Contactless payment systems are credit cards and debit cards, key fobs, smart cards, or other devices, including smartphones and other mobile devices, that use radio-frequency identification (RFID) or near-field communication (NFC) for making secure payments. The embedded integrated circuit chip and antenna enable consumers to wave their card, fob, or handheld device over a reader at the point-of-sale terminal. Contactless payments are made in close physical proximity, unlike other types of mobile payments which use broad-area cellular or Wi-Fi networks and do not involve close physical proximity.

EMV (abbreviation for Europay, Mastercard, and Visa) is a common standard used by major credit card and smartphone companies for use in general commerce. Contactless smart cards that function as stored-value cards are becoming popular for use as transit system farecards, such as the Oyster card (London, UK) or RioCard (Rio de Janeiro, Brazil). These can often store non-currency value (such as monthly passes), in additional to fare value purchased with cash or electronic payment.

Tokenisation is a newer concept of encapsulating a card issuer's details within a hardware device application such as via Apple Pay app on iPhones.

Some suppliers claim that transactions can be almost twice as fast as a conventional cash, credit, or debit card purchase. Because no signature or PIN verification is typically required, contactless purchases are usually limited to small value sales. Lack of authentication provides a window during which fraudulent purchases can be made while the card owner is unaware of the card's loss. Major financial institutions and multinational corporations now offer contactless payment systems to customers as contactless credit cards have become widespread in the U.S., UK, Japan, Germany, Canada, Australia, France, the Netherlands, etc., as consumers are likely to spend more money using their cards due to the ease of small transactions. With contactless cards growing in numbers and percentages of adoption, the number of payments by this method had increased significantly since the spending limit was raised.^[when?] Purchases made by card now surpass those made by cash and account for approximately one-third of all card transactions in countries like the UK.^{[citation needed]} Contactless payments specifically have become increasingly popular, accounting for 4 out of 5 point-of-sale credit card purchases in Australia as of 2019.^[1] Card issuers indicate that they will increase the availability of contactless cards to consumers. As of October 2021 there are over 142 million contactless-enabled cards^[2] and over 147,000 terminals in use in the UK alone.^{[citation needed]} VISA estimated that there would be 300 million contactless cards issued in the US by the end of 2020, up from the predicted 100 million at the end of 2019.^{[citation needed]}

Google Pay is an application for devices running Google's Android OS, which allows users to make purchases using NFC, which initially required a physical secure element but this was replaced by host card emulation which was introduced in Android 4.4 (KitKat). Softcard (formerly known as Isis mobile wallet), Cityzi and Quick Tap wallets for example, use a secure SIM card to store encrypted personal information. Contactless payments with enabled mobile phones still occur on a small scale, but every month an increasing number of mobile phones are certified.^[44]

In 2012, Mastercard Advisors wrote that consumers are likely to spend more money using their cards due to the ease of small transactions.^[45] Mastercard Canada says it has seen "about 25 percent" higher spending by users of its Mastercard Contactless-brand RFID credit cards.^[46]

As of December 2014^[update], there were approximately 58 million contactless-enabled cards in use in the UK, and over 147,000 terminals in use.^[47][48] By June 2017 purchases made by card surpassed those made by cash. This was reported to have been driven by the rise in contactless payments, which accounted for approximately one third of all card transactions in the UK. The number of payments by this method had increased significantly since the spending limit was raised from £20 to £30.^[49] In 2018, contactless payments made up around 19% of transactions in the UK.^[50]

In 2018, the Westpac Banking Corporation in Australia revealed contactless payment statistics from 2017 and claimed in the report that contactless payments approached saturation point by being used in over 90% of purchases. The Australian St.George Bank reported 94.6% usage for the same period.^[51]

Recent statements by Visa and other US card issuers indicate that they will increase the availability of contactless cards to US consumers. Visa estimates there will be 300 million contactless cards issued in the US by the end of 2020, up from the predicted 100 million at the end of 2019 as announced on its 2018 Q4 earnings call.^[52]

Telecom operators are starting to get involved in contactless payments via the use of NFC-enabled phones. Belgacom's Pingping, for example, has a stored value account and via a partnership with Alcatel-Lucent's Touchatag provides contactless payment functionalities.

Major financial entities now offering contactless payment systems include Mastercard, China UnionPay, Citibank, JPMorgan Chase, American Express, KeyBank, Barclays, Barclaycard, HSBC, Lloyds Banking Group, FreedomPay, RuPay, The Co-operative Bank, Nationwide Building Society and NatWest Group. Visa payWave, American Express Expresspay, and Mastercard Contactless are examples of contactless credit cards which have become widespread in the U.S. and U.K.

There are three main standard usages for contactless payments adopted throughout payment terminals with the EMV standard.

EMV Chip

On issued bank cards a smart chip or cryptographic chip is placed on the card known as a smart card which allows wireless payments to be made from the EMV chip in range of a payment terminal using RFID technology following the EMVCo standard. When the smart card is tapped against a payment terminal that authenticates the card issuer's details through a series of PIN interactions the payment for the interaction will succeed.

Tokenisation

A newer approach to smart card technology is achieved by linking a smart card to a hardware device, such as through the Apple Pay application on an iPhone mobile phone, thereby allowing mobile devices the ability to make payments using RFID technology against a payment terminal on behalf of a smart card using a token generated by the card issuer, a process known as tokenisation. A Device Account Number (DAN) similar to a Private Account Number (PAN) in traditional payment stripe and chip cards, is generated along with a private key and sent to the card issuer during initial setup of the smart card on the hardware device. When payments are made via the respective approved application on the hardware device the DAN and relevant details such as expiry date and CVV are sent to the card issuer via a payment terminal for cryptography where the associated private key is then used to authorise the transaction.

NFC

The near field communication (NFC, compliant with ISO/IEC 14443^[53] standard) technology in contactless cards uses a 13.56Mhz radio frequency technology that only transmits digital data within a concise range.

Typically the optimum distance is 4 centimetres or less - beyond, the signal is rapidly decreasing and can never exceed 10 centimetres.

In 2006 security researchers found that the cardholder's name, credit card number, and expiration date may be transmitted by contactless payment cards without encryption. They were able to use information leaked from a contactless credit card to make a purchase online, without opening the envelope in which the card was sent.^[54]

Depending on the economic space, there may be a payment limit on single transactions without the need to input the PIN, and some contactless cards can only be used a certain number of times before customers are asked for their PIN.^[55] Contactless debit and credit transactions use the same chip and PIN network as older cards and are protected by the same fraud guarantees. Where PIN is supported, the contactless part of the card may remain non-functional until a standard chip and PIN transaction has been executed.^[56] This provides some verification that the card was delivered to the actual cardholder.

Under fraud guarantee standards, U.S. banks are liable for any fraudulent transactions charged to the contactless cards.