How Contactless Cards Work

Just five short years ago, a nationwide shift occurred in the way people made purchases with their debit and credit cards. Financial institutions started replacing magnetic stripe cards with EMV chip technology. While the new “chip-and-pin” cards provided a more secure way to make purchases, it slowed down payment processing at checkout.

Now, there’s a new shift coming to the U.S. with contactless payment cards. There’s no swiping or sticking your card into anything. You just hold the card close to the checkout terminal until it beeps a payment confirmation, and you’re done.

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This improved way to pay promises to get you on your way faster than chip cards ever did. But before you start using this new technology, we’ll explain how contactless cards work, and what the pros and cons are of using them.

In this article

    How to use contactless cards

    Using a contactless payment card is easy and quick. Just hold your card to the checkout terminal when given a prompt, and payment is complete when you get the “ok” symbol. The whole process usually takes about 10 seconds.

    Here are a few tips when using a contactless payment card:

    1. Hold your card against the payment terminal until payment is complete (hold no farther than 1 inch away).
    2. For best results, hold the card flat against the payment area/pay terminal.
    3. In most cases, your card does not need to be removed from your wallet for payment to be processed. However, it won’t work if the card is in an RFID-shielded wallet or cover.
    4. Small purchases (usually under $50) won’t need a PIN or signature but they may be required for larger transactions.

    What does a contactless card look like?

    How do you know if you have a contactless-payment enabled card? Just look on the back or front of your card for a symbol that looks like radio waves (four curved vertical bars that look similar to the Wi-Fi symbol turned on its side — minus the dot).

    If you’re not sure, contact your bank or credit card issuer to ask about your particular card. If that symbol is not on your card, ask if you’ll be getting a replacement card soon.

    Where to use a contactless card

    If your card has the contactless pay symbol, you can use it to “tap-and-pay” at any check out terminal that accepts contactless payments. Just look for terminals that have a corresponding radio-wave-like symbol with a hand holding a card up to it, as displayed in the image above.

    Many U.S. merchants are now accepting contactless payments. It’s likely that if the checkout terminal accepts chip card payments, it will also accept tap-and-pay (contactless payments).

    How does a contactless card work?

    Contactless cards have a small chip inside that uses radio-frequency identification (RFID) to communicate with contactless-enabled pay terminals to complete your payment transaction. The card does not have a battery and is not powered.

    The chip contains card information and identification. When you touch the card to the terminal, the chip is activated and read by the pay terminal. Information is communicated through RFID channels, and a secure one-time encrypted token is created specifically for that payment transaction. Secured payment data is transferred between card and terminal, and payment is processed. It all happens within five to 10 seconds.

    Sensitive information that’s transferred between card and pay terminal is encrypted through the process of tokenization — information is randomized and encrypted, so only the pay terminal can read and process the information. This prevents data loss and duplicate transactions, in case you accidentally tap twice or there’s outside interference (fraudulent interception).

    Pros of using contactless cards

    As you might have guessed, there are a number of benefits of using contactless cards:

    • Speed and convenience: Using the tap-to-pay at checkout is the fastest and easiest way to pay for smaller purchases. No more fumbling with the chip reader or trying to remember a PIN. You can be done with your purchase and going about your day in no time.
    • A secure way to pay: Contactless payment technology uses tokenization. Payment transactions are encrypted, so only the pay terminal can read that information and transactions can’t be duplicated.
    • Fraud protection: If someone steals your credit card information, you’re protected from fraud through federal protections and your credit card issuer’s zero liability (note that this isn’t a feature all issuers offer).
    • No additional fees: Contactless pay features don’t cost extra. However, some issuers may require you to set a PIN to prevent fraud.

    Cons of using contactless cards

    With any new technology, there are also a few downsides to think about:

    • Prone to digital pick pocketing: As soon as contactless cards hit the market, news came out about hackers using RFID scanners to electronically “pickpocket” credit card information straight from purses and wallets. Recent news about this in North Carolina proves you should always be informed about new technology. Keep in mind that most issuers still offer fraud protection when it comes to credit cards, and you can prevent thieves from scanning cards by storing them in an RFID-blocking wallet when not in use.
    • Not yet accepted everywhere: In the U.S., tap-and-pay technology is still being adopted. However, most checkout terminals that accept chip payments may also accept contactless payments.
    • Confusion by users: Some cardholders, business owners and cashiers may be reluctant to adopt the use of the new system.
    • Transaction limits: Card issuers may set limits on contactless payments for lower transaction amounts and require chip-and-pin or signature for higher transactions.

    Should you use contactless cards?

    With more Americans moving away from the cash system to make weekly purchases, according to Pew Research Center, it’s no wonder credit card issuers and banks are looking for ways to improve payment technologies to be more secure and convenient for both the customer and merchant.

    Odds are you already have a card that has the contactless payment symbol on it. And now that you know how contactless cards work, should you use this tap-and-pay system?

    Of course, but be an informed consumer and be secure when using this new technology. Keep your contactless cards secure in an RFID wallet/cover when not in use, and monitor bank and credit card transactions for fraudulent purchases. If you’re lookig for a new credit card with contactless pay features, check out some of our favorites for 2020.

    Editorial Note: Compensation does not influence our recommendations. However, we may earn a commission on sales from the companies featured in this post. To view our disclosures, click here. Opinions expressed here are the author’s alone, and have not been reviewed, approved or otherwise endorsed by our advertisers. Reasonable efforts are made to present accurate info, however all information is presented without warranty. Consult our advertiser’s page for terms & conditions.

    Christine Renee

    Contributing Writer

    Christine C. Renee is a personal finance writer who enjoys delving into money topics like budgeting and fintech. She has been published in Careful Cents, Investor Junkie, and Money Mini Blog. When not writing, she uses her bachelor’s degree in business admin to help micro-businesses and solopreneurs manage time and money. On her days off, you may find her with a book on information technology and security.