Contactless Payment Cards, Proximity Payments and Other Devices

Contactless cards and key fobs have an embedded computer chip with financial and personal information used for payment transactions, and they employ RFID technology for payment transmission.  The contactless cards include a microcontroller (or equivalent intelligence) and internal memory and have the ability to secure, store, and provide access to data on the card.  The microcontroller also supports the use of improved security features including authenticated information access and information privacy.  Traditional plastic cards are easily transitioned to these new contactless cards.  Other smart-card technologies provide similar capabilities but do not have the radio frequency interface that would enable them to be read quickly and conveniently at a short distance from the reading mechanism.

Proximity payments are POS transactions made with a mobile device like a cellular telephone, smart card, PDA, or virtually any device that can house a microchip.  If the payment is executed with a mobile phone, it may be referred to as an M-payment.  Proximity payments are faster, cheaper, and easier than traditional payment mechanisms such as cash or credit card type transactions, particularly for micro payments.  Many of these transactions use the same credit/debit card network, and provide lower costs to institutions and to merchants.

Proximity payments and contactless cards permit the consumer to maintain physical control of the access device rather than relinquishing such control to an operator at a POS.  Bankcard companies and governmental agencies have become the leaders in facilitating these transactions.  Currently, there are multiple transmission types in use, and several are discussed below.  Other transmission types are undergoing market test trials.

Financial institutions offering advanced payment technologies (i.e., commercial POS systems to merchants or consumer proximity devices) need to perform the same due diligence and vendor management as they would on any service provider.  This includes ensuring an appropriate level of security in the devices.


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Emerging Retail Payment Technologies
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