cards are now possible.
When EMV is introduced in the US in 2015, hundreds of retailers move to near-field communication (NFC) terminals, which allow contactless payments.
2018. Google Pay is a single system that combines Google Wallet and Android Pay.
2020: COVID-19 worries spur the use of contactless payments in the US.
Requirements for contactless payments
NFC, radio frequency identification (RFID), magnetic secure transmission, and fast response code standards all allow frictionless checkouts. Contactless payment methods are accepted by the majority of U.S. merchants.
Contactless bank cards are available from Visa, Mastercard, and American Express, while the most widely used digital and mobile wallet apps for smartphones are Apple Pay, Google Pay, Samsung Pay, and Venmo.
How do contactless transactions operate?
Authorized mobile devices and contactless payment cards are equipped with an RFID microchip, transponder, and antenna. The client has to be near the vendor’s reader in order to make a purchase.
Transactions are not processed or authorized by Google Pay or Apple Pay. Rather, they merely forward the information to the relevant credit card network after tokenizing the customer’s payment card.
Every time a card or other approved device is used in a transaction, the microchips used in contactless payments create fresh verification values. This method differs greatly from the data transmission used by magnetic stripe cards.
Every time a standard magnetic card is swiped, the card reader receives the customer’s billing information. That data may be sold on the dark web or intercepted and exploited by someone else. The only information that may be intercepted during a wireless transaction, however, is the distinct authentication code that indicates that a particular transaction has taken place.
Every time a chip card is used, a new code is created, making it extremely impossible for criminals to copy the card and attempt to make purchases. It is just not possible to replicate the dynamic authentication technology in a way that would yield the same dynamic codes as a legitimate chip card would. Furthermore, contactless payment systems on smartphones have been made more secure by requiring the user to validate their identity using a technique like face recognition.
What are the advantages of contactless payments?
In addition to increased security, contactless payments can speed up the checkout process. These payments are quicker than cash transactions and require less time than regular credit card payments. They are therefore a suitable option for micropayments and other low-value transactions.
Additionally, contactless payment systems can boost throughput at road toll booths, parking garage checkout terminals, and turnstiles for public transit. Even though each transaction may save less than a minute, the cumulative savings can drastically cut down on the amount of time customers must wait in line.
Nontraditional financial institutions and third-party payment companies like PayPal have started experimenting with ways to enhance frictionless checkout as contactless payment technology becomes more widely used. To assist mobile clients in finding ATMs, for instance, several payment companies provide GPS technology. Customers of other providers can choose to participate in loyalty programs run by means of focused geofenced marketing.