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Near-field communication (NFC) mobile payments allow two devices, like a smartphone and a mobile payments reader, to communicate over short distances. This technology allows stores to accept contactless payments without using physical cards or relying on card swipers to process payments.
NFC mobile payments and digital wallets are changing how people pay. This technology lets people leave their credit cards in their wallets during checkout and instead use mobile devices and contactless phone payments to make purchases quickly.
With these payments increasing in popularity, knowing how they work can help consumers and business owners better understand their options. This article will delve into what exactly NFC payments are, how they work, and how to use them.
NFC mobile payments are contactless transactions that people can make with their mobile device, like a smartphone or tablet. Instead of handing out cash or swiping a physical payment card, people can use NFC payment apps or mobile wallets to make purchases.
In fact, many smartphones have specific NFC payment options or apps built in. Customers can use them with tap-to-pay terminals, including those in many retail stores, coffee shops, restaurants, and more.
NFC is a form of radio-frequency identification (RFID) technology, which uses electromagnetic fields to identify nearby objects and transmit data.
In other words, NFC-enabled devices like smartphones send out radio waves that NFC-enabled payment kiosks pick up. Those waves contain the payment information necessary to make a purchase with a credit card. The business’s payment gateway collects information from those waves and sends it to the payment processor which then approves the transaction.
NFC, however, generally only works with devices that are within four inches apart, which makes it ideal for contactless payments.
Here’s how NFC mobile payments work from beginning to end.
NFC payments typically work with both physical credit cards and digital wallets. But they work in different ways. The two ways people can pay with NFC are:
Both options let shoppers make purchases without swiping a physical card through a traditional card reader or chip reader.
Most digital wallets require multi-factor authentication (MFA) for every transaction. This helps protect the shopper’s identity and reduces the risk of fraud with mobile payments.
After the shopper opens their digital wallet, the app authenticates their identity to approve the purchase. Authentication can happen in several ways, including:
This step takes just a few seconds to complete. However, the transaction may not go through if the shopper doesn’t enter the correct code or fails to verify their identity through their mobile wallet.
After authenticating the transaction and verifying the shopper’s ID, the digital wallet or the tap-to-pay device sends a signal to the point-of-sale (POS) terminal, telling it to process the payment. Typically, payment processing takes just a few seconds.
If there are any errors with the contactless or mobile payments, the POS system displays an error message. The customer may need to initiate the payment process again or may need to use a different payment method.
Customers may need to:
This process is the same at cardless ATMs that allow users to withdraw cash from a qualifying checking account.
Once the POS system processes the payment, the customer can complete the transaction. If the purchase amount is high and the customer uses a tap-to-pay card, they may need to sign to complete the transaction.
But in most cases, NFC and contactless payments allow customers to complete the transaction by confirming the purchase on their mobile device — no signature necessary.
Once the customer confirms the transaction, typically by tapping a “confirm” button in their digital wallet app, the POS system will generate a receipt.
All information sent via NFC-enabled devices is encrypted, so third-party interceptors or hackers typically can't read it. Here’s a quick breakdown of security features that help keep every digital wallet transaction secure.
NFC payments use advanced encryption methods to secure credit card numbers and associated data. These methods obscure payment information from external sources and reduce the risk of people committing fraud and scams intercepting payment information through unsecured channels.
Tokenization is the process of creating a unique and temporary credit card number associated with an actual credit card account. NFC mobile payments use tokenization to send payment information to point-of-sale devices without sending them the customer’s actual credit card number.
The temporary number is typically only good for that transaction, so if hackers and scammers manage to intercept that number, they won’t be able to use it to make purchases.
Many digital wallets or mobile wallets require users to verify payments and transactions before they’re approved. There are several ways to do this, but many digital wallets use biometric verification for each transaction.
This may involve asking the customer to verify their identity through:
Facial recognition and fingerprint recognition are the most commonly used methods.
NFC payments work when the payment device is close to the contactless payment reader. Typically, customers must hold their contactless card or mobile device close to the payment reader for their digital wallet to send payment information and for the POS system to receive that payment information.
The exact distance will vary slightly from reader to reader, but most devices need to be within four centimeters of each other. If the device is too far away, the payment may not go through.
NFC mobile payments make purchasing more secure and convenient for businesses and consumers. However, they’re not perfect solutions for every situation. There are a few benefits and downsides of this payment method to be aware of.
Pros
Cons
Here are a few benefits of using NFC payments through your digital wallet instead of a physical credit card.
Though NFC payments offer unique benefits, there are a few challenges customers and businesses should know about.
NFC mobile payments give customers more ways to pay and help business owners make the payment process more efficient and convenient. As technology advances, NFC payments will likely be available in more locations, letting customers ditch their physical cards in favor of digital wallets and contactless phone payments.
However, to use NFC payments, individuals need a secure and user-friendly digital wallet on their mobile devices. Download the PayPal app today and take advantage of NFC payments across the country.
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