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Contactless Mobile Payments Explained

If you’ve never seen a contactless payment in person before, it’s something to behold.

After arriving at the cash register, the customer simply waves his/her smart phone across a credit card terminal. The sale goes through instantly, with absolutely no direct contact between the customer’s physical credit card and the merchant. 

  • Nothing to swipe
  • Nothing to print
  • Nothing to sign 

How do contactless mobile payments work, and why do they continue growing in popularity?

What Are Contactless Mobile Payments?

When customers are ready to buy something at the checkout counter, they use their phones to authorize a connection between their device and the payment terminal. In most cases, the customers will use a secret PIN or biometric thumbprint to unlock their devices. 

The smart phone and terminal establish a connection using near-field communication (NFC), a wireless technology similar to Bluetooth. Whereas Bluetooth connections can occur at 30-plus feet between devices, NFC-enabled devices need to be within a couple of inches of one another. 

With an NFC connection established, the credit card reader processes a payment using the credit card or banking details that are securely stored in the customer’s phone. This financial information is typically protected using a special security feature known as tokenization. 

Once payment is received, the terminal approves the sale and sends a digital confirmation to the customer’s smart device — hence a contactless mobile payment has just gone through. 

What Are the Advantages of NFC Contactless Payments?

Why would any merchant replace an older credit card terminal with an NFC-enabled reader? There are two primary reasons why contactless payments are all the rage: 

  1. Speed. With a wave of a customer’s phone, the transaction is over in seconds. This means shorter lines for shoppers, and more sales per hour for merchants. 
  2. Security. The merchant never touches the customer’s credit card or money. However, proximity does matter. The smart phone and reader must be inches apart for a connection to work, and that connection can be established only after the customer has unlocked his/her phone. 

Are there disadvantages of using contactless payments? Potentially. 

The Dangers of Contactless Mobile Payments 

It’s worth noting that all payment options carry certain risks — from cash to checks to ACH transfers. NFC-based contactless payments are no different. 

For example: 

  • It’s possible to jam connections and prevent data transfers from executing. 
  • It’s also possible to intercept data mid-transit, although this is very difficult. 
  • Customers might have malware installed on their smart devices. 
  • Credit card readers can be hacked, making them vulnerable to data corruption. 

All of these dangers exist, but by keeping terminals and smart phones up to date with the latest patches, you can avoid most types of fraudulent attacks. 

Are Contactless Mobile Payments Right for You? 

Contactless payments offer greater speed and enhanced security, but are these benefits worth replacing your current reader with an NFC-enabled alternative? Actually, you might not have to upgrade equipment whatsoever. 

If you already have an EMV terminal, there’s a good chance that you can begin accepting contactless payments at your store, because many newer EMV readers come equipped with NFC technology. 

The last step is to enable contactless payments within your retail store, after which you’ll be able to accept Apple Pay, Android Pay and countless other digital wallets.


Topics: Mobile Payments, Payment Technology

Welcome to the BluePay Blog!

Whether you're a small business, an enterprise corporation, a financial institution, or a software partner, we have created a series of blog posts to help you and your customers, learn more about the complex nature of payments. Take a look to learn how payments can help to simplify your business operation, and may even help to grow your revenue.

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