The Evolution of Contactless Payments: Transforming the Future of Credit Card Transactions

April 30, 2024

17 Mins Read

When was the last time you used your Apple wallet to pay? Maybe some time back. So, contactless payment is nothing new anymore. However, many of us were only introduced to contactless payments during Covid.

Why do you need contactless payments at all? Well, there are many reasons. Some of those are known to us. I will discuss others in this article.

In America, 51% of people use contactless payment methods daily. That’s normal, given the number of digital wallets in the USA today.

However, contactless credit cards are the latest catch! We can already use our credit cards through Apple Pay, Google Pay, Venmo, etc. But America is a credit card economy, as we all know.

So, I researched why contactless credit cards are needed more than other payment modes in the USA.

Understanding Contactless Payments

Financial transactions are nothing like they used to be. If you think we only changed our modes of payment, you are wrong! That’s the point I am trying to make here.

Imagine a society where cash is not needed at all. Payment has already become easy. I only need to take out my phone to pay. Moreover, my transactions are safe and secured by encryption.

Contactless payment was launched to make payments simpler. People in the US wanted swift payment methods. Credits cards already existed. However, people wanted something crisper.

The main concern was creating a safer payment method, too. Anyway, it had to be digital. Today’s contactless payment technology is the answer to all these needs.

The Science Behind It

You can make a contactless payment by tap or touch. If you have a next-gen EMV card, wave it on top of the PoS to pay. Mobile wallets or wearable payment gadgets are also prevalent ways of making contactless payments.

All these techniques work when you are around the PoS. Experts say that the NFC technology is the most common technology used in contactless payments. Please read the article on NFC Technology to learn more about it. It uses a wireless secure field to connect payment and PoS devices over an encrypted channel.

However, contactless credit cards have RFID chips on them. These magnetic chips can detect data from your credit card.

How it Works at PoS?

When I say contactless payments are simple, I mean it. It uses a simple and clutter-free method. Find how the technique works in multiple steps:

The merchants make a prompt for payment
You hover your credit card over an NFC-enabled device
Your secret payment gateway is formed, and it reaches your bank
You get a notification to authorize the payment (if you have auto-debit enabled, no OTP is required)
The merchant’s PoS system receives or rejects the payment through the encrypted gateway
You see a light or sound as a payment confirmation signal

Is it Safe to Pay Without a PIN?

We are accustomed to entering a PIN to authorize a payment. However, contactless cards don’t need it. It’s safe. You will receive a notification or prompt immediately when your card is used for payment.

Still trying to figure out its safety? Visa recognized this concern among Americans. Therefore, most card vendors recommend users set contactless auto-pay limits. For instance, you can set it to $30.

When you pay over $30, you must authorize it with an OTP only. There are many other fraud management schemes by various banks. In most countries, there is an official contactless payment cap.

In the UK, the official limit for contactless payment is £100. However, no such cap exists for contactless credit card users in the USA. Read the article on The Rise of Digital Wallets to learn more about the benefits of contactless card use limits.

Relevance of Credit Cards in the US Society

This study is not about the evolution of payment methods. I focused more on contactless credit cards and their usage. After all, America is a credit card nation!

The question was always- how to integrate our credit cards with contactless payment systems. RFID-enabled contactless credit cards are the answer to it.

In 2022, 82% of Americans paid using credit cards. The Motley Fool also records that credit cards were used for purchases worth $5.6 trillion (about $17,000 per person in the US) in 2022.

Most of us think that borrowing is not the proper habit. You may not be aware of the real benefits of a credit card. The prime benefit of credit cards is that they improve your credit score. It shows the Credit Bureau that you can borrow and pay back in time.

The loan interest rate is always lower for people with better credit scores. Of course, there are other benefits as well. With your credit card, you can:

You get purchase protection of up to $10000 on each item whenever you shop with a credit card
Extended warranty in case of high-value purchases (usually added with the retailer’s or manufacturer’s warranty)
Insurance on a rental car (if a credit card is used at PoS)
Cashback on every purchase
Rewards for using credit cards during travel

There are other endless benefits of a credit card payment. You may only get some of these benefits if you use it to pay only through digital wallets. That’s why you need contactless credit cards.

Are There Any Added Benefits of Contactless Credit Cards?

BFSI predicts that 81% of the credit cards in circulation within the USA will be contactless by 2026. Indeed, people are willing to use it more than regular credit cards.

You may say that millennials and Gen Z mostly use contactless payment systems. What about the rest of the USA?

Therefore, readers must know about the rest of the benefits of a contactless credit card.

An Efficient Payment Method for Businesses!

In the USA, approximately 33.3 small businesses are existing exist. The American economy gets excellent mobility and considerable turnover from these small businesses.

Small merchants in the USA can heavily benefit from contactless credit card payments. Experts say that checkout lines in small stores shortened after they started accepting contactless credit cards.

As a result, 86% of merchants in the USA started accepting contactless credit cards.

Back in 2002, the maintenance cost of the contactless credit cards was $10. As a result, average users did maintain these cards.

Only premium customers like celebrities, businesspeople, or high-income white-collar professionals kept contactless credit cards.

However, the scenario has changed now. The intro APR of most contactless cards is $0. Consequently, a much higher number of customers use it. People also use it for small-scale payments at local merchant outlets.

In another recent survey, 78% agreed that the average transaction time has reduced. Certainly, contactless credit card payments are faster than your average digital wallet, too.

Added Incentives for Shoppers

A survey in the USA found that 85% of merchants said customer satisfaction increased after they started accepting contactless credit card payments. Customers do not have to wait in long queues.

Using NFC, they can pay using contactless credit cards, even if they don’t have them physically.

Most contactless credit cards have digital versions. Using NFC, you can copy the contactless credit card data on any NFC tag. That tag works as your credit card whenever you shop.

Contactless Credit Card Vendors in the USA

Most reputed card vendors now provide contactless credit cards. Previously, contactless credit cards were issued to premium or high-value business account holders only. However, there has been a shift in the payments landscape in the US.

Most Americans started using digital wallets for small-scale payments. Experts say this created a void in the credit card usage rate for PoS payments.

Hence, the issuance of contactless credit cards answers his challenge.

As an American, you must know the benefits of having contactless credit cards from different vendors. Here’s a list of all contactless credit card providers in the USA and the benefits they offer.

American Express

American Express is now issuing contactless credit cards to most new customers in the USA. However, they have the most extensive network migrating regular magnetic strip cards into contactless credit cards.

Go to their website to check your eligibility for a contactless credit card from American Express.

All popular cards like American Express® Green Card, Blue Card, or Gold Card have an additional “contactless” symbol. The contactless payment limit on their cards is $250.

Bank of America

Bank of America is not going all out for contactless credit cards. The top cards of Bank of America, like Unlimited Cash Rewards Credit Card, Premium Rewards Credit Card, and a few others, allow contactless payment options.

However, there are other benefits of paying with these cards. You can also use these contactless credit cards on PoS of small-scale payments. Therefore, you get more rewards and cashback. For Rewards cards like “Bank of America® Unlimited Cash Rewards and Premium Rewards® credit card,” the scope is higher. You can use these cards for all your regular buying needs and earn more rewards.

Capital One Card

It is not a conventional banking company. It is mainly in commercial banking. However, Capital One credit cards are issued for all kinds of customers in the USA.

One of the prime benefits of using a Capital One card is the scope of earning cash rewards. The Quicksilver Cash Rewards Credit Card is given to users primarily for micro-purchases.

The Capital One Savor Cash Rewards Credit Card is also given to customers for more manageable retail payments.

Capital One offers a quick replacement of contactless credit cards to users who want an upgrade. You must call their customer care number to request a new card.

All upgraded and exchanged cards are contactless.

Chase

Chase is a credit lending company. One of Chase’s main business models is earning from repeated PoS transactions. Merchants are charged a token amount during every PoS use.

Hence, Chase is trying to launch as many contactless credit cards as possible in the US market.

However, Chase has a distinct segment of contactless credit cards. It’s different from AmEx or BoA. These banks have both swipe credit cards and contactless credit cards under circulation.

For instance, a Bank of America® Unlimited Cash Rewards credit card can be a swipe-up or contactless card. Both are equally involved in market operations.

In the case of Chase, their Freedom Unlimited, Sapphire Preferred, and Sapphire Reserve cards are only contactless credit cards.

Experts say that this distinction creates a FOMO among users. Indeed, people will want to upgrade to a contactless credit card.

Chase also has partnerships with airlines and co-branded hotels to offer better offers to their contactless credit card customers.

Citi

Citi has already cracked the code of contactless credit cards. More than 90% of the Citi credit cards in the USA are contactless.

Citi does not fix any upper limit on shopping with contactless credit cards.

Discover

Discover is one of the most popular vendors of contactless credit cards in the USA. Like Amex, Discover upgrades existing cards into contactless credit cards.

You can log into their website or app to request a card change. However, customers should know that a signature is required for purchases over $100 with a Discover contactless credit card.

However, your transaction is contactless.

The purpose, functioning, and benefits of all contactless credit cards are similar. There are other vendors like US Bank that issue contactless credit cards.

Due to the growing popularity of contactless credit cards, Venmo, Cash Pay, and other NBFCs also offer contactless credit cards.

A virtual version of your contactless credit card is recommended. It secures the data of your card and shows if your merchant payments are secure.

How to Check if My Card is Contactless?

There is a unique symbol to specify the nature of your credit card. Likewise, there will be a contactless indicator symbol on your card.

It resembles an inverted Wi-Fi symbol. But what’s more important is that the same symbol should appear on the PoS screen. This is another way to tell that you’re paying from a contactless credit card.

Is it Secure if it’s Contactless?

Americans are using contactless credit cards at will. But if you are still brainstorming about its security features, this section is for you.

One Time Code

As with regular credit cards, an OTP is issued whenever you use your contactless credit card. The OTP-bearing message or notification contains all details of your concerned payment.

The details which you should look for:

Transaction ID
Name of merchant
Your user names
The transaction values
Date and time of the transaction

Your data is unsafe if it’s shared with merchants at every PoS. Don’t worry. Your contactless credit card is more thoughtful.

For most EMV contactless credit cards, details like name, billing address, and payment verification codes are not shared with the merchant. The same goes for peer-to-peer payments.

Any random person cannot steal and use your card. It is impossible to complete or authorize the payment with the card alone. For that, you also need your phone.

Any hacker needs to crack a complex code to generate the OTP from the back end. So, your contactless credit card is practically safe.

Experts say contactless credit cards are safer than magnetic strip cards for the OTP feature. Your personal banking data could be compromised while swiping the card.

Moreover, this data can give hackers access to our bank accounts. However, there are no such chances when you use a contactless credit card.

Physical Security Features

The possession of the card is an issue with contactless cards. There are no security layers like PIN or signature to validate your payment before it is authorized.

Moreover, the card cannot be easily detected if it’s stolen or lost.

Let’s not be worried. All credit card companies have this loophole covered. Firstly, you can block your card immediately from your internet banking app or call the customer helpline.

Secondly, all card providers have a maximum ceiling for individual transactions. Therefore, hackers cannot extract your money from the card at once.

You can easily detect it from your phone’s notifications. The RFID technology is another layer of protection for your contactless credit card. It is a blocking mechanism.

This mechanism does not allow the card reader to store the user’s personal information.

Other Sources to Pay Using Contactless Credit Cards

Other than merchant PoS, you can use your contactless credit card at other payment sources.

Linking My Contactless Card with Mobile Wallets

What is the benefit of linking it with a wallet if it’s contactless? It’s the same as connecting your regular card only.

No, maybe it’s not.

By now, you know that contactless credit cards have better security features. So, there’s an extra edge to the security of your payments.

Now that you know it’s better to link it, let’s see how it’s done. Mobile wallets like Apple Pay, Google Pay, or Samsung Pay provide a safe gateway to load credit card data into your app.

As you visit a store, tap your phone in any contactless PoS terminal to make the payment. As a result, you pay with your contactless credit card while you are not physically carrying it.

You can check your credit balance and expenses by linking your card with the app. Therefore, you can make more informed buying decisions.

Experts discuss various other benefits of linking contactless credit cards with mobile wallets. You can easily track the history of payments made with the card. You can also set a daily budget for monthly credit card expenses.

Wearable Devices

One of the recent innovations in payment technology is Fitbit Pay. Contactless credit card vendors allow users to link their cards with wearable devices and jewelry.

Rather than RFID, these devices use the NFC technology. As you tap your wearable device, a secure magnetic field is created between the PoS and the device.

You can tap it and pay instantly. This technology is, however, suitable for users who prefer to avoid carrying their wallets or mobile phones.

All of us carry our smartphones along. However, only 85% of people regularly use the features of their smartphones. The rest use it sparingly.

This target segment also includes older adults. They might need to remember their cell phones back home. It is better for them to use a wearable device to pay.

Moreover, 62% of Americans over 70 use a smartphone only. Therefore, wearable devices can be a safe and lucrative option for paying.

Most Significant User Segments of Contactless Credit Cards in the US

In the USA, most millennials and Gen Z customers prefer contactless options. Around 54% of Gen Z and 53% of millennials in the US have contactless credit cards.

You may read the article on How Millennials and Gen Z are Shaping the Future of Contactless Payments. It will inform you about the behavioral patterns of these customer groups.

Undoubtedly, millennials and Gen Z made contactless cards famous in the US.

Here, I want to explore why they prefer it. Most sources say that millennials and Gen Z prefer faster payment options. Some others say they want to use such high-end technology.

However, there are more reasons why millennials and Gen Z love using contactless credit cards.

Recent research by Motley Fool finds that millennials and Gen Z of the USA are fond of rewards and cashback. Moreover, modern-day contactless credit cards give chunks of reward points and cashback with every transaction.

A current survey reports that 64% of millennials and Gen Z prefer contactless credit cards in the USA as there is no “contactless limit.” They also like this payment mode as the card companies give higher rewards to avid users.

Companies like Venmo, Cash Pay, and others give assured cash back for every purchase through contactless credit cards. Around 68% of US millennials and Gen Z customers regularly use contactless credit cards for such benefits.

What About the Others?

In the USA, the baby boomers currently have the highest purchasing power. They spent around $548.1 billion annually. Gen X has the second-highest purchasing capacity in the US. They spent $357 billion (about $1,100 per person in the US) annually.

However, most articles do not speak about these groups. This is because millennials and Gen Z will have 92% of the jobs in the US by 2030. Naturally, their purchasing power will be higher in a few years.

However, the popularity of contactless credit cards is rising. The demographic segments with the highest purchasing parity matter now.

Currently, 33% of the baby boomers look for trust in their payment method. Indeed, 67% are attracted by the perks, annual interest, rewards, etc. In the same way, 66% of Gen X people are attracted by these factors. In comparison, only 64% of Gen Z and 62% of millennials feel attracted to these offers.

Statistics show that Gen X and Baby Boomers are equally attracted to contactless credit cards. In fact. the rate of using contactless credit cards is higher among them.

They are currently the biggest spenders. If they are attracted by offers like cashbacks, rewards and interest rates, then the banks have set the right track for promoting contactless credit cards.

CNBC shows that contactless credit card companies in the US often give 2% flat cashback. Other than that, people in the US get 1% cash back for every purchase and 1% on bill payments.

Hence, contactless credit cards are equally popular among all age, income, and gender groups in the USA. Below is a detailed analysis of the features American credit card holders look for.

Features of Contactless Credit Cards	What Percent of Americans like this Feature
Cash back for miscellaneous uses	68%
Rewards or using card on travel	32%
Rewards and cashback on Daily grocery and gas refill	27%
Rewards and cashback on balance transfer	27%
Contactless credit card with highest security	22%
Cards with better bonus on sign up	20%

America Needs to Catch up on Contactless Credit Card Use

Despite the boost in the use of contactless credit cards, the adoption of contactless payment is low overall in the US. In 2019, more than 90% of the face-to-face transactions were contactless in Australia.

However, 1% of such payments were contactless at that time in the US. Ben Sopitt stated on LinkedIn that:

“Now, after years of lagging the rest of the world, the US is finally showing signs of re-assessing the role of contactless and specifically card-based contactless in the payments landscape.”

Expanse in the Global Market

Australia is not the only one. Countries like Singapore and Hong Kong are on the verge of becoming cashless. Few people prefer to handle or pay in cash in these countries.

However, 67% of Americans still use traditional cash payment options for regular in-store purchases. The attachment to cash is why fewer people use contactless payment cards in the US.

Guess what! The problem is more profound. On the front, the rate of adoption of contactless credit cards is high in the US. However, there are still 6 million unbanked and about 19 million underbanked customers in the country.

Hence, the need for financial literacy is a big challenge for the US in terms of not competing with other countries.

The European market also has a better adoption rate of contactless payment systems. In Norway, 100% of the citizens have a bank account. In Sweden, merchants frequently refrain from accepting cash payments.

The reason behind it is financial literacy. The government heavily promoted the benefits of contactless payment methods. At the same time, federal bodies developed new schemes to promote adoption of contactless credit cards.

However, Biden’s government in the US made sharp moves to adopt contactless payments at large scale. A new CBDC is under consideration. It will motivate users to increase use of digital payment means.

Most banks and NBFCs in the US are giving cashback and rewards as well. It will motivate micro level users to use contactless credit cards for regular transactions also.

Researchers find that the US market is very mature. It is home to credit cards, too. The most significant credit card vendors (Visa, Amex, and Mastercard) are also from the US.

So, What Went Wrong?

Visa Pay Wave and Masterpass (by MasterCard) were the first contactless credit cards in the US. These were introduced back in 2002.

Both companies wanted to scale up the use of contactless credit cards. However, the US economy needed to leverage the use of credit cards among small-scale merchants. Only then would the mass-scale adoption of credit cards have been possible.

America should have managed the operating cost of NFC-enabled contactless cards. In 2002, the maintenance cost of a contactless credit card was $10. In comparison, other magnetic strip credit cards were cheaper.

But today, the people of the US are much more aware of the benefits of contactless credit cards. The recent rate of adoption and use of these cards is incremental. We hope the USA will also become the hotspot for contactless payments.

Final Takeaway

The future of contactless credit cards is bright. It’s not only utility-based but unique as well. In the US, people of all ages and income groups prefer contactless credit cards. America was always a nation of credit cards. Naturally, digital wallets only became very popular here.

It is evident that contactless credit card payments are more convenient. Research also shows digital wallets perform better when linked with contactless credit cards. In fact, most high-end security features like NFC and RFID are used in these cards.

The silver lining is that all Americans have unique reasons to adopt these contactless credit cards. People also understand the challenge of using it. There might be security issues if your card is stolen. However, it is impossible to siphon funds or use the stolen card for larger purchases. So, it’s time to forget cash and embrace contactless credit cards.

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Ankita Tripathy

Ankita Tripathy loves to write about food and the Hallyu Wave in particular. During her free time, she enjoys looking at the sky or reading books while sipping a cup of hot coffee. Her favourite niches are food, music, lifestyle, travel, and Korean Pop music and drama.