What are contactless credit cards and how do they work?

Contactless cards aim to leverage upon the near factor communication (NFC) technology. Conveniently tap and pay at the point-of-sale (PoS) terminal, thus reducing transaction completion time.

What are contactless credit cards and how do they work?

Technological advancement has fast made inroads into almost every domain, with digital payments being no exception. One of the available modes to facilitate digital payments are NFC enabled contactless credit cards.

What makes contactless credit cards the new-age trend?

These cards do not require internet connectivity to facilitate data transfer from the card to the reader. One simply needs to tap the card in from the card machine at close proximity of about 2cm and the payment is completed in almost no time. Let’s get down to the functionality of such cards. The PoS devices would capture the card credentials that are embedded in the NFC chips by way of radio frequency identification (RFID) technology. 

What are the benefits?

One of the key benefits is prompt payment completion owing to the absence of pairing. Further, there is the convenience factor that eliminates the need to carry cash or spend time in swiping the card through the card terminal. This would allow less dependence on cash and help transform India into a more transparent, cashless economy. Globally, leading tech majors like Apple Pay and Samsung Pay have integrated the NFC technology into their smartphones as well. Owing to the lack of physical contact with the card machine and not handing over the card to the merchant, the scope of fraud risk is considerably mitigated. As an additional security feature, the credit card number, expiry date, name of cardholder and CVV, transferred under NFC technology, are encrypted. Even in the unfortunate event of data theft, it would be impossible to read the confidential details. 

What happens in case of theft?

In case the contactless credit cards are stolen, it would be impossible for unauthorised persons to use the cards. The cardholder needs to report the theft and promptly block the NFC card. In India, in case of card fraud, the bank is required to bear the loss mandatorily, thus protecting the cardholder. 

What are the disadvantages?

The disadvantage is that the usage of such cards is currently restricted to amounts up to Rs 2,000 per transaction with a limit of 4-5 transactions per day. Thus, one would be unable to execute transactions in excess of Rs 2,000 in one go. Further, since the contactless option is inherent in the card chip, it cannot be deactivated subsequently. 

Experts are touting the benefits of contactless credit cards, given the time saved. It is believed that while traditional credit cards with swiping requirements take around 2 minutes, the contactless credit cards need about 12 seconds to effect payment. The NFC technology in credit cards is still at a nascent stage in India. With customers being spoilt for choice given a multitude of digital payment options, much needs to be done to ensure large scale acceptance of contactless credit cards.

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