NFC PaymentThe Pros & Cons of “Near-Field” Payments: How Are They Helping Your Business?

The Future of Payments: A Comprehensive Guide to NFC Payment Technology

The future is here… and it is contactless!

NFC mobile payments use near-field communication technology to offer a fast, secure, and contactless payment solution. These "Tap to Pay" transactions may be enabled by tap-to-pay cards, or by digital wallet apps like Apple Pay and Google Pay. In both cases, they streamline the checkout process while also ensuring data safety.

But is this technology actually better for one’s business? Also, what are the benefits and potential drawbacks of switching to contactless payments, for both cardholders and merchants? Let’s take a closer look and find out.

What are NFC Payments?

NFC Payments

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NFC payments are a form of contactless payment made possible by near-field communication (“NFC”) technology. They involve using enabled devices, such as smartphones or contactless payment cards, to make secure, instant transactions at point-of-sale (POS) terminals that also support NFC.

NFC technology provides users with a seamless payment experience. Now, users do not have to swipe or “dip” a card to pay at a gas pump or coffee shop. Customers can simply hold their card, smartphone, smartwatch, or other enabled devices over the reader without even having to touch it.

With just a tap, customers can complete a contactless transaction, or even visit an ATM, quickly and efficiently. This made it a preferred payment option for many during the covid-19 outbreak. However, even as covid protocols were wound down, many buyers opted to keep using contactless payments due to their ease and convenience.

Provided the merchant has successfully integrated contactless payments with their existing POS, they would then be able to accept payments from several devices, including:

• Smartphones: Android and iPhone apps enable mobile payments.
• Smartwatches: Wearable OS watches often support NFC.
• Tablets: NFC-enabled, though less convenient for payments.
• Laptops: Clunky but technically feasible for processing payments.
• EMV Chip Cards: The most common contactless payment method.

How Do NFC Payments Work?

NFC payments are enabled by radio frequency identification (RFID) technology, which allows devices to communicate with each other using radio waves.

When an NFC reader is activated, it emits a signal to find nearby NFC-enabled devices, like your credit card or smartphone. The RFID tag in your device then picks up this signal. To prevent accidental charges, your device must be in very close proximity to the NFC reader.

Once connected, your device requests a token from your bank to authorize the transaction, then immediately transfers the token to the NFC reader. This whole process takes just a few seconds to complete:

That’s a basic overview of the technology. How does that work in practice, though? Well, here’s a basic rundown of a typical NFC payment transaction, from the merchant’s perspective:

The user brings their NFC-enabled device (e.g., smartphone or contactless payment card) close to an NFC-enabled POS terminal.

The NFC-enabled devices establish a connection and start exchanging data using a specific radio frequency (13.56 MHz). This connection is established in less than a tenth of a second.

The POS terminal processes the payment information from the user's NFC-enabled device. This typically involves authentication and authorization from the payment network and the user's bank.

The transaction is completed, and the user receives a notification, such as a beep, vibration, or visual cue, indicating the payment's success.

If you’re a merchant with an NFC-enabled card reader, processed payments go directly into your merchant account, just like standard credit card transactions. But, like standard card purchases, the sales must first be batched and submitted for processing.

Types of NFC Payment Solutions

Any NFC-compatible device that comes into contact with a point-of-sale (POS) terminal equipped with an NFC reader is capable of completing a contactless payment. These NFC-enabled devices include:

The Pros & Cons of Accepting NFC Payments: How Do They Stack Up?

Before deciding whether or not NFC payments are right for your business, it’s important to recognize that every new technology has a near-equal number of downsides to upsides. The exact ratio, of course, depends on your business type, location, and selling strategy. For example, if you do business mainly online, then NFC payment technology wouldn’t make a lot of sense for your business.

The benefits of NFC technology outweigh initial industry concerns primarily because the advantages it offers lead to improved customer experiences, streamlined operations, and long-term growth for businesses. As more consumers adopt contactless payments, businesses that offer NFC payment options can stay competitive and cater to evolving customer preferences.

NFC Payment Implementation

Remember: convenience is king. The easier it is for customers to pay, the more likely they are to buy from you. NFC payments, which allow customers to pay with a tap of a card or mobile device, are faster and more secure than existing technologies.

Interested in upgrading your payment terminals so that you can accept NFC payments? You’ll need the right hardware and software. Specifically:

Security & Compliance for NFC Payments

No matter how your customers make payments — whether through chip and PIN, chip and signature, or contactless NFC — you’ll need to adhere to strict data security standards. For example, PCI-DSS compliance.

In December 2019, the Payment Card Industry Security Standards Council published its most recent data security standard on contactless payments. Called the Contactless Payments on COTS standard, the framework addresses how merchants should handle NFC payments.

Learn more about PCI-DSS compliance

Specifically, the standard acknowledges that mobile devices may not be perfectly secure. To be in compliance, merchants will need to ensure that the payment gateways they use are continuously monitored and rigorously tested to keep customer payment information safe.

PCI standards aside, you’ll also need to maintain compliance with existing EMV standards established by major card networks. This means that your NFC-compatible hardware and software must be equipped to handle EMV chip-and-signature and chip-and-PIN transactions. Failure to comply with this existing standard could mean heightened exposure to fraud.

Learn more about EMV technology

Beyond the transaction itself, you’re responsible for protecting any customer data you collect. Regulations like the European Union’s General Data Protection Regulation (GDPR) and the California Consumer Privacy Act (CCPA) establish strict standards for data collection and privacy.

For merchants, the main takeaway from these two sets of regulations is that consumers have the right to know what personal data you’re collecting, the right to demand it be deleted, and the right to opt-out of having their data sold or shared.

Learn more about GDPR

Common Challenges & Solutions

Rolling out NFC payments can undeniably benefit your business. But that’s not to say there won’t be challenges or hurdles to overcome. Here are a few common issues you might encounter and what you can do to solve them:

Look Beyond Today’s Payment Options

There’s no singular solution to any problem in the payments space. Contactless payments must be backed by business best practices like responsive customer service, quick authorization, and frequent software updates. 

Even when sellers do everything right, there’s still the prospect of chargebacks making it through their defenses. That’s why we recommend implementing tools and strategies to prevent chargebacks whenever possible and challenge invalid disputes through representment.

Looking to offer contactless payments to your customer but struggle with fraud and chargebacks? Chargebacks911 can help. Contact us today for your FREE ROI analysis.