In contactless payments, the transaction data between cards and payment terminals are exchanged by means of wireless noncontact communication technology. Such waving and touching technology means that customers no longer need to insert cards into terminals, they simply have to hold them a few centimeters away from the terminal to be read. A chip in a mobile phone or a in a key fob or similar device provides the same functionality. More specifically, the transactions use near field communication (NFC) technology, an extension of radio frequency identification (RFID). NFC allows for wireless data transmission between electronic devices over a short distance of up to roughly 4 cm. Making contactless payments via mobile phones or smart cards is widespread in the U.S.A. and in Asia but has not been introduced on a large scale in Europe.
The large credit card schemes MasterCard and VISA already offer contactless payment products. As payments of less than EUR 50 do not require entry of the four-digit PIN code, NFC technology is perfect for low-value payments, especially because some retailers are reluctant to accept credit or debit cards for such payments and customers thus have to pay cash. Contactless payments above this amount require entry of the PIN code, however. Merchants are mainly reluctant to accept traditional cards for low-value payments because card issuers charge processing fees e.g. for online authorization.
Contactless payments were introduced in Austria in mid-2013, following several pilot projects. Since then, some large Austrian banks have been equipping new and replacement debit cards with NFC technology. At the same time, large retail chains started to roll out NFC-enabled terminals. Austrian customers are now able to use their debit or credit cards for payments of up to EUR 50 without providing a PIN simply by passing their card within a few centimeters of an NFC-enabled terminal. To pay higher amounts, they will still need to insert their cards into the terminals and provide their PIN.
Online e-payments and mobile payments
With more and more people using the Internet, e-commerce has likewise surged in recent years. Mobile phone use has risen at an even faster rate than Internet use. People have been quick to adopt these innovative technologies and have been using them for more and more payments.
In online e-payments, the payment data and instructions are transmitted and confirmed over the Internet between customers making online purchases and their payment service providers. The hardware – a personal computer, laptop, netbook or mobile phone – and the technology used to go online are irrelevant in such transactions. As long as the payment data are transmitted and confirmed online, the payment is considered an online e-payment (not a mobile payment, which is made over a mobile phone).
Like many other national and international providers of online payment services, Austrian banks have developed a uniform standard for online payments, the eps e-payment standard.
In mobile payments or “m-payments”, the payment data and instructions are transmitted and/or confirmed via mobile communication and data transmission technology (e.g. voice telephony, text messaging or NFC technology) through a mobile device between customers and their payment service providers in the course of an online or offline purchase. Mobile payments are initiated, confirmed and/or received over the phone using a keypad or touchscreen or by activating contactless technologies such as NFC or Bluetooth.
We distinguish between two types of mobile payments, namely contactless mobile payments and remote mobile payments. In the case of contactless mobile payments, payers and payees (or payees’ terminals such as vending machines, parking meters, public transport ticket dispensers) are in the same location, which is why such payments are also called proximity mobile payments. In the case of remote mobile payments, as the name implies, payers and payees are not in the same spot.
The definition of remote mobile payments excludes contactless card payments (which are also equipped with NFC technology). Payments falling under the definition of online e-payments, that is, payments using the Internet as a transmission channel, do not qualify as mobile payments even if they are made using a mobile phone.
The ECB and the European Commission have performed extensive research on online e-payments and m-payments under the heading of growing market integration.
Security is a key factor influencing the choice of payment method. For this reason, the Eurosystem, at the beginning of 2013, issued recommendations for security measures for online e-payments. These recommendations are addressed to providers of Internet payment services.