The Great Credit Card Disappearing Act: Why Contactless Payments are Here to Stay, and What That Means for Your Personal Finances
July 14, 2020
Swiping is out. Tapping is in.
For regular users of credit cards, the reality isn’t quite so cut-and-dried. But there’s no question that technological advances are changing the way we all pay for goods and services. With businesses everywhere more focused than ever on their customers’ health and safety, transactions that respect social distancing guidelines will only become more commonplace.
What are the other benefits of using contactless payment methods? How does the technology work? Are contactless payments secure? Do all businesses accept them? Read on for answers to all your questions about this rising trend in personal finance.
What does “contactless” really mean?
Many of us are familiar with the expression “money is changing hands.” Indeed, all business used to be conducted this way, with the buyer literally handing hard currency (bills and coins) over to the seller. Systems of credit have made that process more abstract, but their functionality still depends on establishing physical contact between tangible objects.
Restaurants by and large still process transactions in is this way. The server brings you your check, you hand over your currency or card (debit, credit), and the server returns with your change or a receipt for you to sign.
With the advent of contactless payments, no money — whether in the form paper, metal, or plastic — changes hands. Instead, consumers can complete transactions by tapping their credit cards or smartphones against a point of sale (POS) terminal. In fact, most smartphones and smartwatches now come with the ability to pay via a “digital wallet.” This is an app, such as Apple Pay or Google Pay, that you preload with your credit card information.
But contactless payments can take other forms, such as ordering online and paying ahead for pick-up or delivery. Moreover, if you’ve ever sent a friend or family member money using a mobile app, that’s also a form of contactless payment.
How does “tap and pay” work?
Both contactless credit cards and smartphones rely on a technology known as near-field communications or NFC. NFC is a combination of hardware and software that allows two electronic devices to use radio signals to communicate with one another. The catch? Those radio signals have a very short range. And, by “very short,” we mean barely more than one-and-a-half inches.
That means tapping is not actually required to complete a purchase using an NFC-enabled credit card or smartphone. Get close enough to the reader, and you should be able to pay by waving your device over it.
How can I tell if my credit card or phone supports NFC?
To verify if your mobile device or credit card supports contactless payments using NFC, look for either of the following symbols.
- The “N-Mark” NFC logo. If NFC is not turned on by default, this logo may not appear on-screen. Open your smartphone’s wireless, Bluetooth, and/or network settings and look for NFC options.
- The EMV Contactless Indicator, Symbol, or some variation thereof. This symbol resembles the symbol for WiFi, only rotated 90 degrees clockwise. This symbol more commonly appears on credit cards. Check both the back and front of your card for this symbol.
Why would I want to use a contactless payment method?
Contactless payments are processed almost instantaneously. When you choose to pay by phone or NFC-enabled credit card, you’ll spend less time at the register. That means you’ll get time back with every errand you run to the supermarket, pharmacy, gas station, or dry cleaner (among other businesses.)
Contactless payments also do not require the entry of a personal identification number, or PIN, further speeding up transactions.
Digital wallets don’t require that you present a physical card to complete a purchase. Transitioning to that contactless payment method therefore allows you to slim down your wallet. You’ll no longer have to carry every card you need for every use case scenario. (However, you will need to link all of your credit cards to your digital wallet application.) That also means you’ll no longer have to worry as much about lost or stolen cards.
How safe are contactless payments?
NFC-enabled contactless payments use the same data encryption standard as chip cards (also sometimes known as smart cards). Credit card companies Europay, Mastercard, and Visa collaborated on the development of this standard, which is why it is widely known as EMV. Since being introduced to U.S. merchants and consumers in 2015, EMV cards have skyrocketed in popularity. Now, 99 percent of credit card payments in the U.S. are authenticated via EMV.
Paired with the embedded microchip that gives chip cards their name, the EMV standard offers considerably more security than a magnetic strip. The magnetic strip on the back of a standard credit or debit card contains all the information needed to complete a transaction: your account number and your account’s expiration date. If a card skimmer gains access to that information, they can use it to make fraudulent charges to your account.
Instead of transmitting this information directly from a payment terminal (such as a card reader) to your financial institution, contactless payment methods using the EMV standard confirm transactions using codes. These codes are randomly generated and unique to each transaction. EMV technology dramatically reduces the possibility that a scammer could create a counterfeit card even if they did gain access to this transaction data.
How can I protect my financial information if my “tap and pay” card or smartphone becomes lost or stolen?
In cases of loss and theft, the same rules apply to contactless payment cards that apply to standard credit cards.
- Call your bank or credit card issuer as soon as possible and report the loss or theft of your card.
- Be sure to request that your account be frozen to prevent any fraudulent charges from being made.
- As the Federal Trade Commission (FTC) recommends, send a follow-up email or letter to your bank or credit card issuer confirming the details of the loss or theft.
- Log in to your account and look for any suspicious activity that will also need to be reported.
Almost all of the major digital wallet apps cannot be opened without the use of a passcode or biometric authentication, such as fingerprint scanning or facial recognition. For an added layer of security, set up both a screen lock and a remote “kill switch” for your phone. For more information about protecting the sensitive personal data on your phone and reporting the loss or theft of this device, visit the Federal Communications Commission (FCC) website.
I’m a small business owner. Why should I care about contactless payment methods?
Businesses like contactless payments for many of the same reasons that consumers do. Its frictionless design helps expedite the shopping experience while providing the peace of mind that comes with using a fast, secure, and hygienic payment method.
On the financial side, contactless technology significantly reduces those fraudulent charges that leave you at liability and bog down your operations. According to Visa, the transition from swipe-to-pay to EMV-enabled methods has resulted in a 76-percent drop in in-person (or card present) fraud.
Contactless payments are also compliant with the Payment Card Industry Data Security Standard (PCI DSS). PCI compliance is key to protecting your business from fines in the event of a data breach.
Finally, although you may need to upgrade your POS system to begin accepting contactless payments, you will not incur any additional fees for processing them.
Are there any drawbacks to accepting contactless payments?
For all of the above pros, there are a few contactless payment cons of which small business owners should be aware.
Not every customer owns an NFC-enabled smartphone or card. Some customers do, but will always prefer to pay with cash. View contactless payments not as a one-size-fits-all solution, but as one of several payment options you offer.
If you want to encourage contactless spending, you may have to educate your customers and incentivize the use of this payment method. You can do so by offering rewards via your loyalty program. A successful campaign could boost both sales volume and customer satisfaction, creating a win-win.
Contactless payment methods may be best suited for small purchases. Payment limits — more accurately, Cardholder Verification Method (CVM) limits — will vary depending on your POS and financial services provider. However, contactless purchases above $100 generally require PIN entry or signature to verify.
How can I start using contactless payments?
The first step to taking advantage of contactless is to make sure you use the right cards. Debit cards are considered the least secure option for your digital wallet. If someone makes fraudulent use of your debit card, they are drawing real money out of your bank account. Meanwhile, under the terms of the Fair Credit Billing Act (FCBA), consumers are liable for no more than $50 in unauthorized charges to a credit card that has been reported as lost or stolen.
If you decide to keep multiple smart cards in your physical wallet, remember that a merchant’s POS terminal does not know which card to charge when you tap and pay. If you want to guarantee that the right charges are made on the right card — for example, the one that gives you the most rewards points for specific kinds of transactions — be prepared to remove your card from your wallet. That necessity will add time to the checkout experience.
If you prefer to use a digital wallet on your smartphone, remember to link all the cards you wish to use. Also, be sure to employ every security feature your phone offers to protect your financial data in case of loss or theft of that device. That includes biometric screen locks, location trackers and “phone finder” apps, and remote locking (as well as data backup) services.
For more information on how to enable these features on your Apple iOS mobile devices, visit the Apple Support website. For more information on how to enable these features on your Android mobile devices, visit the Google Account Help website. Finally, for even more mobile banking security tips, consult this list put together by your financial advocates here at Guaranty Bank & Trust.
If you have questions or concerns about managing your account or taking full advantage of our Bank Anywhere services, call our Customer Care Center at 888-572-9881. Our friendly, caring, and collaborative bankers look forward to serving you.