Contactless Payment (RFID): What is it Really?

We live in a technologically advanced world, where people prefer convenience over almost everything else. Hardly anyone carries cash anymore, and with a world run on credit people are unknowingly leaving themselves more and more vulnerable to identity theft. Fearing that a simple swipe of a credit card or the entering of an ATM pin code might cost them more than they bargained for, more and more consumers are looking for ways to spend conveniently without having to give away so much of their personal information.

Contactless payments are the latest in electronic payments. These systems help prevent credit card fraud as they allow the consumers to use their credit cards for making purchases without having to hand the card over. You’ve probably seen a system like this at your local Mobil station. There, they call it the "Fast Pass". Customers on the go can simply pull up to the pump, wave a special card in front of a sensor and then they can fill their tank and go. No swiping of a credit card, no walk inside to hand cash to the clerk. Just a wave of their wrist is all it takes.

How it Works

Contactless payment merchant accounts utilize contactless readers, retailer cards, or cell phone payment software supporting near field communication (short-range high frequency wireless communication technology) or over the air payment software. The credit cards or other devices make use of radio frequency identification (an automatic identification method, relying on storing and remotely retrieving data using transponders) to make secure payments. The implanted chip and antenna allow the customer to just wave the card above the reader at the checkout.

Some merchants assert that the transactions can be twice as fast as a normal purchase where cash, credit, or a debit card is involved. Studies show that a cash transaction takes about 34 seconds, a normal credit card takes about 27 seconds, but the radio frequency identification (RFID) transaction takes only 13 seconds.

Since purchases below $25 do not require a signature, it is likely that the customer will spend more frequently as it is easier to perform small transactions. Contactless payment merchant accounts provide the customer with ease of use, time saved, and convenience.

On the whole, nobody wants to wait in line to make a purchase for less than $25. So, in theory, contactless payments not only put the customers’ worries of credit card fraud to rest but also decrease the much-despised time spent waiting in line.

The rate at which this contactless payment is being adopted is the fastest seen in any new technology thanks to its ability to prevent credit fraud.

Merchants also benefit from contactless payments. Since their customers love it, they keep getting business. Merchants providing contactless payment will have an edge over the others because they will be providing their customers an extra service that is different and exciting.

Is Contactless Payment Secure?

The Smart Card Alliance (www.smartcardalliance.org) explains that contactless payments systems are more secure than traditional credit or debit purchases in the following ways:

1. Each card has its own encrypted key built in.

2. Transaction information can only be used once—meaning each transaction has its own uniquely identifiable information. So even if the information from a transaction is somehow stolen it cannot be reused.

3. The cardholder’s name is not present anywhere on the security chip therefore it cannot be stolen by thieves.

4. Some systems don’t even have account numbers attached to the encrypted chips and instead just link the card to a routing number that then links to an account number meaning that account numbers cannot be stolen or hacked by identity thieves.

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Currently, the chief financial organizations offering contactless payment systems include MasterCard, American Express, Citibank, HSBC, JP Morgan Chase and Key Bank.

But the jury is still out on whether or not this new technology really is the way to go. The Federal Trade Commission (FTC) is currently investigating contactless payment to determine if there are any yet undetected security risks for users.