Should You Tap to Pay? A Closer Look at NFC and Contactless Payments

Table of Contents

1. What is NFC Technology, and How Does It Work in Contactless Payments?

2. How Widespread is the Adoption of NFC Technology in Retail and Other Industries?

3. How Secure Are NFC and Contactless Payment Methods Compared to Traditional Payment Methods?

4. What Are the Benefits of Using Contactless Payment for Consumers?
5. What Are the Potential Drawbacks or Limitations of Using Contactless Payments?
6. What Should Consumers Consider Before Switching to Contactless Payment Methods?
7. How Is Contactless Payment Technology Expected to Evolve?

It wasn’t all that long ago that paying with a debit card or credit card left consumers with only one option: swiping their card so that the reader could get information from the magnetic stripe on the back of their card. The next step was the EMV chip card, which is inserted into a payment terminal to complete a transaction.

Today, many (if not most) of us are comfortable with NFC and contactless payments. But should we be comfortable with NFC technology? 

Any time we’re introduced to new tech, it’s necessary to understand at least a little about how it works and what risks are associated with using it. In this article, we’ll explain how NFC works, how secure tapping is, the benefits and risks of tapping, and what you should consider before paying with a tap.

What is NFC Technology, and How Does It Work in Contactless Payments?

How does NFC payment work? We’ll start with the basics.

NFC is short for near-field communication, a type of short-range wireless connectivity technology that allows an NFC enabled device to communicate with another when they are either touching or within close range of one another. You may have seen an NFC tag on something you bought, as they are often used to streamline the inventory process.

The technology is used in credit and debit cards with an NFC chip. You can even use an NFC enabled smartphone, paired with a payment app to pay without a card at all. This is what enables you to use a mobile wallet app such as Apple Pay, Google Pay, Android Pay, or VISA contactless.

When you tap to pay, your card and the reader must be within a few inches of one another for the connection to work.

Each NFC transaction generates a one-time token. Your card number and other payment information aren’t transmitted to retailers and can’t be stored. That makes tapping more secure than some other payment methods.

How Widespread is the Adoption of NFC Technology in Retail and Other Industries?

Whether you’ve embraced NFC payment app technology or not, you may be wondering just how popular it is and how many people are using it.

According to a CNBC survey, the COVID-19 pandemic accelerated the use of contactless payment technology as people used less cash and embraced technology to keep themselves safe.

As of June, 2024, 51% of American consumers said they were using some form of contactless payment, like a chip card or a digital wallet. The most common place to use a contactless payment option was in grocery stores, followed by pharmacies, retailers, and fast-serve restaurants.

Since NFC is still relatively new, there are some Americans who still don’t have an option to tap to pay. That’s expected to change as existing cards expire and new cards are sent to consumers.

85% of all merchants in the US accept some form of tap-to-pay and increasingly, consumers expect to have the option to tap instead of inserting a card.

How Secure Are NFC and Contactless Payment Methods Compared to Traditional Payment Methods?

When using any payment method, contactless or not, security should be a priority. Financial institutions and merchants both tout the security of NFC, but what does that mean and how secure are these transactions?

To better understand why NFC contactless payment is secure, let’s start with some of the vulnerabilities that exist with other credit card payment methods, most specifically with credit or debit cards that need to be inserted into a payment device.

One of the biggest security risks is the use of skimmers, which are devices that fit over a payment terminal and “skim” financial information without the user knowing it. Some skimmers are clunky and obvious, but there are internal skimmers that are practically invisible.

Thieves may also install cameras at points of sale that allow them to capture PINs when consumers enter them into a card reader. 

When using credit and debit cards online, you’re also vulnerable to hackers. If your payment information is stored, it could be stolen.

Whether you’re using a contactless card or making an NFC mobile payment, contactless payments protect you by:

• Generating a one-time transaction token that isn’t stored and can’t be used again
• Making it impossible for a skimmer to steal your transaction information
• Completing transactions more quickly
• Minimizing exposure to germs and bacteria when shopping
• Eliminating the need for online retailers to store your payment information where hackers could steal it

These things make a contactless transaction more secure than almost any other transaction.

What Are the Benefits of Using Contactless Payment for Consumers?

It shouldn’t come as a surprise that there are benefits to consumers who embrace contactless pay. 

Credit Card Information Isn’t Stored

Perhaps the biggest benefit of NFC payment is that your credit card information isn’t stored. Instead, the chip in your card creates a single-use token, making it impossible for hackers to steal your transaction information.

Transactions Are Quick

With a typical card transaction, you must insert your card, enter a PIN, and confirm the transaction. An NFC payment takes significantly less time, which is a benefit for merchants, too.

No Wear and Tear

Over time, using your card can cause the magnetic stripe to stop working. You don’t need to worry about that when making an NFC payment because you don’t need to insert your card and the stripe won’t come into contact with the reader.

No Exposure to Bacteria and Germs

When many people use a payment terminal every day, there’s no denying that there’s a risk they’ll leave germs or bacteria behind. NFC payment or NFC mobile payment means you’ll never touch the NFC payment terminal.

What Are the Potential Drawbacks or Limitations of Using Contactless Payments?

While making a contactless transaction may be more secure than other payment methods, there are some potential risks and drawbacks to keep in mind.

Technology Failures

While mobile NFC payments usually work, it’s not unheard of for grocery stores and other retailers to have issues with an NFC reader. If you leave home with the intention of using a mobile wallet, such as Google Wallet, to pay and without a payment card on hand, you might not be able to complete your purchase if the NFC device doesn't cooperate.

Unauthorized Transactions

The most significant risk of tap to pay is that cards that have NFC capability don’t require a PIN or signature to use. That means that if you lose your card, you could be at risk of someone making unauthorized purchases with it. It’s something to keep in mind if you carry your card with you.

Impulse Purchases

It’s easy to make contactless purchases and if you’re not careful, there’s a risk that you could end up spending more than intended. Merchants may see this as a benefit, but as a consumer, it’s important to remember that NFC payments still involve your money, and you’ll want to keep your financial goals in mind when making spending decisions.

What Should Consumers Consider Before Switching to Contactless Payment Methods?

You may already be using contactless payments. Even if you aren’t, you probably already have a credit card or debit card ready for this method, meaning that you could start making contactless payments today. Here are some of the things you should consider before switching:

1. Are you comfortable with the technology? There’s nothing wrong with preferring to insert your card or pay with cash, and if that’s what you prefer, you can continue doing so.
2. Do you understand the risks? The biggest risk is that if you lose your card, someone could use it for contactless payment without a PIN. 
3. Are you willing to use a mobile wallet? Mobile wallets usually unlock with a fingerprint, making it difficult for someone who picks up your phone to buy something with your wallet.
4. Are the places you shop most often equipped to receive contactless payments? Many stores in the United States are, but if you live in a rural area, there’s a chance that your local shop may not have an NFC enabled reader.
5. Has your financial institution issued you a card with the ability to tap to pay? If not, you may request one.

Provided you’re at ease with the technology and understand the risks, switching to a contactless payment method may be something you want to do.

How Is Contactless Payment Technology Expected to Evolve?

You might be wondering how a tap-to-pay transaction might look in the future.

One evolution we wouldn’t be surprised to see is the addition of biometrics as a security layer with contactless payments. You’re probably already using a fingerprint scan to access apps on your phone, or maybe you access your iPhone with facial recognition. Biometrics could be used to make an NFC mobile payment even more secure than it already is.

Another possibility is the development of an open ecosystem that permits devices to talk to one another using an Application Programming Interface, or API. 

Technological advances are happening every day. We’re sure that there are other options being considered to take the security of contactless payments to the next level, protecting consumers while still streamlining payments. 

Secure Your Purchases with Contactless Payments

Contactless payments are both secure and convenient. They offer benefits to consumers and merchants alike. We hope that the information we’ve included here will help you decide if contactless payments are right for you.

To learn more about credit card payments and how to protect yourself when shopping in person or online, check out our Financial Education Center, or read about Addition Financial’s credit cards here.