Contactless Credit Cards: How They Work, What Are The Possible Safety Issues, Safety Precautions One Should Take.

Contactless payments have been introduced to increase the ease of transactions, especially for small-ticket transactions. Nowadays, all credit and debit cards come equipped with the facility of contactless payments. 

Raj Khosla, founder and MD, MyMoneyMantra.com said, “Contactless credit cards radio frequency identification (RFID) technology to process payments. For contactless payments at the point of sale (PoS), the credit card and the PoS kiosk should be mechanically-fit to process the transaction without swiping or inserting the card.” 

● Contactless transactions are performed with a tap-and-pay action with the cardholder tapping the credit card at the merchant’s PoS system, the card reader attached to the machine immediately sends a debit message. 

● The message is approved by the credit card payment network, acting on behalf of respective banks. Credit cards issued on Visa and MasterCard platforms are not accepted at PoS machines designated for Amex cards and vice-versa. 

● “For example, a PoS machine equipped to handle Visa and MasterCard transactions will decline an Amex credit card, while a machine that can handle Amex cards will decline credit cards issued on Rupay, Visa and MasterCard platforms,” Khosla said. 

● Contactless payments can also be processed through smartphones with the help of near-field communication (NFC) technology. With NFC, you can seamlessly pay through a smartphone that contains the credit card information.

● From 1 January 2021 onwards, the Reserve Bank of India has upped the limit for contactless payments to Rs 5,000 from the earlier cap of Rs 2,000. 

Safety Issues With Contactless Credit Cards:

“Contactless transactions are predominantly safer as compared to Europay, Mastercard, and Visa (EMV) or chip-based transactions as there is no material physical contact. The RFID built-in tag processes a one-time code for respective transactions which is quite difficult for scamsters to skim the card,” Khosla said. 

● The biggest concern with contactless payment-enabled credit cards is the contactless facility itself. In case the credit card is lost or stolen, anyone can use it without getting detected as no signature or PIN is mandated to process the contactless transactions. 

● Any person can use a credit card as the limit of Rs 5,000 is applicable for a single transaction. The credit card can be used for multiple transactions at different merchants. 

● However, most banks have capped the daily limit for contactless at Rs 50,000, purposely to avoid extreme misusage in the event of a loss. 

Safety Precautions One Should Take

● In case you possess multiple credit cards, switch off the contactless payment option for cards that are used infrequently. 

● As all credit and debit cards come ready with the contactless payment facility, you should carry them in a wallet or purse that can block RFID instructions. This will help in avoiding unwarranted and unauthorized transactions. 

● Even as the RBI has kept the per-transaction limit at Rs 5,000, you can modify the usage and limit and can bring down the transaction limit and daily permissible usage. 

● Check your statements to spot any fraudulent activity as there is a likelihood of misusage if the credit card is being used heavily.

Keep In Mind: According to experts, to obviate the need to expose the OTP as the second factor of authentication which has the risk of a third party being able to see the PIN, as well as for hygienic reasons in a post-Covid world, networks such as Visa, Master, and Rupay permit transactions upto a threshold of Rs 5000 on single factor authentication (FA) for POS transactions. These cards have RFID technology basis which the card credentials are read by “tapping” the card over the POS device, thus obviating the need for entering the PIN physically.

"The risk in contactless cards originates due to any person who gets possession of the card using it multiple times within the threshold limit. To protect customer interests in such scenarios, card issuing companies set usage parameters on the number of times a card can be used within a given time frame to avoid potential misuse. As a cardholder, it is of utmost importance to have your updated mobile numbers and email IDs with the card issuer, so that any fraudulent transaction alert received can be immediately salvaged and losses contained,” says Shailendra Singh, MD & CEO, BOBCARD, a non-banking financial services company.