Contactless payments 101: What, why and facts versus fiction

With the steady introduction of contactless payment systems in parts of South Africa, a new wave of convenience for low-value transactions is becoming a reality.

September 27, 2013

By: Liam McDermott of Stanchion Payment Solutions

With the steady introduction of contactless payment systems in parts of South Africa, a new wave of convenience for low-value transactions is becoming a reality. But just what is this technology? How does it work, and is it secure? These are questions that many people are starting to ask.

The first thing most people want to know is this: What is contactless payment?

The easiest explanation is to compare it with credit or debit cards, with which we are all familiar. A credit card is essentially a ‘token’, which interacts with a point-of-sale device, which in turn interacts with a bank to allow payment for goods or services. Contactless similarly uses a token – but the token is merely presented within proximity to the point-of-sale device, with no need to touch it (it isn’t inserted or swiped). Payment is made automatically, with no need to contact the bank at that point in time.

Essentially, you ‘wave’ your contactless card in front of the point-of-sale receiver and a payment is automatically deducted. If the amount is less than an agreed maximum (typically R200 in South Africa), there is no need to enter a PIN or sign a receipt.

The token can be contained in a card – or it can be integrated into another device, like a smartphone. Contactless works with a technology called NFC, or Near Field Communications. Smartphones with NFC can start replacing payment cards, as they have in the UK and USA.

The second thing people are likely to ask is ‘why’.

Contactless payments are geared towards high-volume, low-value payments. It’s faster; rather than struggling with cash and waiting for change, customers can merely ‘tap-n-go’, making checkout a faster and smoother process. You don’t have to carry cash or change and you can make payments – such as when boarding a bus or paying for parking – without even opening your wallet.

Of course, this benefits the store-owners too, as it increases the rate of traffic through till points.

A potentially likely scenario in the near future is this: Board the Gautrain for a trip from Rhodesfield to Sandton. Tap your phone on entry and exit. At Sandton, get movie tickets by simply tapping your phone on a terminal – same for your drink and popcorn. After the show, grab a snack at a coffee shop – again, paying by tapping your phone. At the end of the day, your phone gets you back on the Gautrain.

All you’ve used this entire time is your phone. No wallet, no cards, no cash and all the other bits we carry in them with us today.

Fact vs Fiction

The introduction of contactless payments raises the spectre of possible misuse. However, the technology is proven to be exceptionally safe through widespread use in Europe, the Far East and America.

The biggest concern is ‘snooping’, or stealing data from a contactless payment token from a distance. This is practically impossible, and falls squarely into fiction. The NFC card must tap or almost touch the POS terminal. It only works over a distance of a few centimetres, so if anyone was trying to snoop, they’d have to be practically standing on top of you.

The other major concern is that contactless cards are not as secure as ‘traditional’ payment cards. South Africa has recently seen the introduction of chip cards, which must be inserted and a PIN entered. Contactless payment is an evolution of these cards and is every bit as secure, with multiple layers of protection which include the short range, encryption and the low automatic payment limit. Payments made with contactless cards cannot reasonably be intercepted.

What if the contactless payment card is lost or stolen? This poses perhaps the greatest risk, as small payments can potentially be made before you report the loss or theft of the card. As with all credit and debit cards, if lost or stolen, it is very important to report it immediately to limit any subsequent damages. However, as the limit for automatic payments is typically low (below R200) and limited to specific merchants, any potential loss is likely to be quite limited.

The convenience to cardholders that comes with being able to make small purchases automatically, is proven around the world. South Africa is seeing the steady introduction of this technology for the same reasons. It works, and it works well.