Contactless Payment Systems Vs Online Payments

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Contactless payments and online payments will be at their peak in 2022. Nonetheless, these two systems have very different origins and purposes. Today, we'll go over each payment method in depth, explaining how they work and how they differ.

Contactless payments in 2022: statistics
Contactless payments were as popular as ever in 2022. Mostly due to their practical utility, but also due to the global pandemic outbreak. According to Visa research, if all other factors such as price, product line, and location were comparable, 63 percent of consumers would prefer a business with an implemented touchless payment method.

According to the study, more than 45 percent of international consumers believe that a contactless payment method is the most important safety measure that physical stores should implement.

At the same time, a Mastercard survey shows that nearly half of respondents have already switched from physical to contactless payment.

What are contactless payments and do they work?
Contactless payment technology is a type of payment that allows customers to use debit and credit cards ...
... to purchase goods and services using radio-frequency identification technology, abbreviated as RFID. This payment method does not require card swiping, entering a PIN, or signing.
Radio-frequency identification uses electromagnetic fields to recognise and trace tags attached to special objects. A radio transponder, a radio receiver, and a transmitter comprise the RFID system. When an electromagnetic interrogation pulse from a nearby RFID device is used, the tag transfers digital data, locating an inventory number. RFID technology is used in a variety of industries, including passport identification, access control, advertising, design, education, and health care.

Payment sizes on credit and debit cards are typically limited for contactless payment. The maximum payment amount for a contactless purchase varies by country and by bank. A merchant or retailer can set their own limit for their payment system in order to prevent fraud.

Two types of contactless payment technology
There are two main ways to perform a transaction or transmit card data in the contactless payment system: using EMV chip cards or the tokenization method. EMV is the first. EMV is an abbreviation for 'Europay, Mastercard, and Visa.' All issued plastic credit and debit cards with an embedded smart chip or cryptographic chip are valid for contactless payments using this method.

Cards with embedded chips are also known as smart cards because they enable wireless purchases from EMV chip systems and payment terminals that use RFID technology. When a smart card is physically attached to a POS terminal, it identifies the card issuer's information via a series of verifying interactions. Merchants can accept payments for goods or services after successful verification.

Tokenization is the second method. It is a relatively new approach in banking history, but it is very familiar to all young consumers. Tokenization is accomplished by linking a smart debit or credit card to a hardware device, such as a mobile phone, and allowing this device to make purchases using RFID technology attached to a point-of-sale terminal. A token generated by a card issuer is used to process the payment on behalf of a smart credit or debit card. Apple Pay and Google Pay are the most popular tokenization methods today.

How to accept contactless payments?
To accept contactless payments, a merchant must purchase a point-of-sale terminal with a special symbol indicating RFID technology. A point-of-sale terminal (POS) is a piece of hardware that allows payment processing from credit and debit cards as well as physical payment locations. The hardware includes software to encode card data and accept payments.
A merchant must first open a merchant account with an acquiring bank in order to obtain a point-of-sale terminal. Merchants require physical hardware in addition to other merchant services. Other merchant account providers, such as PSPs and online payment gateway service providers, are only suitable for e-commerce websites and are not suitable for physical stores.

What is online payment?
An online payment, also known as an electronic payment, is one that enables the acceptance of electronic purchases for a digital transaction. An online payment event always takes place on one of the online platforms, such as a website or an application. It enables customers to pay using a variety of methods such as credit and debit cards, mobile payments, local currencies, cryptocurrencies, and others.
The physical presence of a card or wallet is not required for online payment; only its data is required.

Even so, the online payment industry is vulnerable to fraud. While fraud in physical card payments takes the form of plastic card theft, fraud in digital payments takes the form of identity and data theft. As a result, merchants require a dependable online payment provider that is well-secured with fraud prevention services and adheres to international security standards.

How to accept online payments?
A merchant must obtain a merchant account that includes merchant services for full-cycle payment acceptance in order to accept digital payments in e-commerce. In most cases, payment processing would necessitate a merchant account to collect funds, a website to conduct transactions, and a payment gateway to connect with internal banking networks.

Three financial institutions can provide an e-commerce merchant account. The first is bank acquisition. They provide services for both online and retail businesses, charging relatively high fees and requiring lengthy contracts. Acquiring banks are best suited for large businesses. The second category includes payment service providers. PSPs only work with e-commerce and provide full payment cycle implementation on a merchant's platform. The third type is payment gateway service providers, who only provide payment gateway technology to facilitate online payments.

Contactless payment systems vs online payments
Contactless payment is a payment method that is performed in physical retail stores and requires a credit or debit card. A merchant will need special hardware, such as a point-of-sale terminal, to implement it. In this case, only an acquiring bank can issue and maintain a merchant account.

Online payment is a method of payment that uses credit or debit cards or other digital wallets. Online payments, as opposed to contactless payments, take place online, on the merchant's website and payment platforms. To accept online payments, merchants must work with an acquiring bank, a payment service provider, or the best online payment gateway service provider.

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