Contactless Payment: What You Need to Know

By Emma Diehl · May 08, 2023 · 4 minute read

We’re here to help! First and foremost, SoFi Learn strives to be a beneficial resource to you as you navigate your financial journey. Read more We develop content that covers a variety of financial topics. Sometimes, that content may include information about products, features, or services that SoFi does not provide. We aim to break down complicated concepts, loop you in on the latest trends, and keep you up-to-date on the stuff you can use to help get your money right. Read less

Contactless Payment: What You Need to Know

More than 80% of Americans now use some form of contactless payment, such as a contactless credit card or debit card or a digital wallet feature. Tapping your card or phone when making a purchase has become much more common since the Covid-19 pandemic, and the growth of contactless payment is projected to continue.

While contactless payments have a number of benefits, there are also a few drawbacks to this payment method that it’s important to know about.

How Do Contactless Payments Work?

Contactless payment was born out of the credit card chip. Before then, most cards used the magnetic stripe, and consumers had to swipe at checkout.

When a chip card is inserted into a payment terminal, the machine reads the card’s security information, completing a safer transaction than the old swipe method. The payment terminal uses RFID (radio-frequency identification), to read the card’s chip.

When payment terminals were upgraded to read the chips, the technology grew by leaps and bounds. The tech that reads chips also enabled machines to accept payment with a simple tap from a card, phone with a mobile wallet, or even a watch.

Consumers can now connect their credit cards to their phone or smartwatch using technology like Apple Pay or Google Pay. Then they can tap to pay from their phone or watch at checkout.

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What Transactions Are Eligible for Contactless Payment?

For contactless credit card payment to work, both the terminal and card have to have the technology.

To determine if a payment terminal is contactless payment enabled, check for the symbol that looks like a WiFi signal turned on its side next to a hand with a card in it.

Nearly all plastic forms of payments, debit cards, and credit cards have a chip, but not all are eligible for contactless payment. To determine if your card is, look for the WiFi signal turned on its side somewhere on the card.

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Pros of Contactless Payment

Contactless payment comes with some pros for the cardholder:

•   Ease of use. With contactless payment, users just have to tap their chosen payment method on the terminal. There’s no swiping or inserting for the transaction to go through.

•   Speed. Since there’s no swiping or inserting, contactless payments tend to be faster.

•   Leave the wallet at home. If smartphone users have uploaded their credit and debit card information to their phone, they can pay for things using their phone.

•   Security. Contactless payment with chips is more secure than traditional magnetic-strip credit cards. Contactless payments are encrypted. This system makes it much harder for credit card scammers to steal people’s credit card information.

•   Hygiene. Dollar bills are dirty and can serve as host to germs. Alternatives like contactless payments keep touching to a minimum.

Overall, contactless payment may make for faster transactions, and might not even require you to pull out your wallet.

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Cons of Contactless Payment

However, just like mobile banking has pros and cons, contactless payments do have some drawbacks, including:

•   Glitches in technology. A card and point-of-sale system might not line up from time to time, resulting in glitches.

•   It’s not available everywhere. While contactless payment is being adopted more and more, not every store has it. If there’s no symbol, customers will have to insert or even swipe to pay.

•   Privacy. Contactless payment is generally secure, but when customers use payment apps on their smartphone or watch, they may be unknowingly sharing data from their device. In addition, scammers may also be able to skim a user’s credit card information from close proximity. You can buy protective sleeves and wallets to help prevent this.

•   Limited transactions. It largely depends on bank policies, but because tap to pay doesn’t require authentication like signing or a PIN, there may be limits on withdrawals and purchase amounts. For more details on transaction limits, contact your bank or credit card company.

Recommended: Guide to Keeping Your Bank Account Safe Online

The Takeaway

While contactless payment isn’t foolproof, it can make purchasing transactions faster, easier, and more convenient. It’s also becoming commonplace as a payment method, and it’s more secure than cards with magnetic stripes. You can weigh the pros and cons of contactless payment to determine if it’s right for you.

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