What are Contactless Payments and How Do They Work?

Contactless payments have been around for at least a decade but its popularity only surged in recent times. The earliest example of a contactless payment method was Speedpass, which was first introduced in 1997. It was a contactless payment device used at gas stations that, when waved over a labelled square at a gas pump, allowed the user to make an instant payment. Today, the use of contactless payment services extends beyond petrol stations to include retail outlets, restaurants and eateries, and even hotels.

According to the UK Cards Association, a total of £3,343.9 million was spent with a contactless card in the month of February this year, being a 4.9% increase from the previous month and a 153.6% increase from the previous year. Most debit and all credit cards now come equipped with contactless technology, and as a result, more and more businesses are jumping onto the contactless payments bandwagon in an effort to offer greater convenience to customers and take advantage of the savings that this innovative technology affords.


How does contactless payment work?

Contactless payments give customers everywhere the convenience of paying by tapping a contactless payment device such as a credit card or a smartphone against the contactless payment terminal, without the need to enter the PIN or sign on a payment slip. Credit or debit contactless cards come with a NFC (near field communication) chip that contains your account information, and an antenna that picks up the signal sent out by the card reader. When a purchase is made, the transaction details are sent to the contactless payment terminal from the cash register.

Once the customer taps his/her device on the terminal, it recognises the device and exchanges payment account details. The device then creates a dynamic cryptogram that allows a secure transaction to take place. The transaction data is then transmitted to the issuer along with payment account details – the issuer validates the dynamic cryptogram, authenticates the data, and authorises the transaction. The easiest way to identify a contactless payment card is to look for a wave symbol on the front. Although the current limit for a single contactless transaction is low (£30), the amount is expected to be revised upwards as more and more businesses invest in this innovative technology to provide customers with more convenient payment options.

Are contactless payments safe?

The UK Cards Association states that there is a total of 106 million contactless cards in circulation in the UK as at February 2017. With such high take-up rates, how safe is this innovative technology for daily use, and is there a possibility of fraud? Generally, contactless payments are safe to use and the security features embedded within make the transaction as secure as paying with your PIN. Contactless cards and terminals are designed with innovative anti-fraud technology embedded within, making it difficult for someone to intercept information that is being transferred between terminals. MasterCard states that each contactless payment is protected with a dynamic cryptogram and uses similar cryptographic techniques as those used when paying with traditional contact cards.

A new cryptogram is generated when a purchase is initiated – the single-use cryptogram is unique to that purchase, so any attempt to make other purchases with the previously-used cryptogram data will fail. It would also help to put your mind at ease to know that contactless fraud constitutes less than 1% of all criminal card activity, and according to the UK Cards Association, bank refunds are possible for victims of card fraud. Card providers are also required to compensate victims of contactless fraud if it is proven that the victims have done all they can to keep their cards safe.

How are contactless payments adopted?

Contactless payment can be adopted as long as you have a point-of-sale (POS) terminal at your business premises. There are a variety of POS systems that offer contactless payment solutions. The Square POS system is a compact card reader that accepts any contactless payment and reads EMV (Europay, Mastercard and Visa) cards by having the customer ‘dip’ the card into a reader slot. Meanwhile, app-based POS system PayPal Here employs Bluetooth technology to connect to a mobile device such as a smartphone or tablet to accept payments via the phone-based app. This innovative technology is also capable of reading EMV cards, contactless cards and regular credit cards.

Ingenico Smart Terminals are often used by larger retailers due to its good technical specifications. A countertop POS system, Ingenico accepts EMV and contactless cards, and it also has a magnetic stripe reader. Lastly, PayAnywhere is a contactless reader that connects to the audio jack of your phone and can accept EMV, contactless, and magstripe payments. Apart from offering convenience to customers, adopting contactless payment solutions allows businesses to save time, money and resources by largely removing the element of cash from their transactions.

How do you stay safe with contactless payments?

Contactless payments are not without its issues, and some users have voiced their concerns on its security. There have been reports of the details of a user’s card being copied without the knowledge of the user, and cases of thieves using devices to ‘read’ random cards while standing nearby. Although it’s unlikely that a fraudster would be able to lift the details of your card without standing very close to you, it helps to take precaution by using wallets or metal cases that are designed to block out such machinery. Some also believe that lining your wallet with foil can help to guard your card’s details.

Of course, an easier way would be good old-fashioned vigilance when you’re out and about, and especially when making payments. Always keep your card in your line of sight and be alert of your surroundings and the people nearby. Also, you can prevent from paying with the wrong contactless card by removing the intended card from your wallet when paying, instead of waving the wallet over the reader. If you find that your card has been stolen or lost, waste no time in reporting the incident to your bank to prevent fraudulent use. It’s also a good practice to check your bank account periodically for any unfamiliar transactions.


Moving towards a cashless society also means that the future of payments will inevitably be contactless. The growth in the popularity of contactless payments shows that consumers are taking well to this innovative technology as an alternative to cash. The adoption of contactless payments is also bolstered by technological advancement and security enhancements, so it would be in the best interests of all businesses to go with the flow and embrace this innovative technology. For more professional assistance, please click here

ThunderQuote is the most comprehensive business services portal in Singapore, Australia and ASEAN , where hundreds of thousands of dollars of procurement contracts are sourced every month by major companies like Singapore Press Holdings, National Trade Union Congress and more.

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