Contactless payments: What’s the state of play?

Contactless payments have reached a significant milestone, with one million transactions now being made without Chip and PIN every month, according to research.


If proof was needed that contactless payments are going mainstream, the Post Office is currently installing contactless payment terminals across its 11,500 UK branches. Marks & Spencer is also rolling out contactless payments nationwide after a successful trial in its busy London branches.

Add to that the imminent arrival of the iPhone 5, which is rumoured to feature contactless tech, and we could be about to see contactless payments take off in a big way.

What is contactless payment?

The way we use debit and credit cards has changed over the years. We used to have to sign a receipt slip, which the merchant would check against the signature on the back of our cards for verification.

We did away with signatures in favour of Chip and PIN – where we are asked to insert our cards into payment terminals before entering our four-digit Personal Identification Number, checked digitally against the number stored on the card’s chip.

But now a million of us a month simply wave our cards in front of a payment terminal, without having to sign anything or input our PINs. This is one form of contactless payment and it allows us to pay for goods up to a set limit quickly and conveniently.

Another kind of contactless payment is doing away with cards altogether in favour of our mobile phones. Contactless mobile payments allow people with Near Field Communication (NFC) enabled smartphones to pay by holding their handset to a terminal instead of a card.

Using radio waves, the payment terminal talks to an app on the handset which is linked to a bank account and payment is taken.

It’s the kind of thing that would have sounded daft even just 10 years ago, but is fast becoming reality. Many banks and phone manufacturers are on board and merely waiting for retailers to catch up by installing contactless payment terminals.

There are more than 100,000 contactless payment terminals in use in the UK, expected to rise to around 150,000 by the end of the year, but you can only use them if your bank or credit card provider issues contactless cards.

Here’s a look at some of the contactless payment options currently available and some of the alternatives you can use.

The current state of play

Essentially, most of the banks already offer some form of contactless debit card to at least some of their customers and have plans to expand their offerings over the coming months and years.

Credit card providers are also getting involved with contactless payments. For example the Barclaycard Platinum credit card with Extended Balance Transfer and the MBNA Platinum Credit Card both feature contactless technology.

There have been more developments in mobile contactless payments too. For example, the owner of T-Mobile and Orange, Everything Everywhere, has recently teamed up with MasterCard to launch its own contactless mobile payments service, allowing users to pay with their NFC-enabled phones at more than 100,000 retailers in the UK.

Speculators say leaked images of the supposed new iPhone 5, reportedly due to be unveiled on September 12, appear to show the handset has an NFC chip, which could support mobile payments when paired with a mobile payments app.

Others say there's no room in the new handset for an NFC chip, but that the phone could use other technology such as Bluetooth to make contactless payments possible.

Is contactless payment safe?

As contactless cards don’t require users to input their PIN numbers, concerns have been raised about lost or stolen cards being misused. However, restrictions on contactless payments mean that even if your card is lost or stolen, the potential damage is limited.

Contactless cards have the same security features as a normal Chip and PIN card and transactions are processed through the same secure networks.

Generally, you won’t need to enter your PIN when using a contactless card, but occasionally you’ll be prompted to insert your card into a reader and enter your PIN in the normal way. This is a security check to protect users from fraud, restricting how much you can use your card before you have to enter your PIN.

Transactions are also limited to £15 or £20, depending on the card issuer, so a lost or stolen card can only be used up to that amount per transaction. As long as you report your card as missing as soon as possible, the damage should be limited.

The UK Cards Association points out that if your wallet was stolen you wouldn’t be able to get any stolen cash back, whereas if you’re the victim of debit or credit card fraud you're protected.

Follow Mark on Twitter @MoneySuperMarkH

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