How Does Contactless and NFC Payment Work?

It wasn’t that long ago that buying on credit involved a merchant trusting a customer and writing their purchases in a book. Then came credit cards and those clunky machines that made an impression of the card. We’ve come a long way.

Today, it’s possible to make a purchase without using a card. It’s something called contactless, or NFC, payment. You’ve probably seen it happen. A customer holds their mobile phone near the store’s device – and just like that, the purchase has been made.

What you might not know is how that technology works. We’re here to help.

What is Contactless Payment?

Let’s start by talking about what contactless payment is. Simply stated, it’s a payment that takes place without physical contact between two devices.

In most cases, one of the devices is a mobile phone. The payment information is stored in the phone. When the customer holds the phone near a merchant’s reading device – usually within two inches or so – the reader gets encrypted information from the phone and uses it to process the payment.

The benefit of contactless payment is that it uses secure technology to protect your information. It’s called near field communication, or NFC, to work.

How Does Near Field Communication Work?

Near field communication payments, or NFC payments, represent the latest in encryption technology. They provide consumers with an easy and secure way to make payments.

NFC is a subset of something called radio-frequency identification or RFID. RFID is not new technology – in fact, it’s something we take for granted. It’s the same technology used to scan items at the grocery store or luggage at the airport.

Using a specific frequency of 13.56 MHz, NFC was first used for things like identity badges. Now, it’s being used more often for contactless payment.

To work, the consumer needs to hold their mobile device or tap card within two inches of the terminal. When they do, the two devices communicate with one another using encryption. The transaction can be completed in just a fraction of the time it would take to use a chip reader or pay with cash.

Are NFC Payments Safe?

By now, you’re probably wondering whether NFC payments are safe. Since the communication happens wirelessly, it’s natural to ask if it’s possible for the communication to be intercepted and used to make unauthorized purchases.

One of the things that makes NFC payments so appealing is that they are safer than other transactions. We’ve already told you that the transmissions are encrypted. That means that your credit card information isn’t being transmitted in a form that can be read by a thief or hacker.

In addition to being encrypted, NFC transactions are also dynamic. What that means is each transaction is completed using a unique code, one that’s generated and encrypted for the purchase you’re making. The code that works for one transmission cannot be used for another.

To illustrate the point, let’s talk about the Apple Pay system. It uses something called tokenization to protect your data. When you set up your account, you take a picture of your credit card and send it to Apple. They transmit it to your financial institution, which generates a random series of numbers called a token. The token is used in place of your credit card number.

There’s an additional safeguard used by Apple. The system is protected by fingerprint technology. You won’t be able to use Apple Pay unless you unlock it with your fingerprint. If you lose your phone, the person who finds it won’t be able to make purchases.

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Should You Use NFC Payments?

If you’re thinking about using a contactless payment method, here are some things to consider.

  1. These payment methods are more secure than using swipe cards because they encrypt your data, so it can’t be used by others.
  2. Transactions are quicker than they would be with a traditional credit card or cash.
  3. Even if you lose your phone, your data will be protected.
  4. Some mobile wallets limit the amount you can spend without a signature – and some retailers may require a signature for their records.
  5. NFC payments are convenient and can give you some peace of mind when it comes to credit card fraud and identity theft.

Three of the most popular mobile wallets to consider are Apple Pay, Android Pay and Samsung Pay. Once you’ve downloaded the app, you’ll need to follow the instructions provided to set up your payment method.

People who are worried about credit card fraud or identity theft can protect themselves by using a mobile wallet. These apps are widely available and significantly less expensive than paying for a credit monitoring service.

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The content provided here is not legal, tax, accounting, financial or investment advice. Please consult with legal, tax, accounting, financial or investment professionals based on your specific needs or questions you may have. We do not make any guarantees as to accuracy or completeness of this information, do not support any third-party companies, products, or services described here, and take no liability or legal obligations for your use of this information.


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