Contactless Payment

"Consumers "don’t like carrying cash but are wary of handing over a credit card because of the risk of credit card fraud. But what’s the alternative?

       -Contactless payments.

Most people have a love-hate relationship with the bills and coins in their wallets. On the one hand, paying with cash — once ubiquitous — can be cumbersome in today’s fast-paced environment. No wonder that it’s becoming less and less commonly used as plastic in the form of credit and debit cards takes its place. On the other, many still consider paying with cash the safest way to guard against sneaky bank fees and interest charges.

It’s no coincidence that cash usage peaked and began declining in the mid 1990’s. The culprit? Debit cards. As senior research analyst Red Gillen told the New York Times, “when debit cards were introduced in the early ’90s, that was the beginning of the slow and gradual decline of paper checks and cash.” The trend away from cash was further cemented in the early 2000’s.   

Contactless payment systems (also known as "touch and go" or "wave and pay") are credit cards, key fobs, smartcards or other devices which use RFID for making secure payments. The embedded chip and antenna enable consumers to wave their card or fob over a reader at the point of sale. Some suppliers claim that transactions can be almost twice as fast as a conventional cash, credit, or debit card purchase. Because no signature is typically required for purchases under US$25, some research indicates that consumers are likely to spend more money due to the ease of small transactions. MasterCard Canada says it's seen "about 25 per cent" higher spending by users of its PayPass-brand RFID credit cards.

 The growth of the technology, however, has been seriously hampered by concerns of identity theft and other possibilities of fraudulent manipulation of the technology. A University of Massachusetts study conducted in 2006 revealed some of the possible security risks in using the technology, and the conductors of the study were able to hack into one of the devices using a wireless frequency. That being said, corporations offering the technology have worked hard to steadfastly deny the security risks in using the technology. Due to this risk, RFID protection is available in wallets and other key holders designed for this purpose.

Mobil was one of the most notable early adopters of this technology, and offered their "Speedpass" contactless payment system for participating Mobil gas stations as early as 1997. Although Mobil has since merged with Exxon, the service is still offered at many of ExxonMobil's stations. Major financial entities now offering contactless payment systems include MasterCard, Citibank, JPMorgan Chase, American Express, KeyBank, Barclays and HSBC.

Visa PayWave and Mastercard PayPass are examples of contactless credit cards which become widespread in US and UK. The UK (and the rest of the world, actually) version of the contactless applications differ from the US one. UK version has the capability of transacting offline, based on the limit stored in the application.

Telecom operators are starting to get involved in contactless payments via the use of Near Field Communication phones. Belgacom's Pingping - Belgium e.g. has a stored value account and via a partnership with Alcatel-Lucent's touchatag provides contactless payment functionalities.

Mobile payment is a new and rapidly-adopting alternative 

payment method – especially in Asia and Europe. Instead of paying with cash, cheque or credit cards, a consumer can use a mobile phone to pay for a wide range of services and digital or hard goods such as:

Music, videos, ringtones, online game subscription or items, wallapers and other digital goods.

Transportation fare (bus, subway or train), parking meters and other services

Books, magazines, tickets and other hard goods.

There are four primary models for mobile payments:

Premium SMS based transactional payments

Direct Mobile Billing

Mobile web payments (WAP)

Contactless NFC (Near Field Communication)

Mobile payment has been well adopted in many parts of Europe and Asia. Combined market for all types of mobile payments is expected to reach more than $600B globally by 2013 , while mobile payment market for goods and services, excluding contactless NFC transactions and money transfers, is expected to exceed $300B globally by 2013.

Some mobile payment solutions are also used in developing countries for micropayments.