Contactless Payments

Published: 21 Dec 2009

The Beginning

In 1993, three international payment brands had agreed on developing specifications for the use of smart cards in the banking vertical. Smart cards were to be used for all banking cards. The EMV specifications were then developed for smart cards in banking. The introduction of smart cards presented itself with a mammoth task in ensuring that financial institutions and retailers would conform to the EMV standards. There had been a number of road blocks to the introduction of banking smart cards with questions pertaining to how a financial institution would realize a ROI on such a large investment or on what other benefits can be associated with the smart card apart from the security aspect. Over the years, market participants have been able to show a drastic reduction in fraud through smart cards whilst at the same time showing additional benefits through the introduction of other applications such as loyalty, automatic fare collection and so on. Today, we find that there has been a significant growth in the issuance of banking smart cards. Countries that had implemented banking smart cards had done so with the primary aim of battling fraudulent activities. Malaysia is one key example where it was absolutely necessary to bring in banking smart cards. After the introduction of banking smart cards in the country, there was a reduction in fraudulent activities by more than 90 percent.

The Market Today

In today’s fast paced environment, another factor that has necessitated the implementation of banking smart cards has been convenience. Contactless smart cards provide the ability to merely wave the card in front of a contactless reader in order to process a transaction. The key benefit in this is of course the processing time saved. When there is no requirement to have the card physically swiped at a terminal, we are also looking at an increased life span of the card. A vast majority of banking cards today tend not to work after a year because of the wear and tear that the card is subjected to. The shearing force on the card when it is swiped at a terminal can also damage the data on the magnetic stripe and hence make it unusable. Most of the financial institutions today provide the user with a replacement card which, at the end of the day, is a cost to the financial institution. Through a contactless card, as there is no physical contact, the card is not subjected to any force and hence has a longer life span.

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