Maybe you’ve heard of “tap and pay” — the contactless payment technology that allows a customer to simply tap a payment device rather than swipe a credit card or push it into a card reader.
Though some people associate tap and pay strictly with credit or debit cards, the technology isn’t limited to traditional cards. Tap-and-pay technologies use radio-frequency identification, which can be embedded on phones, watches and other wearable devices.
A contactless payment is “really anything other than a traditional card payment using a [magnetic] strip or EMV chip [alone] to complete the transaction,” explains Randy Vanderhoof, executive director of Secure Technology Alliance.What are EMV chips?
Contactless credit and debit cards use a combination of traditional EMV chips (the same ones that are in your new “chip” cards), along with a contactless chip and RFID antenna. To communicate, the card and the retailer’s card reader have to be within 4 to 10 centimeters of each other, says Phil Sealy, principal analyst at ABI Research, a technology market intelligence company.
With digital wallets, the smartphone contains a pair of chips: one that accesses and encrypts the card information, and a near-field communication chip that transmits the card data to complete the transaction, Sealy says.
So, could tap and pay become the next generation’s equivalent of “paper or plastic?”
Although the technology is widely available, contactless payments are used for only a fraction of U.S. card transactions. The majority of U.S. retailers don’t accept contactless payments, and the majority of U.S. consumers don’t use the technology.
Still, there’s some evidence to suggest that contactless payments aren’t just a cool fad, but rather a glimpse into our future. Let’s run through the basics with help from some of the industry’s leading experts, many of whom agree that contactless payment is here to stay.
Popular options for contactless payments
In the U.S., a small fraction of credit cards are RFID-enabled, says Thad Peterson, a senior analyst with Aite Group.
American Express consumer cards in the U.S. are available in contactless versions — as well as the two small-business cards: The Blue Business℠ Plus Credit Card from American Express and the Starwood Preferred Guest® Business Credit Card from American Express.
The Costco Anywhere Visa® Card by Citi has both a traditional EMV chip along with a contactless chip and RFID antenna.
But these days, physical credit cards aren’t the only method of paying for your purchases. The major smartphone companies, along with most credit card issuers, now offer what’s called a digital wallet. This type of “wallet” lives on your mobile device and can be used to help you manage — and pay with — your credit card accounts.What is a digital wallet, and should you use one?
Masterpass™ is “our answer” to digital payments, says Pablo Cohan, senior vice president of digital payments in North America for Mastercard®. To start using it, customers need only sign up for Masterpass™, download the app and load any participating credit or debit card. To pay with Masterpass™, look for the contactless marks at checkout:
Source for image: emvco.com
So, how does it work? Masterpass™ turns a 16-digit card account number into a “token” (a number that stands in for the actual account number). On the other end of the transaction, the card processor matches the token with an account and the payment is completed. Since the actual card number is not transmitted, the consumer does not risk it being stolen during a purchase or later hijacked from a retailer’s database.
As we note in our article on digital wallets, the information that you upload to a mobile wallet gets encrypted, potentially making it safer than carrying physical cards with you.
And if you shop on the same device on which you keep your digital wallet (a smartphone, for example), you can also use it for online or in-app payments, Cohan says.
Who uses contactless payment?
The typical consumer making contactless payments is someone comfortable in the digital world, Cohan says. If people are digitally active and use online banking and financial alerts, “they’re more likely to use a product like this,” he adds.
Overall, the numbers suggest that digital wallets and contactless payment technologies still have a long way to go before they catch up with other types of payment — at least in the eyes of consumers.
Only 16 percent of U.S. consumers have used a digital wallet, according to a 2017 survey conducted by Forrester Consulting and commissioned by JPMorgan Chase. According to the report, 46 percent of those surveyed prefer paying with credit cards, while only 15 percent of consumers prefer mobile wallets to other forms of payment.
Still, one of the survey’s key findings is that U.S. consumers like the idea of using contactless payment — even if they’re not all familiar with when or how to use it.
In other parts of the world, however, consumers are regularly tapping or waving to pay for goods and services.
Contactless around the world
Poland and the United Kingdom are among countries going contactless in a big way, says David Robertson, publisher of The Nilson Report.
The same goes for Australia, where nearly two-thirds of all point-of-sale card payments — and a third of all point-of-sale payments — in 2016 were contactless, according to a recent study by the Reserve Bank of Australia.
A contactless payment case study: The U.K.
In the U.K., 34 percent of card transactions are contactless, according to June 2017 figures from U.K. Finance, a financial industry trade group. And the average contactless purchase is £9.23 (roughly $12 U.S.).
One reason: Habit. London commuters have been able to use contactless payment (i.e. waving watches, phones, credit cards or debit cards) to quickly pay for mass transit for several years.
Both Mastercard and Visa are now mandating contactless acceptance by 2020 for European merchants who accept their cards.
What does contactless payment mean for security?
Contactless payment fraud is rare. But it does happen.
In the U.K., for instance, where contactless payments make up more than a third of card transactions, contactless cards and devices accounted for just over 1 percent of card fraud in 2016 — up from 0.5 percent the previous year, according to Financial Fraud Action UK.
In the U.S., contactless payment often means “digital wallet.” One security concern when using a mobile wallet is a lost or stolen phone.How to guard against credit card fraud
If you’re using your phone as a wallet, treat it like money, says Eva Velasquez, president and CEO of the nonprofit Identity Theft Resource Center. She advises taking the following measures to help protect yourself:
- Use all the locks your device and apps offer. These features include Apple iPhone’s touch ID and PIN codes that can keep your phone secure when you’re not using it.
- Set up notifications for all the cards you put in your digital wallet. Most card issuers allow you to set alerts that will send a text or email when your card is used in certain ways.
- Use credit cards, not debit cards. That way, if your account is compromised, you’re merely waiting for the card issuer to restore a line of credit and not the missing cash, as would happen if your checking account were compromised. (U.S. law says you can’t be held liable for unauthorized transactions that occur after you report the loss of your ATM or debit card.)
- Use anti-malware on your phone, and consider technology that lets you wipe it remotely if it’s lost or stolen.
“If you’re going to take advantage of the convenience, you really have to [increase] your security,” Velasquez says.
What’s in it for consumers?
The major advantage that contactless payments have over cards equipped with EMV chips is a slight increase in speed. Typically, a contactless payment takes one to two seconds, Vanderhoof says.
So how much does that increase in speed actually matter? It depends. Being able to keep moving in a crowd — like on the subway — is likely more important than shaving a few seconds off your best time for a grocery run.
Of course, it doesn’t hurt that there’s also a certain “cool factor” associated with contactless payment.
Visa and Aussie tech start-up Inamo held the U.S. debut of Visa’s WaveShades — sunglasses embedded with a contactless payment chip — at the South by Southwest festival in Austin, Texas, in 2017.
And for the past four years at Chicago-based music festival Lollapalooza, attendees have been able to charge purchases to their card-linked wristbands, thanks to Lolla Cashless.
So is contactless payment the future of credit card payments in the U.S., or just a passing fad?
The consensus seems to be “neither.” It’s just one more way to pay.
Payment methods are like bad house guests: Once they show up, they never leave. That’s why Americans use everything from pennies to mobile wallets to pay for their morning coffee.
Contactless payment usage is growing steadily in the U.S. Chicago’s mass transit system already accepts contactless payments. New York’s Metropolitan Transportation Authority will be phasing in the option for mass transit, beginning in 2018. And San Diego is scheduled to accept contactless credit cards and mobile wallets on its mass transit system in 2021. In the U.K., transit was a tipping point in getting consumers to try contactless payments.
“What we’re seeing,” says Cohan, “is all of the right industries are starting to support the digital wallet approach.”
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