Contactless Payments How Do They Work?

Contactless Payments How Do They Work?

Are you someone who absolutely hates how long it takes to complete a simple transaction using your debit or credit card? Does the prospect of card fraud concern you? If so, you may love contactless payment systems. This payment system involves using contactless cards, stickers, key fobs, mobile devices and even wearable gadgets.

Contactless Payment Basics

Contactless payments are secure. You don’t need to present your card to a cashier and your device never leaves your line of sight. For your entire transaction, your card never leaves your hand. How cool is that?

Contactless payments are blindingly fast. No messing about with clumsy vulnerable pin numbers just waiting for a hacking attack here. Nor do you need to sign for your purchases under $100.

Contactless payments are refreshingly easy. All you need to do is to hold your card close to the terminal and bingo, job done!

So, all in all, contactless payments promise to make life a little less stressful and just a little easier for the average Aussie consumer.

A Short History Of Contactless Payments

Contactless cards have been readily available in Australia since way back in 2006. However, they only started to gain popularity and momentum during the past few years.

From just 7.6 million cards issued in 2010, the number had swollen to 18 million by 2014. Some 60% of transactions in Australia in 2016 were contactless. With a mature POS infrastructure in place, the foundations for contactless cards have been laid. Analysts are predicting the total number of contactless cards in Australia to approach 33.9 million by 2019.

A key driver in the accelerating take-up of contactless payments is attributable to initiatives by Visa and MasterCard designed to capture a bigger share of Australia’s payment cards market.

This strategy appears to be working, as the average number of monthly transactions together with the average annual spent per card, are both higher in Australia than in other more mature contactless card markets such as the United States, the United Kingdom, Germany and Canada.

So How Do Contactless Payment Cards Work?

Payment cards come ready equipped with an embedded chip and a miniature radio antenna that transmits data to and from the checkout terminal. This radio connection makes it possible for consumers to simply wave their cards over the point-of-sale terminal to complete their transaction payment.

While the payment procedure is itself contactless, accidentally touching a terminal won’t make you inadvertently pay for someone else’s purchases. The card has to be held a few centimetres away from the terminal for a second or two for the radio connection to be made.

Any of these three card types can be contactless:

  1. Credit cards: Use a credit card for contactless transactions, transactions are simply charged to your credit card. Even if you have other accounts linked to your card, all charges are posted to your credit card.
  2. Debit cards. Contactless payments through debit cards debit funds from your savings or current account.
  3. Prepaid cards. Transactions can only be drawn down from the amount you credited to the card.

Prior to making your first contactless payment, you need to activate the feature by completing chip and PIN transactions. This verifies you are the card owner and serves as a security measure to reduce the risk of fraud.

To make a purchase, advise the merchant you are paying via contactless card, then simply follow the onscreen prompts and confirm the amount. Finally, hold your card a few centimetres away from the terminal and wait for a confirmation message; a beep or a blinking light to indicate your purchase was completed.

How Do I Know If My Card Is Contactless?

Contactless cards are available from a range of card issuers. The easiest way to check if your card is contactless is by checking the back. If it comes with the chip and displays the distinctive contactless symbol, then your card is contactless. Enjoy!

How Much Can I Spend On My Contactless Card?

All contactless purchases come with a floor limit. This is the maximum amount per transaction you can spend using your contactless card. In Australia, most banks set a $100-floor limit. As long as your purchases don’t go over that number, you won’t have to enter your PIN. However, for transactions exceeding that limit, you will need to input your PIN.

How Long Does It Take For A Contactless Payment To Hit My Account?

It varies by bank but typically; your transaction will be debited to your account two or three business days after you make your purchase. Some banks may take up to four days to debit the amount from your savings account.

How Secure Are Contactless Cards?

Compared to traditional magnetic stripe based cards, contactless payment cards are more secure. The contactless payment system is regarded as safer than conventional payment methods as the data exchanged with the POS system are encrypted. Thus, only authorized contactless readers can access this data.

Moreover, encryption technology protects cardholders’ data, making it nearly impossible to steal information while completing a transaction. Similarly, you can retain your card the entire time your transaction is being completed, making it difficult for your card to be duplicated by a card reader.

Adding to the security, each transaction must be completed or cancelled before another can happen as contactless terminals can only make one transaction at any one time. So, there is no way you can double up on a potential payment.

To date, instances of tap-and-go fraud have been low in Australia. It’s costing about 2¢ for every $100 transaction, which is only a fraction of the rate of conventional credit card fraud.

Do I Need To Buy A Wallet To Protect My Contactless Card?

One simple additional protective measure you can take to further secure your contactless card is to buy an NFC blocking wallet. This is a useful way to enjoy that extra peace of mind that comes from knowing your contactless card is secure.

What Happens If I Lose My Contactless Card?

As with any other card, notify your bank to block your card as soon as you realise your card is lost or stolen. Your bank may bear the costs of any fraudulent transactions if you notified the bank when you first discovered your loss.

Contactless cards are protected in several ways. Firstly, banks often set a limit on the number of transactions a card can be used or the value of a transaction before a cardholder is asked to use their PIN and chip process.

Final Observation

Contactless payment systems are proving to be increasingly popular y in Australia. One 2016 study indicated Australia had the highest usage of contactless cards among the 16 nations surveyed, including both the United States and the United Kingdom. In a convenience-driven market like Australia’s, contactless card’s ease of use payment system gives it a leg up on its competition.

About Author


Collins Mayaki

Collins Mayaki is the Managing Director of Wealthy You – helping Everyday people, Businesses and foreign investors navigate through the competitive and ever-changing mortgage landscape to find the right loan for them. Wealthy You goes into bat and negotiate on your behalf, making the process as simple as possible for you, geared up to deliver fast results. Our Mortgage Brokers help you avoid the pitfalls, and we'll find loan features to suit your personal circumstances. Collins has more than 12 years of sales, management and marketing experience across a diverse group of companies.

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