What are Contactless Payments? How Do Contactless Payments Work?

December 14, 2023

Contactless payments represent a revolution in the way we handle transactions in our increasingly digital and fast-paced society. But what are contactless payments, and how do contactless payments work?

In this blog, we’ll delve into the details of this modern payment method, exploring its advantages, disadvantages, historical evolution, various types, and the significant impact it has on consumers and businesses.

What are Contactless Payments?

Contactless payments, also known as tap-and-go or proximity payments, are a modern method of conducting financial transactions without needing physical contact between the payment device and the point of sale (POS) terminal. These payments leverage radio-frequency identification (RFID) or near-field communication (NFC) technology to securely transmit payment information between the customer’s device, such as a smartphone or contactless card, and the merchant’s terminal.

The Basics of Contactless Payments

Contactless payments involve a simple process. When a customer wishes to make a purchase, they bring their contactless-enabled device, such as a smartphone or card, close to the merchant’s POS terminal. The terminal reads the payment information and completes the transaction within seconds. There’s no need to insert a card, swipe, or enter a PIN; it’s a hassle-free and efficient way to pay for goods and services.

How Do Contactless Payments Work?

To understand how contactless payments work, it's essential to understand the technologies they're built upon: RFID and NFC. These technologies are the pillars that support the quick and secure transactions contactless payments are known for.

RFID (Radio-Frequency Identification)

At the heart of contactless payment technology lies RFID. This technology utilizes devices such as cards or key fobs equipped with a microchip and an antenna. These RFID-enabled devices interact with readers installed in Point-of-Sale (POS) terminals.

When an RFID device is brought into proximity with a reader, it transmits payment information via radio waves. The POS terminal’s reader receives this data and processes the transaction, charging the amount to the customer’s linked account.

NFC (Near-Field Communication)

NFC is a subset of RFID technology but operates at much closer ranges, typically no more than 4 centimeters (1.57 inches). This technology is what enables smartphones and other smart devices to make contactless payments. 

When a user taps their NFC-enabled device near a compatible POS terminal, a secure, instantaneous connection is established. This allows for the exchange of payment information, culminating in a swift and secure transaction process.

In essence, contactless payments work by harnessing these technologies to enable quick and secure transactions with a mere touch or tap.

Advantages and Disadvantages of Contactless Payments

Now that we clearly understand what contactless payments are and how they operate, let’s explore the advantages and disadvantages of this payment method.

Advantages of Contactless Payments

  • Speed and Convenience: Contactless payments are lightning-fast, reducing checkout times significantly. Customers can simply tap their cards or smartphones, making it ideal for busy individuals and businesses with high foot traffic.

  • Robust Security Features: Advanced technologies like encryption and tokenization strengthen security in contactless payments. These features safeguard personal and financial details, diminishing risks like card skimming and fraudulent activities.

  • Reduced Physical Contact: In an era where hygiene and safety are paramount, contactless payments minimize physical contact between customers and POS terminals, promoting a more sanitary transaction experience.

  • Wide Accessibility: The versatility of contactless payment platforms is evident in their compatibility with various devices, including smartphones, smartwatches, and cards. This broad accessibility ensures a wider demographic can utilize this technology.

  • Digital Wallet Integration: Many contactless payment methods can be linked to digital wallets like Apple Pay, Google Pay, and Samsung Pay, offering added convenience and flexibility.

Disadvantages of Contactless Payments

  • Selective Acceptance: Despite growing popularity, contactless payment acceptance isn’t universal. Smaller businesses and merchants, or those in certain regions, may still lack the infrastructure to support this technology.

  • Potential Security Risks: While generally secure, concerns remain over unauthorized access, especially if a payment device is misplaced or stolen. Security measures like PIN authentication for larger transactions offer some mitigation.

  • Dependency on Technology: Contactless payments are reliant on technological functionality. System failures or a dead battery can disrupt the payment process.

  • Privacy Concerns: Data privacy is a concern for some users of contactless payments. While transactional data is secure, apprehensions about personal information tracking persist.

  • Spending Limits: To combat fraud, contactless payments usually impose a cap on transaction amounts. This means for larger purchases, alternative payment methods may be necessary.

Understanding the advantages and disadvantages of contactless payments provides a well-rounded perspective on their functionality and implications in our daily lives.

History and Evolution of Contactless Payments

Contactless payments may seem like a recent innovation, but their history spans several years. Let’s take a journey through time to explore the development and evolution of this transformative payment method.

Early Beginnings (1995-2000)

In 1995, South Korea's Seoul Bus Transport Association pioneered the era of contactless payments with the UPass, a revolutionary contactless card for commuters. The following year, the EMV standard, a collaborative effort from Europay, MasterCard, and Visa, was established, laying a foundation for secure contactless transactions. By 1997, Mobil was already leveraging this technology in the U.S., introducing the Speedpass, a key fob for streamlined payments at gas stations.

Expansion and Adoption (2001-2010)

The early 2000s marked a significant uptake in contactless technology. London’s 2003 introduction of the Oyster Card for its transportation system signified a major leap. Meanwhile, in 2007, the EU witnessed the launch of its first contactless card by Barclaycard, heralding a new era in card-based transactions. By 2010, the proliferation of NFC-enabled devices and their integration into metro networks, like Beijing’s, marked a new phase in the global journey of contactless payments.

Rise of Mobile and Wearable Payment Solutions (2011-2015)

The early 2010s saw smartphones entering the contactless payment arena with 2011’s launch of Google Wallet and Android Pay. This era was further defined by Apple’s 2014 introduction of Apple Pay, which significantly increased the popularity of mobile contactless payments. By 2015, wearable technologies, exemplified by the Apple Watch, began featuring contactless payment capabilities, blending fashion with finance.

Widespread Adoption and Evolution (2016-present)

The period from 2016 saw pivotal developments, including NFC-only debit cards and a broader application of wearables in contactless transactions. The 2020s, particularly marked by the COVID-19 pandemic, witnessed an accelerated shift towards contactless payments as a hygienic alternative to cash and traditional card payments, with many banks increasing their transaction limits.

The Present and Future of Contactless Payments

Today, contactless payments symbolize a significant transformation in daily transactions, propelled by technological advancements and consumer preference shifts. Adopting EMV standards and NFC technology has been paramount in this evolution, enhancing transaction security and convenience. As we progress, these payments are becoming more ingrained in various aspects of life, marking a new era in financial transactions.

Types and Examples of Contactless Payments

Contactless payments come in various forms, each offering unique features and benefits. Let's explore some common types and provide real-world examples to illustrate their practicality.

Contactless Cards

Contactless or tap-and-go cards are traditional credit or debit cards equipped with an embedded RFID chip. These cards allow users to make contactless payments by tapping or waving the card near a compatible POS terminal. Examples of contactless cards include Visa payWave and MasterCard PayPass.

Mobile Wallets

Mobile wallets are smartphone applications that store payment card information securely. Users can add their credit or debit cards to these digital wallets, allowing for quick and convenient payments. Notable mobile wallets include Apple Pay, Google Pay, Samsung Pay, and PayPal.


Wearable devices like smartwatches and fitness trackers often feature NFC technology for contactless payments. Users can link their payment cards to these devices and transact by tapping them on a compatible terminal. The Apple Watch and Fitbit are prime examples of wearables with payment capabilities.

QR Code Payments

While not strictly contactless in the RFID or NFC sense, QR code payments are a touch-free option. Customers use their smartphones to scan a QR code displayed at the merchant’s checkout. Popular platforms in China, like Alipay and WeChat Pay, rely heavily on QR code-based transactions.

In-App Payments

Many mobile apps offer in-app payment options, enabling users to make purchases without leaving the application. Examples include Uber, Lyft, and food delivery services like Chowbus, which allow customers to order and pay seamlessly within the app.

Understanding the various types of contactless payments empowers consumers to choose the method that best suits their needs and preferences.

Standards Supporting Contactless Payments

Behind the scenes, several technical standards ensure the security and interoperability of contactless payment systems. These standards are critical in maintaining the integrity and reliability of contactless transactions.

EMV (Europay, MasterCard, and Visa)

EMV is a global standard for credit and debit card processing. It focuses on enhancing card security by using integrated circuits to authenticate transactions. EMV cards can support both contact and contactless transactions, making them versatile and secure.

ISO/IEC 14443

ISO/IEC 14443 is an international standard governing proximity cards, including contactless payment cards. It specifies the physical characteristics, communication protocols, and data transfer methods required for these cards to work seamlessly with compatible readers.

PCI Contactless Payment on COTS (CPoC)

Developed by the PCI Security Standards Council, the CPoC standard focuses on the security aspects of contactless payments made using commercial off-the-shelf mobile devices equipped with NFC technology. This standard is particularly vital in safeguarding mobile contactless payment solutions.

These are just some of the most common standards supporting contactless payments. Understanding these standards is essential for businesses and consumers, as they guarantee the integrity and safety of contactless transactions.

Benefits of Contactless Payments for Businesses

While consumers enjoy the convenience of contactless payments, businesses, especially yours, can leverage numerous advantages from adopting this technology. Here’s how contactless payments can benefit your business:

1. Increased Efficiency

Contactless payments expedite the checkout process, significantly cutting down waiting times. This swift transaction process allows you to serve more customers efficiently, enhancing their satisfaction. A happy customer often translates into increased sales and repeat business.

2. Enhanced Security

One of the greatest advantages for businesses is the heightened security that comes with contactless payments. Thanks to advanced technologies like tokenization and encryption, the risk of fraudulent activities and data breaches is substantially reduced. This is crucial in maintaining customer trust and safeguarding your business reputation.

3. Access to Valuable Data

The data gathered from contactless payment transactions is a goldmine for business insights. Analyzing this data can help you understand customer purchasing patterns, refine inventory management, and craft targeted marketing strategies. Such data-driven approaches can lead to a significant boost in revenue.

4. Cost Savings

Shifting to contactless payments can also be economically beneficial. It reduces the need to handle cash and maintain physical payment terminals, which can be both cumbersome and costly. Additionally, the minimized risk of dealing with counterfeit money further cuts down your business expenses.

5. Adapting to Consumer Preferences

In an era where consumers increasingly opt for contactless payments, offering this option in a dining environment meets customer expectations and gives restaurants a competitive edge in attracting a broader customer base. Especially in times when health and safety concerns are critical, providing a contactless dining experience can be a significant draw.

6. Seamless Integration with POS Systems

Many modern point-of-sale systems are already equipped to handle contactless payments. This means integrating this payment method into your business operations is often straightforward, requiring minimal investment and hassle.

Incorporating contactless payments into your operations can position your business for growth and competitiveness in an increasingly digital marketplace.


As contactless payments continue to gain prominence, it's crucial for both consumers and businesses to stay informed about the latest developments and security measures in the world of digital payments. By doing so, we can fully harness the potential of contactless payments and enjoy a more convenient and secure financial future.

Ready to embrace the future of payments? Contact us today to experience the efficiency and security of contactless transactions with Chowbus POS. Our system supports contactless payments, including QR code ordering and payments, seamlessly integrating technologies like QR codes and digital menus for restaurants. Join us in revolutionizing your business's payment experience!

Frequently Asked Questions About Contactless Payments

Explore the essentials of contactless payments in our FAQ section, where we answer common queries to enhance your understanding and usage of this modern payment technology.

What is Contactless Payment Method?

Contactless payment is a secure method for purchasing goods and services using a debit or credit card, smartphone, or other devices without physically touching a payment terminal. By simply holding the card or device close to a contactless-enabled terminal, the payment information is transmitted wirelessly using RFID or NFC technology.

What are the Rules On Contactless Payments?

Several key rules govern contactless payments:

  • Country-Specific Transaction Limits: Each country sets its own transaction limit for contactless payments. For amounts above this limit, a PIN or signature is required.

  • Proximity Requirement: The payment device must be close to the card reader, usually within 1-2 inches.

  • Occasional Additional Verification: Even for lower amounts, additional verification might be needed, such as a PIN.

  • Bank and Merchant Rules: Individual banks and merchants may impose their own specific rules, including lower transaction limits.

  • Device Compatibility: The compatibility of smartphones or wearable devices with contactless payments varies. Ensure your device supports the required technology.

  • Local and Bank-Specific Regulations: Always check with local and bank-specific regulations regarding contactless payments.

What is Contactless Limit?

The contactless limit refers to the maximum amount you can spend in a single transaction using contactless payment methods like tap-to-pay credit or debit cards and digital wallets without needing to enter a PIN or provide a signature. 

The general contactless payment limit for touchless credit cards in the United States is currently $250, an increase from the pre-pandemic limit of $100. This limit, however, can vary by bank and card issuer but is typically set to ensure security while providing convenience for small purchases.

Where Can I Use Contactless Payment?

Contactless payment is widely accepted at numerous locations where this technology is available. This includes a variety of merchants like retailers, supermarkets, restaurants, cafes, and public transportation services. To determine if a store accepts contactless payments, you can:

  • Search for a symbol with four curved lines representing the contactless feature near the payment terminal.

  • Inquire with the store staff about the availability of tap-to-pay options.

  • Refer to your card issuer’s website or mobile application, which often lists businesses accepting contactless cards.

Besides these, contactless payments are also accepted at vending machines, parking meters, and other automated service kiosks. Ensure your card or device is set up for contactless transactions for a swift and secure payment experience.

Why Use Contactless?

Using contactless payment methods offers numerous advantages:

  1. They’re faster, allowing for quicker transactions compared to traditional methods.

  2. They’re more secure, as they often require authentication and don’t expose sensitive card details.

  3. They’re convenient and hygienic, eliminating the need to handle cash or touch payment terminals, which is especially beneficial in maintaining hygiene standards.

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