Contactless credit card payment is slowly being rolled out across the Caribbean region. To some, it is a much-welcomed convenience, to others, a source of concern. In this article, we provide a quick primer on this development in the region’s banking space, including some of the perceived benefits and drawbacks.

 

To a considerable degree and across the Caribbean region, we have been slow to introduce some of the latest digital developments in the banking and financial services space. As we learned in our conversation with Wendy Delmar, Chief Executive Officer of the Caribbean Association of Banks, Caribbean banks tend to be risk-averse, and to varying degrees, struggle with the cost versus benefits of introducing new facilities and services, based on the perceived needs of their customers.

As it relates to e-commerce and digital payments, the region has lagged behind developed countries in accepting credit cards, and more recently, in credit card technology. It is perhaps only within the last five years that credit cards with microchips have become standard issue. These microchips, like the magnetic strip on the reverse side of credit cards, store data such as credit card account number, cardholder’s name, card expiration date, and card verification code. However, the microchip also generates a unique transaction code, thus allowing for the authentication, authorisation, and successful processing of transactions whilst making them more secure. Typically, in the Caribbean region, chip-based transactions require the cardholder to enter a PIN (Personal Identification Number) to confirm payment.

However, within the last year to 18 months, tap-to-pay or contactless credit cards have been introduced. Although contactless payment has been around since the 1990s, contactless credit cards began to gain traction in more developed regions in the mid-to-late 2000s. However, the COVID-19 pandemic would have accelerated its implementation in developing countries, in particular, as people became more aware of the need to limit physical contact and being in close proximity to others.

 

So what is the technology behind contactless cards?

The technology behind contactless cards is near-field communication (NFC). NFC has been around for about 20 years, and is a technology that allows wireless two-way communication between NFC-enable devices by either touching or bringing them into close proximity (a few centimetres) of each other.

In addition to credit cards, NFC has a broad range of applications including,

  • keyless access, to vehicles, buildings, car parks, etc.
  • e-wallets for payments made with a smartphone, such as for buses, taxis, groceries, concert tickets, etc.
  • theft control, via the RFID/smart tags that can be placed in bags and luggage
  • manufacturing and inventory management, where smart tags can be used to identify each product from its different process stages, or to help businesses more efficiently manage their inventory

However, it is emphasised that the application of NFC is growing. In the future, it could become integral to smart homes, the Internet of Things and 5G-enabled devices and applications.

 

What are some of the pros and cons of contactless cards?

Recently, there have been reports in the international press of contactless credit card charges being made even when customers have not had their credit cards close to NFC-enabled payment terminals. In some instances, multiple cards were charged, charges were made to credit or debit cards customers had not intended to use, etc.

 

 

Though these situations tend to be the exception rather than the norm, it has been the source of considerable concern among customers, who may question the usefulness of the facility, especially if the process to get their bank to reverse a transaction is somewhat arduous. As previously stated, NFC-enabled applications tend to require devices to be either touching or within a few centimetres of each other. According to VISA, devices need “to be within 1 to 2 inches of the Contactless Symbol to initiate a payment”. Hence, those unauthorised contactless credit card charges could occur if the transmitting power of the payment terminals is higher than normal, which businesses could have adjusted. However, such reports tend to also trigger wider concerns about the security of contactless payments.

In one word, yes, contactless payments are expected to become even more widely deployed, especially since other security technologies are being used together with NFC, such as encryption and tokens, which limit fraudulent transactions from being successful. In addition to being more secure, contactless payments are faster, taking just a few seconds, and so more convenient. Additionally, as we have become more vigilant about sanitisation, with contactless credit cards, we do not need to touch surfaces to enter our PIN or give the cashier our credit card. Finally, another benefit of contactless credit cards is that the magnetic strip and the microchip can wear out or become damaged from repeated contact with payment terminals. This challenge is largely reduced with contactless cards.

On the flip side, there are security concerns – more so from consumers than the banks and payment processing providers – which include the ability of fraudsters to remotely skim data off the card. However, as previously stated, additional layers of security can be integrated to thwart theft and make whatever data that is stolen less useful.

A particular challenge that consumers may experience if they are enthusiastic about contactless payment is the fact that, in the Caribbean region, it is not widely available. Most businesses only have chip-enabled payment terminals, and transactions are likely to be slower and less convenient than tend to enjoy when contactless payments are accepted.

Finally, depending on your point of view, this issue may be may or may not be a disadvantage. Depending on the bank and the country, contactless payments usually have lower limits than microchipped credit cards, either in terms of the size of individual transactions or the total amount of the charges that can be made. Again, depending on the user, lower transaction limits can be an inconvenience and may find it better to use microchipped credit cards instead.

 

In summary, although there are some concerns around contactless payments, the use of NFC to facilitate payments is here to stay. More importantly, the market is growing. According to Research and Markets, between 2022 and 2030, the global contactless payment market size is expected to reach USD 164.15 billion and have a compound annual growth rate of 19.1%.

Though the shift to contactless payments is inevitable, we as consumers still need to be vigilant when we conduct digital transactions. The ease and convenience can lull us into a false sense of security, and careless behaviour. Simple practices such as ensuring that you get a text message when a card transaction has been successfully processed – and that you check your notifications – could go a long way to ensure that you and your card remain safe.

 

 

Image creidt: CardMapr.nl (Unsplash)