RFID Contactless Payments vs. Smart Cards

I have blogged in the past about how slow the processing industry is moving towards adopting smart cards and contactless payments.

These two technologies present some major benefits and some major flaws compared to the ancient magnetic stripes that we have all come to know. For anyone not knowing what RFID (Radio Frequency Identification) contactless payments are, check out: New-wave pay plan. Smart card credit cards are credit cards with an embeded smart chip in them in addition to or in replacement of the magnetic stripe. The smart chip can securely store a lot of information compared to a traditional credit card.

Now, at some point I think that either smart cards, or RFID contactless payments are going to make a jump. If I were to bet on it, I would have to bet on contactless payments.

Here’s why contactless payments are going to be ‘the next big thing’ in payment processing!

Smart cards have been around for quite a while now. But, they have never gotten anywhere in payment processing in the US. They offer superior security compares to the current situation, so much that a person’s PIN number can be safely stored on the card itself. Smart cards have the potential to make the entire process of processing, much simpler.

However, smart cards are expensive, and they have never been that much better to justify the cost, time, and difficulty required to replace magnetic cards, to really catch on. They aren’t that much faster than normal credit cards if any, and how much information do you really want to store on your credit card?

Contactless payments on the other hand are in a position to become the standard, very quickly. Nowadays, processing cards is all about speed and convenience. I regularly see mom-and-pop businesses setting up their terminals through an Ethernet connection, because it is so much faster than dial up. Fast food restaurants are always looking for ways to speed up the ordering process. Sonic recently started using QSR self serve terminals at many of their locations. For these high output businesses where budgeting is calculated on hundredths of a penny, even a few seconds extra per person costs a lot in the long run.

Contactless payments simply have several key ingredients in every necessary sector which sets them apart from Smart Cards.

First off, contactless processing is cool.
Swiping your key chain or wallet over a terminal to pay is much more amusing than handing your card to a cashier. MasterCard curently uses a keychain tag for their contactless program. The cell phone ringtone industry is currently grossing more than 3 Billion dollars per year in the US. Believe me when I say that the coolness factor is a big part of it for consumers.

Second, it is more secure.
Since the card never leaves your hand, there is very little chance that your information can be illegally recorded. Yes it is true that someone could potentially intercept the radio signal that transmits your information from the card to the terminal, but this information is encrypted, and the equipment to do it is a little more complicated than a pen and paper. If you’re really worried about it, then you can get a RFID shield. Information on RFID payment cards is encrypted anyway, so if someone decides to scan your card while you’re walking by, the data wont be readable.

Third, they are very, very, fast.
RFID is significantly faster than swiping a card through a machine and even faster than processing a smart card. It takes only a second or two to hold the card over the reader, then green light you’re done. This will please even the most time-conscious McDonalds restaurant, and they don’t even have to reach out to grab the card.

Four, the technology is already there.
Contactless RFID systems have been used in many country’s train and other transportation systems for years. RFID is a well developed technology that will migrate perfectly into credit card processing.

Fifth, magnetic strips are old, have limited storage, are unsecure, and simply suck.
Magnetic strips were first added to credit cards in 1979 before the first IBM PC was created. Lets just say that technology has moved on a little bit, and sometimes old technologies are due to be retired. magnetic strips can only hold a few bytes of data on them, and they aren’t encrypted. Anyone with a computer and a card reader can get all of the data on the card. With a RFID or Smart Card the data can be encrypted so that it cannot be read by simply swiping it onto a computer. When you scratch your stripe it stops working. Magnetic stripes are very weak and can easily be destroyed. Even placing your wallet neat a magnet or a checkout scanner can wipe the data on your card. Stripes were great when they were invented, but it’s time to move processing into the 21st century.

Sixth, they are cheap.
With smart cards coming in at several dollars per card, the sub $1 price of RFID tags is another hugely important factor for the banks that issue the cards. Replacing millions of cards costs a lot of money, and by saving over a dollar per card, banks will be much more likely to take the initiative.

Contactless programs already being pushed:
Mastercard Paypass
Amex ExpressPay
Visa Contactless

With the increased awareness in transaction security from consumers and businesses, and an ever present belief that things need to go faster, contactless cards are in the position to become the standard. Obviously this change will take years to complete, but when compared to smart cards, contactless look to be far superior, and in a far better position to make a move.

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