NFC – What is behind the contactless payment method?

‘NFC’ stands for Near Field Communication. Many people know and use it, but not everyone is aware of how big the topic is and how extensive the benefits really are. Today, there seems to be a great demand for contactless payment options – not only because of the currently increasing hygiene measures, but also due to the technology-oriented user benefits. 

Smartphones, identity cards and bank card NFC technologies enable a contactless exchange of data over short distances, usually no more than four centimeters. People are already familiar with the chip in smartphones since Nokia launched the first NFC-enabled cell phone to the market in 2006. This technology today is now a basic piece of equipment. The original idea was to create a connection to wireless loudspeaker or to enable data exchange between two smartphones in addition to Bluetooth transmission. 

Shortly afterwards, the NFC chip opened up a large field of possibilities at international banks, with its use as a contactless payment option for credit cards, Girogocard and Girocard. In 2007, the company offered Visa payment cards with the contactless payment function for the first time in Great Britain. Four years later, even the ID card of the Federal Republic of Germany was equipped with an NFC chip, even though many offices did not have a corresponding reader. 

As a payment option, the acceptance and consequently also the distribution of these cards would not have increased until 2017/2018 among the German population. As of September 2018, 14 million and 23 million Girocards have been issued from the local and regional banks respectively with NFC technology in Germany. According to retailers at the time, there were 800 000 point of sales (POS) terminals with no less than 75% of those terminals supporting contactless payment. In the meantime, the German banking industry is advocating for terminals without PIN pads, making payment via NFC inevitable. 

Google Pay, Apple Pay and Co. 

In addition to the credit card, Girogocard and Gircocard, the smartphone or smartwatch opens up new doors for contactless payments. The most well-known apps are Google Pay and Apple Pay. With a rather slow growth in Germany, both services have been on the market since 2018. Interest among German consumers is still manageable, but more and more banks are offering these services. 

Paying via Google or Apple Pay is basically a normal card transaction, as well as simply allowing the respective device to make contact with the card reader – such as with smartphones or smartwatches. Contrary to widespread opinion, neither the shopping cart nor any other data is passed on to Apple or Google. Instead, so-called ‘tokens’ are stored in the app as a virtual card number. If the smartphone is stolen, the relative tokens can simply be deleted and the data on the card remains protected.  

Security and privacy

According to a survey by the National Bank, those who do not yet use contactless payment cards either see no need for them or they have concerns about their security. But are these concerns justified? 

The maximum amount for contactless payments is currently €50. Up to the fourth transaction, or if a total of €150 has been paid over several transactions, the user is requested to enter their PIN. However, sometimes the card reader still requires the user to enter their PIN, but this is due to the bank following their policies and procedures of having to check for fraud at random or based on certain patterns. The card, the smartphone or the smartwatch must make contact with the cardreader for a few seconds in order to prevent unwanted or multiple payments. 

Another sensitive issue for many is data protection. Data, such as the card number, expiration date and amount are exchanged with the payment terminal during a transaction. This data exchange is necessary for billing purposes and to prevent fraud. 

The use of this personal data for advertising purposes is not possible without restriction, as the General Data Protection Regulation applies in the European Union, In the EU, it is stipulated that data processing must be explicitly approved by the user. This means that VISA, MasterCard, Google and Co. may only process data with your consent. 

Development, advantages and the future. 

The fact is that contactless payment is experiencing a significant growth, especially during this current time. Even though many consumers are still cautious and skeptical about these new possibilities, we must understand that these possibilities make our everyday life much easier and safer. With further developments in the direction of mobile payments, it will definitely not be a boring future. All we have to do is sit back, wait and enjoy the benefits.