Innovations in Payment Cards

The rise in e-commerce transactions and innovations in payment methods mean that faster, more secure, and more convenient payment options are available to the consumer and retailer. For example, proximity payment methods such as radio frequency identification (RFID) are ideal in merchant locations where speed is essential. Payment information is sent from the consumer’s smart card via wireless technology to a reader at the payee site. The rise in card fraud over the last few years – caused by high levels of organized card crime as well as increases in the number and usage of payment cards – has persuaded financial services to adopt the more secure chip & PIN card where users input a PIN number instead of signing a receipt.

contactless system

Proximity payment systems

Proximity payments are transactions that are conducted without having to manually swipe a card through a point-of-sale device. The user must be within a specified range of the wireless-reading device. (This range depends on the device – it could be anything between 2 centimeters and 20 meters.) With proximity payments, unlike mobile commerce transactions, payment details are not sent over the Internet.

Future developments could mean proximity payments will no longer be confined to cards. A chip with the cardholder’s details could reside in a mobile device, and transactions could be beamed using RF (radio frequency) technology, infrared, or Bluetooth. A number of wireless technologies are used for proximity payment. These include the following:

  • Bluetooth
  • Contactless smart cards and dual interface cards
  • Infrared
  • Radio frequency identification (RFID)

Bluetooth

Bluetooth is a wireless radio frequency (RF) standard that sends wireless signals (on a 2.45 GHz ISM band) between devices equipped with a Bluetooth chip. Bluetooth devices typically communicate at distances of up to 10 meters, but can communicate over distances of up to 80 meters. Bluetooth is an open standard that has been adopted by a number of major technology companies such as Ericsson, IBM, Microsoft, and Nokia and is commonly used in laptop computers, cellular phones, and personal data assistants (PDAs). Bluetooth can transmit data over long distances, but this increases the risk of payment information being intercepted. At the moment, there are no standards that cover the transmission of payment over Bluetooth.

Contactless smart cards and dual interface cards

Contactless smart cards are based on the ISO/EC 144443 standard and are commonly used in transit programs and payment cards. They are designed to communicate with devices within 10 centimeters. Dual interface cards have both a contactless chip and a contact chip, which means that different payment applications can be combined on the one card.

Infrared

Infrared is one of the oldest and most popular wireless technologies. It is commonly used in TVs and stereos. Communicating infrared devices must have a line of sight and typically send information over short distances (20 to 30 centimeters). Infrared devices can send information up to 2 meters away, but transmitting over such distances requires considerably more power. Infrared is relatively inexpensive to install in devices. It is also perceived as an ideal technology for transmitting payment information from consumer devices as line-of-sight restrictions means the parties involved can be reassured the information is not being intercepted.

Radio frequency identification (RFID)

Radio frequency identification (RFID) technology uses electronic tags to attach a unique ID to each application. There are two types of RFID technologies – low-frequency RF and ultra-high-frequency RF:

  • Low frequency RF operates at less than 300 KHz and allows only a small amount of data to be transferred between devices. It is used for applications such as gas-station payment systems. Low frequency RF has not been widely adopted as a medium of payment because of security concerns and the absence of standards governing the technology.
  • Ultra-high-frequency RF operates at between 902 to 928 MHz and has a range of up to 10 meters. It is in widespread use, most
    commonly in road tolling applications. A transponder located in the windshield of the car sends a signal to a reader in the toll booth
    containing the driver’s name and other basic information. RFID is not used in global payment environments as there are currently no
    standards governing its usage, and the relatively large communication distances involved have raised concerns about security.
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