Are Contactless Card Payments at a Higher Risk for Fraud?



accept credit card payments

The importance of a fast, secure and streamlined checkout process cannot be overstated for any business. For that reason, many entrepreneurs are looking quite favorably at payment technology that allows customers to use their mobile phones and even specific cards to make contactless payments. It’s important to understand both the pros and the cons of these innovations.

How the Technology Works

In the past, customers needed to physically swipe or insert their credit or debit cards into the merchant’s point-of-sale terminal. The older magnetic stripe cards were easy for criminals to copy and clone, and even the newer EMV chip cards are sometimes slow to process to the payment gateway.

It is therefore no wonder that people have become excited about contactless payment cards. These use an embedded microcontroller chip that is equipped with radio frequency identification (RFID) to “talk” to a similarly equipped reader. Indeed, it is the same technology that is used in smartphones to allow Apple Pay and Android Pay.

When the time comes for a customer to make their payment, all they need to do is to place the contactless card within a few inches of the RFID reader. In a matter of seconds, the encrypted payment information is transmitted from card to reader to payment gateway. In the end, the whole process is faster than completing a purchase with a standard EMV card.

Advantages of Contactless Payments

Few people were sad to see the end of the notoriously hackable magnetic stripe cards. Several years after most other developed countries adopted them, U.S. financial institutions finally rolled out EMV or “chip” cards in 2015. Over time, most people came to accept the slower processing times for these EMV cards because of their increased security. But today, contactless cards seem to represent the best of both worlds: faster payment experiences combined with the fact that the card never needs to leave the customer’s hand.

Since contactless payments can help checkout lines move faster, a buyers’ payment experience is less stressful. In fact, studies have shown that customers spend 30 to 40 percent less time at the point-of-sale terminal when they are using contactless payments. These types of payments have been found to be 63 percent faster than paying with cash and 53 percent quicker than dipping or swiping traditional credit cards.

As a result, many aspects of your business can improve. Long lines at the checkout area will diminish, cutting down on traffic and enabling customers to move more freely around your retail space. That in turn gives them the chance to have a better look at what you’re selling.

Potentially Disturbing Discoveries

However, contactless cards aren’t without risk. That’s because criminals are figuring out ways to circumvent the security systems of these cards. Accessing the sensitive personal data that is stored on a contactless card is thought by some to be easy. All a hacker needs to do is to get an RFID reader, readily available online, and then encode the purloined information with a card-magnetizing machine.

Another problem that has recently surfaced with contactless cards is what happens after a card is lost or stolen. Even if the owner immediately cancels the card, there have been instances when criminals were able to continue purchasing items long after the card should have stopped working. In many cases, this situation happens when a retailer processes batches of customer payments offline. In the case of some smaller stores, a few days can go by before the merchant communicates the cluster of payments to the bank, giving criminals plenty of time to make fraudulent charges.

Should Your Business Accept Contactless Payments?

Whether people use cash, checks or plastic, no payment mechanism is immune from security leaks. Contactless cards are no different. If you are wary of the small risk for security breaches that they pose, you may want to balance that risk against the probability that an estimated 150 million Americans will be using contactless payments by 2020. Other countries are already leading the charge. One in 10 card transactions in the United Kingdom is contactless, and 75 percent of Canadian retailers are equipped to process these cards. As more tech-savvy young people gain additional buying power, RFID technology is likely to become even more popular.

Furthermore, buyers are coming to expect businesses to provide a full range of payment options. The bottom line is that RFID-equipped credit cards have a certain “coolness factor” that cannot be denied. Like it or not, many of your customers will want to fit themselves into this new milieu.

The key to a successful modern business is flexibility. The more you can change with the times and give customers the buying experience they want, the better off you will be. Accepting contactless payments is one of the ways to make this happen.