Everything to know about contactless credit cards

A contactless credit card looks and functions much like classic credit cards, with one big difference. Instead of swiping your card or inserting a chip to make a purchase, you wave or tap it on a sensor—and just like that, your transaction is completed. 

First introduced in 2015, contactless credit cards have been a welcome addition to wallets everywhere, especially for those looking to reduce unnecessary contact with surfaces and card readers. In fact, as of August 2020, 51 percent of Americans use some sort of contactless payment, according to a study conducted by Mastercard

But before you sign up for one, it’s important to be fully informed on contactless credit cards and their pros and cons.

How do contactless credit cards work?

A contactless credit card might sound like it works like a magic wand, but the inner workings are a bit more technical. 

Contactless credit cards use NFC (near-field communication), which is powered by a small built-in chip that emits short-term radio waves. These waves are picked up by a contactless credit card reader, which then completes the transaction and charges your account. This is why contactless cards are sometimes referred to as RFID cards or RFID chip credit cards.

Customer using contactless credit card by hovering card over contactless card reader.

Though contactless credit card readers are often referred to as “tap to pay,” there’s actually no tapping involved at all—customers simply hover their card a few inches above. 

Now that you know contactless credit cards run on more than faith, trust and pixie dust, you might be wondering how exactly to use one.

How to use contactless credit cards

To complete a purchase using a contactless credit card, you’ll first need two things:

  1. Contactless credit card
  2. Contactless credit card reader

You can tell a contactless credit card from a regular one if it has a small contactless symbol on it, similar to a sideways WiFi triangle. The card readers also have this mark, so you can easily tell if you can use a contactless card or a traditional swipe or insert card. Contactless technology is quickly becoming the norm in the United States, and it has been adopted in parts of Canada, Europe and Australia for some time. 

Once you’ve checked your card and the reader are compatible, the steps to use it are simple.

  • Step 1: Check if the card and card reader have contactless capabilities.
  • Step 2: Hover or tap the card on the contactless sensor.
  • Step 3: Finish the transaction — no PIN or signature required.
How to use contactless credit cards. Step 1: Check; verify both card and card reader for contactless payment capabilities.  Step 2: Pay; when prompted, hover or tap card or contactless sensor. Step 3: Finish; once payment has been verified, transaction is complete.

Using a contactless card really can be as easy as 1, 2, 3. Like other credit cards, it does have several considerations that should be evaluated before you sign up.

Are contactless credit cards safe?

One of the biggest concerns surrounding contactless credit cards is safety. Though no credit card is entirely theft proof, contactless credit card companies have taken several steps to ensure users feel confident that their funds are safe. 

Since contactless credit cards can’t be verified with signatures or a PIN like traditional cards, the biggest threat facing contactless credit cards is someone stealing your card and using it. Luckily, many banks have set spending limits on these kinds of cards to prevent fraudulent transactions.

For example, American Express limits each transaction on contactless credit cards to $30 or less. Luckily if your card is stolen, your credit card company’s fraud protection should cover any fraudulent charges. 

Another protection put in place is the one-time code created for each individual transaction made by these cards. Similar to the technology used by credit card chips, these encrypted codes are transmitted from your card to the card reader with your unique account number when you pay. What’s not transmitted is your name, billing address or card verification code.

Unlike  “skimming,” when the magnetic stripe of your credit card can be replicated after a swipe, it’s near impossible for hackers to replicate this algorithm. Each code transmitted during a contactless credit card transaction is wholly unique, so you can “tap” to pay away knowing your information is safe. 

As secure as contactless credit cards are, no credit card is entirely immune to fraud or theft. Here are five additional security tips to ensure your money stays safe.

  • Be cautious of public Wi-Fi networks; try not to use your card on public or shared devices.
  • Check your account often and report any fraudulent transactions immediately. 
  • Keep your account information private and secure.
  • Report lost cards as soon as possible.
  • Keep your information updated to keep bills or other account information out of the wrong hands.

Benefits of contactless credit cards

In addition to the hefty security measures for contactless credit cards, there are a number of benefits that come with adding these cards to your wallet. Speed and ease of use, reduced wear and tear, and the ability to be used overseas are just a few of the reasons more people are signing up.

1. Speed and ease of use

One of the biggest benefits of a contactless credit card is how easy it is. How many times has a quick checkout turned into a painfully long one from chip reader issues, swipes not going through or worse? 

With a contactless credit card you won’t hear the dreaded beep of a chip insertion needing to be repeated, or have a five-minute shopping trip turn into a 10- or 15-minute one. Checking out with these cards only requires a tap to complete a transaction, with a user experience so easy a child could easily do it—though be careful about handing your card to your three-year-old niece.

2. Reduced wear and tear

We’ve all been there: Standing in the checkout line eyeing your credit card that’s looking rough and hoping it’ll swipe. At the end of the day, credit cards are pieces of plastic that are highly susceptible to wear and tear. Enter contactless credit cards: The card that doesn’t need to actually touch anything. 

Considering that these cards don’t need to be swiped or inserted anywhere, contactless credit cards are more likely to last longer and stay in much better shape than other cards. This way, you can skip the arduous process of getting your card replaced when it inevitably cracks. 

In addition, a card that doesn’t get swiped also doesn’t come into contact with surfaces or other people’s germs. This is a big benefit for the immunocompromised, or those who just want to reduce the amount of germs they come into contact with on a daily basis.

51% of Americans use some kind of contactless payment as of August 2020.

3. Best for overseas travel

Another benefit of contactless credit cards is how widely they’re used in parts of Canada, Australia and Europe. This makes international travel easier, as you can pack just one card knowing it’ll be widely accepted. 

Especially due to PIN, credit and debit technology varying so widely from country to country, having a contactless card will ensure you have an accepted form of payment wherever you go. 

When travelling internationally, you should alert your card company of your plans, including where you’ll be travelling and for how long. It’s also advised to bring along some cash in the currency of your destination, just in case.

Disadvantages of contactless credit cards

While contactless credit cards certainly have a number of benefits, no credit card is without drawbacks. From possible security risks to not being universally accepted, here are some of the cons you should be aware of.

1. Security risks

As previously discussed, one of the biggest questions customers have before signing up for a contactless credit card is that of security. Unlike traditional credit cards that are swiped or inserted, contactless credit cards are virtually impossible to hack into. 

That said, theft and physical security are a risk with contactless credit cards, as there’s no way to verify your identity while making a purchase with no PIN or signature required. To counteract this security threat, many credit card companies put a limit on the purchase amount that can be made with a contactless credit card in one transaction. 

However, that limit can be suspended when customers need to make high-dollar purchases due to outside matters such as extreme weather or a health crisis. If you have a contactless card, follow credit card security measures to keep your card and funds from getting stolen.

2. Not universally accepted

Though contactless credit cards are becoming increasingly popular, they aren’t universally accepted yet. Just like when chip technology was introduced, some stores and chains haven’t invested in contactless card readers, meaning you’ll need to keep a traditional swipe or insert card in your wallet just in case—more on that later. 

This can be frustrating for many cardholders, as this technology is quicker and easier to use than card readers of the past. Especially when some stores have these readers and others don’t, switching systems from tap to pay to swiping can be time-consuming and irritating.

3. Multiple cards for the same purpose

If you signed up for a contactless credit card to replace your traditional swipe or insert cards, you may think you can go ahead and cancel your other cards to save some valuable space in your wallet. 

Before cancelling any of your cards, be aware of any risks that could come with cancelling your card such as decreasing your credit score and increasing your credit utilization ratio. Also be aware that contactless cards aren’t universally accepted just yet—so consider keeping one “traditional” card just in case. 

To cardholders, this can make getting a contactless credit card seem a bit pointless, at least until this technology is widely used. Having multiple cards in your wallet that serve virtually the same purpose can be frustrating, take up valuable wallet space and tempt you to spend beyond your means.

Contactless credit cards vs. mobile payments

The basis of contactless credit cards may sound similar to mobile payments, that were introduced around the same time and use similar “tap to pay” technology. Apple Pay and Google Pay are two popular mobile wallet options that also offer contactless payments, with one major difference. 

The biggest difference between mobile payments and contactless credit cards is that mobile payments are completed on a phone, smart watch or mobile device, without the need for a physical card. 

Much of the way they operate is the same: mobile payments use short-term radio waves with a contactless card reader to complete a payment, using unique codes for each purchase. To complete a purchase, customers will often need to unlock their device with their unique passcode or thumbprint, making fraud similarly difficult to contactless cards. 

Mobile payments were introduced to keep everything you need in one easy-to-access place on an everyday device. Mobile payments are useful in the same ways contactless cards are, in that they facilitate a quick, easy and touch-free transaction. 

Customer completing mobile payment with their mobile credit card and a mobile card reader.

Contactless credit cards are a great option for those looking for an easy-to-use card that reduces contact and makes transactions faster. Like all credit cards, they come with their fair share of pros and cons that users should be aware of before signing up. 

No matter what type of credit card you opt for, make sure you manage your credit responsibly by staying up to date on your credit score and checking your credit report frequently.

Posted in Credit Card
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