Benefits of contactless payment to cardholders, retailers

Image courtesy of Stuart Miles / FreeDigitalPhotos.net

Operating system

The easiest explanation as to how it works is to compare it with credit or debit cards. 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, one 'waves' one's 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, such as 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 US.

Transaction speed is key benefit

Contactless payments are geared towards high-volume, low-value payments. It is faster; rather than struggling with cash and waiting for change, customers can merely 'tap-n-go', making checkout a faster and smoother process. One does not have to carry cash or change and can make payments - such as boarding a bus or paying for parking - without even opening one's wallet.

This also benefits the storeowners, as it increases the rate of traffic through till points.

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

All one has used this entire time is the phone - no wallet, cards, cash or other bits people carry with them today.

Fact vs Fiction

The introduction of contactless payments raises the spectre of possible misuse. However, the technology has proven 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, he or she has to be practically standing on top of the user.

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.

The greatest risk is if the card is stolen, as small payments can potentially be made before one reports 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.