Contactless cards: How they work

Carmen Chai
Personal Finance Writer
Covers tech, fraud, and credit card protection stories.


How contactless credit cards work

As contactless credit cards begin flowing in the U.S., how do these next-generation chip cards work and what is different about them?

“Contactless cards make the payment process easier and more efficient,” says Daniel Mouadeb, vice president of U.S. cards at Capital One, one of a handful of issuers mailing out contactless cards in the U.S. now. “They eliminate the need for swiping at checkout, or dipping your card into the terminal.”

Capital One’s new Savor dining rewards credit card, introduced in October 2017, comes with contactless technology, “which allows people to make payments by ‘tapping’ their cards in close proximity to contactless-enabled credit card terminals,” Capital One says.

How do contactless cards work?

A contactless card is a chip card that also has technology embedded in it that lets you pay over a secure radio interface, much like Apple Pay, Android Pay or other mobile wallets.

Contactless cards have “a payments app, per se, all built into the card,” says Melanie Gluck, vice president of security solutions at Mastercard. “An antenna picks up when it’s close to a reader and allows info to be transmitted to the point-of-sale terminal.” 

You have to be within close proximity – roughly 3 inches – to the contactless-enabled credit card terminal for the radio antenna to pick up your card’s signal. 

Contactless cards are called dual interface cards because they contain the now standard EMV chip and contactless technology. This way, consumers can use either method depending on what interface merchants are using. 

“To determine if a merchant is contactless-enabled, just look for the contactless symbol at checkout,” Mouadeb says. Your card, too, will have the waves symbol on the front.

How are contactless cards different from chip cards?

When you tap your contactless chip card, a cryptographic code that’s unique to the card and to the transaction is created. 

“The cryptogram can only be decoded by your bank to validate your transaction. It cannot be replayed,” says Jack Jania, senior vice president of strategic alliances at Gemalto, the leading provider of contactless cards.

“The bank decides, ‘This is one of my cards, and this is one of my clients’ transactions.’ It’s a handshake between the point-of-sale terminal and the card issuer. 

“All of this magic happens in literally 300 milliseconds,” Jania says. 

Gemalto estimates that transaction speeds are faster by about half of the current payment landscape. 

What are contactless cards best used for?

Contactless cards cater to those who are making smaller purchases – such as getting a coffee in the morning, a fast-food meal at lunch or fueling up on the way home. Or, in the case of Capital One’s Savor card, when cardholders are dining at restaurants or grabbing a ready-to-heat meal at the grocery on the way home.

Each credit card network sets a limit for tap-and-go transactions. Mastercard, for example, has a $100 limit on contactless payments. 

If a consumer exceeds the card issuer’s limit, he or she keys in their PIN for additional security. 

A contactless card “is designed for lower values, for speed and convenience. It’s not meant for major purchases,” Gluck says.  

How do contactless cards work? Bottom line: Just tap and go but only with smaller purchases. Think gas stations, convenience stores, grabbing lunch or buying a bus ticket or subway pass. The advantage: Less time waiting in the checkout line, the experts say. 

See related: No card, no problem: Pay with your ring, watch, bracelet, Fraud risk minimal from contactless cards


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Updated: 11-17-2017