The Lowdown on Contactless Credit Cards

by : Eric Wasselman

Last year, much talk followed the release of credit cards from Chase with which the bank refers to as 'Blink', their version of contactless Visa or MasterCard. While the technology behind 'Blink' may seem new, the idea behind contactless credit cards isn't. Radio Frequency Identification, or RFID has been used by Exxon-Mobil and others since the late 90's and the technology and concept behind RFID has had it's beginnings in the 1920's.

But it was only in the turn of this century that credit card issuers began to look at contactless credit card technologies seriously. With incidence of credit card "skimming" occurring more often, many consumers had been losing confidence on the security provided by traditional magnetic stripe cards. The search was on for a replacement and card issuers like American Express, Visa and MasterCard introduced 'contact' smart cards with chips in them as a means to combat fraud.

Merchants and banks in the United States were initially uninterested as the initial costs seemed high and there didn't seem to be much benefit to them other than added security on the consumer's part. Still, regular 'contact' smart card technologies were adopted widely in the Asia Pacific region in the face of increased cases of credit card fraud. In other words, it made economic sense.

Meanwhile in the States, credit cards were starting to become accepted at more and more 'frontline' retail outlets and stores such as convenience stores, gas stations, movie theatres, fast-food restaurants and drive-throughs. The stage was set for contactless credit cards to be introduced in the markets, as the technology would allow for faster transactions at the point of sale.

The technology behind contactless credit cards is simple on paper. A tiny chip measuring less than a millimeter in length with an antenna the size of a postage stamp but thinner than a sheet of paper is embedded in a credit card. When the card is waved in front of the reader, the radio field near the reader generates an electric current in the antenna that powers up the tiny chip. The chip then transmits back a response through a process called 'backscattering' to the card reader, all without having to make any physical contact.

Not all contactless credit cards are compatible with one another. Card issuers have yet to agree upon a standard and as such different systems are in place for different cards. For instance, American Express has its ExpressPay system, the MasterCard system is called PayPass and both Visa and Discover are holding back on a launch of their contactless card systems, with both companies showing more interest in mobile phone card technologies.

One of the first concerns the consumer had was of course, security. How safe is the card? Chase argues that the card is safer because it never has to leave your hand, so skimming isn't going to happen. Perhaps so, but 20 years ago nobody thought people would come up with small, hand-held devices that can 'skim' the account information off the credit card. However, the thief would have to very technologically savvy to get this information, and even if he gets the account number used on the contactless card, it is not the same number but a unique number only used in the RFID system. That means the risk of a 'carder' intercepting the signal and going on a shopping spree online is negligible.

Whatever the concerns, it looks like contactless credit cards or systems similar to it are poised to come into widespread use. Just at the end of April this year, Nokia and Visa had announced a system they are working on that would allow consumers to make payments with their mobile phones - the Visa Wave. With people becoming more and more reliant on their mobile phones, it looks like this type of contactless electronic payment systems are the next logical step.