Contactless Credit Card: How it Works, Benefits and Disadvantages

In today’s fast-paced world, convenience is paramount, especially when it comes to daily transactions for smaller purchases. Contactless credit cards are designed to serve this need. It offers a fast and secure payment experience using advanced technology, where you do not need to insert or swipe the credit card or even enter a PIN.

Read the blog to explore how this touch-free method works, what the benefits and challenges are!

Quick Synopsis

• A contactless-enabled card works using tap-to-pay technology, which requires holding the card approximately 2-4 cm near a POS machine.
• Contactless payments help businesses boost operational efficiency and user experience. 
• These solutions also provide protection against fraudulent transactions without incurring any additional costs.

What is a Contactless Credit Card? 

A contactless credit card is issued to offer a touch-free payment solution. It comprises an embedded chip and uses advanced technology to communicate wirelessly. 

This method not only executes the transaction swiftly by eliminating the need to insert, swipe and enter a PIN (especially for sending a small amount) but also makes the process secure by applying high-end security measures. 

How Does a Contactless Credit Card Work? 

Contactless payment solutions are embedded with RFID (Radio-Frequency Identification) or NFC (Near-Field Communication) technology to establish communication between two devices. 

Let us find out how it works in detail: 

Step 1: Look for the contactless symbol first. Then, hold your credit card close to that symbol on the NFC-enabled Point-of-Sale (POS) terminal.

Step 2: The terminal reads the chip built into your card and sends out a signal to the payment device.

Step 3: The information is securely transferred using the tokenisation process, where a unique, one-time token is generated every time.

Step 4: During encryption, the payment processor not only verifies the details but also checks the availability of funds.

Step 5: After authorisation, the transaction process is completed. You can see the terminal displaying a confirmation message along with a ‘beep’ sound indicating completion. 

Key Benefits of Contactless Pay Credit Card 

A credit card with built-in tap-to-pay technology helps you save significant time that is spent completing the transaction process. 

Shorter queue, more efficiency!

Besides, there are other prime benefits that you can enjoy if you apply for a contactless-enabled card:

1. Better User Experience: Since the checkout process with contactless payment solutions is much smoother and convenient, you can leave the store or shop with a higher satisfaction level.
2. Enhanced Security: Contactless payment solutions use robust data security methods and require closeness to the terminal, such as (2 to 4 cm), eliminating the risk of fraudulent transactions. 
3. Maintained Hygiene: With the touch-free payment method, you can avoid physical contact between the card and the POS terminals, making it a hygienic option in the post-pandemic era.
4. Availing Additional Offers: The majority of banks, such as Axis Bank, AU Small Finance Bank, etc., offer exciting rewards, discounts and cashback to their cardholders.  
5. No Extra Expenses: You do not have to pay additional charges for using the contactless service, making it another prime benefit among cardholders.

Security Measures to Support Contactless Payment Solutions 

When you can pay without entering a PIN or swiping a card, security measures must be taken to prevent fraudulent transactions. They are:

●   Limited Transaction Amounts: According to the Reserve Bank of India (RBI) guidelines, the transaction limit is ₹5,000 while using the contactless mode at POS terminals. This step ensures high-level protection against fraudulent activities.

●   Card Deactivation: Tap-to-pay credit cards offer you the freedom to deactivate the card upon loss or theft. You can do so by entering the specific bank’s mobile app or contacting the customer service team. 

Disadvantages of Contactless Credit Card Payments 

While it offers several benefits to consumers and businesses, there are some challenges and concerns from the business perspective. They are:

●   Upfront Cost for Setup

The initial cost of setting up contactless payment solutions is one of the main challenges that businesses face. They need to upgrade their POS terminals to support the advanced technology. 

So that the card can convey payment information smoothly and securely using RFID or NFC technology. These overall setup expenses are significant, especially for small businesses or start-up owners with budget constraints.

●   Customer Reluctance

Though touch-free payments are very popular among the new generation, older generations do not feel comfortable using them. It happens due to two reasons: being less familiar with new-age technology and security concerns.

As approximately 11% of people belong to the 60+ age group, businesses have to deal with the issue by offering the traditional payment option along with the new technology, which makes the operations complicated.

Making payments with a contactless credit card means a simple, swift and secure process. While cost and security concerns exist, the technology has proven to offer a more hygienic and efficient payment experience to customers. 

It proves especially useful in shopping malls, restaurants and retail stores, where long queues are common. 

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