What is Contactless Technology and How does It work?

Despite being a strong debit card-based economy, the number of active credit cards in India saw a 27% growth in 2019 from the total number of active cards in circulation since last year. It indicates a slow, yet steady growth in the demand and usage of credit cards in the Indian financial market.

Continuous demand for faster and more efficient instant payment tools, a better understanding of personal finance, and a wide range of features and benefits offered by different financial institutions have fuelled this recent growth. Even relatively newer technologies, like a contactless card, have met with massive interest from customers across the nation.

Contactless technology in credit cards

Contactless credit cards were first introduced by MasterCard in 2003, marketed as a tool for the ‘tap-and-go’ style of payment. Currently, contactless credit cards account for a substantial number of active cards in circulation; Visa estimates over 20 million consumers across India using Visa contactless cards as of December 2018. 

Contactless credit cards are Near Field Communication (NFC) enabled devices, capable of wirelessly transmitting data back and forth with a Point of Sales (PoS) terminal. These types of credit cards come in similar form factor as its ordinary counterparts, ensuring a standardised system for cashless transactions. Moreover, contactless credit cards are compatible with ordinary PoS terminals as well, allowing transactions in every type of situation. 

How does a contactless credit card work?

Contactless cards work by communicating with the payment terminal via NFC. The NFC chip receives the payment request from the unit and processes the same. The request is verified against fraud and accepted from the financial institution to complete the payment.

The transmitted data is encrypted to eliminate the chances of interception. Financial institutions also implement several other security measures to prevent any loss of data. 

What makes contactless credit cards safe?

Certain features make these credit cards a smarter choice for everyday use. Some of these facilities include – 

1. Contactless cards work within a small range, usually only when the card is placed within 4 cm or less. It ensures that no unauthorized transaction is made or data is stolen without the cardholder’s knowledge. The reader and card also have to be in correct alignment with each other to initiate the transaction.

Also, communication between a reader and a contactless card is not established unless a transaction amount is determined.

1. Contactless payment through these types of credit card is capped at a maximum of Rs.2,000 every transaction. Cardholders will have to enter their PIN to pay any amount higher than the above-mentioned limit. This offers an additional layer of security against any incorrectly entered transaction amount.
2. Each transaction is marked with a unique identification code, which can be used to track the merchant, date of transaction, and other essential details. This unique ID also prevents the same transaction from happening more than once, eliminating any chances of accidental inputs.
3. Another feature that prevents credit cards from being hacked is the limited amount of data transmitted during a transaction. These types of credit card do not transmit a cardholder’s name or their 3-digit security code, which prevents counterfeiting attempts.

Usually, credit cards offered by reputed financial institutions carry some form of security features to safeguard their customers against data theft and fraud. For example, zero-fraud liability cover offered with Bajaj Finserv RBL Bank SuperCard financially protects the customer against any unauthorized transactions.

Contactless payment is yet a new concept in India; however, the convenience offered by this system has resulted in an increasing number of sellers adopting this technology in recent years. Over 3.3 million merchants across India accept contactless cards, and with a better understanding of how to use a credit card wisely and securely, customers can easily benefit from the features offered by these payment tools.