What Is a Contactless Credit Card and How Does It Work?

Contactless credit cards are a method of payment that allows you to simply tap or wave your card near a payment terminal, as opposed to inserting or swiping it. This kind of card has grown in popularity over the past few years.

Here’s a look at the tech that enables contactless credit card payments, as well as the pros and cons of using this type of card.

What Is a Contactless Credit Card?

A contactless credit card looks like a typical credit card, featuring the bank name, account number on the front, and usually a magnetic stripe on the back. However, contactless credit cards allow cardholders to tap or hover instead of inserting or swiping their card in a merchant payment machine.

This technology enables a consumer to complete a purchase at a retail location without their card physically touching a payment device, a feature that led to increased adoption during the COVID-19 pandemic due to health and hygiene concerns.

What Does Contactless Payment Mean?

Contactless payment is a secure and fast way to pay for goods or services without physically swiping or inserting a card into a terminal. Often called “tap-to-pay,” it allows you to complete a transaction by simply tapping or hovering a contactless-enabled card, smartphone, or wearable device (like a smartwatch) near a payment terminal.

Contactless payments use near-field communication (NFC) to create an encrypted, one-time code for transactions, eliminating the need to swipe or insert cards.

How to Know If Your Credit Card Is Contactless

Most major credit card providers now offer contactless cards. You can determine if your credit card is contactless by looking for a contactless card symbol on the front or back of your card. This symbol looks like a wifi symbol flipped on its side, with four curved lines that increase in length from left to right.

Before paying, ensure the merchant’s card reader displays the same symbol. If you don’t see it, you can always ask the cashier. If your physical card isn’t contactless, you can still tap-to-pay by adding the card to a digital wallet like Apple Pay or Google Pay on your smartphone.

How Contactless Credit Cards Work

Like many other credit cards, contactless credit cards have small chips embedded in them. But instead of requiring you to insert the card, this chip transmits a unique, encrypted, one-time code to the terminal, authorizing the transaction faster than traditional dipping or swiping.

You don’t actually even need to tap your contactless credit card to pay — all you have to do is place your card within an inch or so of the contactless symbol. This will initiate payment.

You might then have to wait a few seconds while the transaction processes. Once the transaction is approved, the terminal will provide a confirmation signal, such as a beep, check mark, or green light.

Technology That Enables Contactless Credit Card Payments

Instead of inserting a credit or debit card into a merchant payment terminal, contactless credit cards today typically rely on near-field communication (NFC), which is a specific type of radio frequency identification (RFID), to complete a retail transaction. The card’s NFC chip sends encrypted payment details to the terminal. Once the device grabs the card information, the transaction can be completed and the purchase confirmed.

To protect sensitive data during a contactless transaction, the card’s chip generates a unique, one-time-use code. Even if a criminal intercepts this code, it cannot be reused for another purchase because the bank will recognize it has already been “spent.” In addition, NFC technology has an extremely short range, typically requiring the card to be within about one-and-a-half inches of the reader. This physical constraint makes remote “skimming” from a distance nearly impossible.

Pros and Cons of Contactless Credit Cards

Contactless credit cards come with numerous benefits, along with some tradeoffs:

Pros

Benefits of contactless credit cards include:

•   Quick and convenient to use: Contactless credit cards are extremely convenient to use. All a user has to do is wave their contactless credit card in front of the contactless symbol on the card reader, and the deal is done in less than a second.

•   Added security: Tapping to pay is considered more secure than swiping your card. Like inserting your card’s chip, contactless payment generates a one-time code that protects your card’s sensitive details. Contactless payments also sidestep the risks involved with skimming and shimming since you aren’t inserting your card.

•   Less physical contact: Contactless payments can help reduce the spread of germs since they minimize contact between your card with public surfaces, especially if you hover instead of tap.

•   Reduced wear-and-tear: Cards generally last longer when they are not repeatedly inserted into or swiped through payment terminals.

Cons

Some drawbacks of contactless credit cards include:

•   Spending can feel too easy: Quick taps can make spending even faster and more frictionless than slower payment methods.

•   Not accepted everywhere: Not all merchants or regions accept contactless payments. As a result, you may have to fall back on using your card’s chip or magnetic stripe even if you have a contactless card.

•   Transaction limits: Some credit card issuers put a cap on the amount you can spend using contactless payment (such as $250).

•   Technical Issues: As with any technology, there is the potential for glitches, such as a terminal malfunction or signal interference.

Guide to Using a Contactless Credit Card

When using a contactless credit card, the transaction is enabled and completed in three key steps: look, tap, and go.

1.    Look: Check for a contactless symbol on a merchant’s payment device (this will look like a wifi signal tipped on its side).

2.    Tap: After being prompted by the payment device, wave the credit card an inch or so over the contactless symbol or actually touch (tap) the credit card on the symbol.

3.    Go: Once the payment device confirms the credit card payment, you can take your purchase and receipt and go.

When making a contactless credit card payment, be sure to hold one card — not multiple cards or your entire wallet — over the reader. If more than one card is detected by the reader, the terminal could potentially charge the wrong one. While you’re not at risk of being charged multiple times for the same transaction, you want to be sure to hold only the card you want to use over the contactless symbol.

Are Contactless Credit Cards Safe?

Yes, contactless credit cards are considered highly secure. For one reason, they protect against physical card skimming devices sometimes placed illegally on magnetic stripe readers. In addition, contactless credit cards use dynamic encryption (tokenization) to generate a unique, one-time code for each purchase, making intercepted data useless for fraud. These cards also require close proximity to a terminal, which reduces risk of accidental or remote theft.

As with any credit card, it’s important to monitor your accounts regularly for unauthorized charges and report any suspicious transactions to your issuer as soon as possible.

The Takeaway

Contactless credit cards are emerging as an effective payment technology that’s gathering steam among consumers and retailers alike. Thanks to the tech that enables contactless credit card payment, these credit cards allow you to simply wave or tap the credit card near the contactless symbol on a payment terminal. Though contactless payments aren’t available everywhere, you can figure out if a payment terminal — and your credit card — offer contactless payment as an option by looking for the contactless payment symbol.

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FAQ

Are there extra charges for using contactless credit cards?

No, there are no extra, direct charges to the consumer for tapping instead of swiping or inserting, since these transactions are processed using the same standard card rates. While some merchants may apply general credit card surcharges, they are not specific to the contactless method itself.

What are the risks with contactless credit cards?

The primary concerns include the risk of overspending due to transaction speed and potential technical issues, such as terminal malfunctions or signal interference. While tokenization (one-time codes) effectively minimize data interception, lost or stolen cards are still vulnerable to unauthorized use. As with any credit card, it’s important to monitor your account and immediately report loss or theft of the card.

Where can I use my contactless credit card?

You can use your contactless credit card wherever you see the contactless payment symbol — the icon that looks like a sideways wifi signal with four curved lines. This symbol must be displayed on both your card and the merchant’s payment terminal for you to use the tap-to-pay feature.

What happens if I lose my contactless credit card and someone else uses it?

If you lose your contactless credit card and it is used for unauthorized purchases, report it immediately to your issuer to freeze the card. Under federal law, your liability for fraudulent credit card charges is generally limited to a maximum of $50, though many issuers offer zero-liability policies. The issuer will cancel the card, issue a new one, and initiate a fraud investigation.

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Photo credit: iStock/milan2099

SoFi Credit Cards are issued by SoFi Bank, N.A. pursuant to license by Mastercard® International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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