An Incredible Technology in Your Hands: How Does a Credit Card Work?

How Does a Credit Card Work

An Incredible Technology in Your Hands: How Does a Credit Card Work?, The payments industry impacts specific credit card data use and fast transactions globally. With contactless credit cards, you pay for goods on e-commerce websites within seconds. The technology behind each transaction using contactless payments is unique. It leverages a one-time code used in credit and debit cards.

Of course, using a contactless credit card for the first time can feel like an uphill task. Some terms like the card reader and chip card are worth knowing. The good news is that contactless payments are some of the easiest ways to transact cash. Keep reading. This post will take you through the payment technology and show you how to use it.

An Incredible Technology in Your Hands: How Does a Credit Card Work? What Are Contactless Cards?

Contactless cards are vast enablers of business in this digital era. They work like mobile wallets and have annual fees—users complete transactions by holding their credit and debit cards on a card reader. Gamblers can even get incentives at an Australian casino with no deposit bonus for linking their accounts.

Chip card technology is utilised in contactless credit and debit cards. They give you a variety of options to transact money. They are unlike the typical cards that need swiping or inserting cards in merchants’ terminals.

Instead, they offer a fast, secure plan B for shopping and paying for services. You even can link your credit or debit cards to a smartphone and enjoy contactless payments.

An Incredible Technology in Your Hands: How Does a Credit Card Work? The Technology Behind a Contactless Credit Card

Contactless cards allow transactions between customers, banks, and sellers. Their payment gateway helps an issuing bank and merchants’ terminal software share data.

A merchant’s bank is the acquiring bank, which receives money during item sales. The issuing bank is the cardholder’s financial institution. Traders accept secure payment from credit and debit cards through their software processors.

Merchant banks are members of card associations such as Mastercard and VISA. Card associations are financial institution governing bodies. They set exchange fees, approve card networks, and qualify payment rules. Ideally, they act as credit card controllers between traders and issuing banks.

Mastercard uses Banknet, while a VISA operates VisaNet network. Both provide businesses with a channel to accept contactless card payments. Cardholder banks are card association members which pay a merchant bank after you buy.

The cardholder then pays the issuing bank after the transaction. The approved payment goes through a processor that warrants the card payment.

How to Know a Contactless Credit Card

It is super easy to tell if your physical credit card uses contactless technology. Modern contact credit and debit cards have users’ details on the front side. A security code and the card’s expiry date are also included.

Whether using a Mastercard or VISA, Near-field communication (NFC) technology applies. It is an upgrade of Radio Frequency Identification (RFID)’ which relays data electronically.

A myriad of payment terminals use RFID to counter money theft. The short-range electromagnetic waves emitted during purchases enable tap-to-pay transactions.

Many credit and debit cards have built-in chips that differ from contactless cards. Although both sound similar, the former allows users to insert cards. The easiest way to know if you have a contactless card is to check if it has a Wi-Fi logo on the backside.

NFC Use in Contactless Payments

NFC technology is popular in the payments industry, including FinTech. It allows the wireless sharing of data between nearby devices. Unlike RFID requiring users to swipe a card, NFC uses radio frequencies. This makes contactless payments more secure. It even reduces the chances of paying for items you aren’t buying.

In other words, NFC technology is a tap-and-go technology. You must put your NFC contactless credit card close to the merchant’s card reader to pay for goods. About 4 inches is ideal.

Security of Contactless Credit Cards Payment

With all the juicy bits of contactless technology, you can quickly wonder how secure it is. Well, fraud protections are core at any bank offering contactless payments. Check out below how secure your card is to carry around or use for shopping.

Physical Security

The most significant security issues with card payments involve the handling of the card. Remember, no PIN or signature helps approve transactions. If your card gets stolen, someone can use it to buy items without being noticed. For that reason, most contactless card issuers limit the amount of money you can transact. But again, you should notify your bank if the card gets lost to prevent further losses. Beware that protection often does not extend to debit cards.

One-Touch Code

A contactless card chip at trader terminals is safer. Its technology is so secure even the U.S. Defense Department uses it. The microchip generates a one-time code for each payment. The code verifies a payment after you hover your card on the seller terminal. It then sends your name and address to the card association network for billing.

Banks also use complex algorithms to prevent dubious transactions within the code. It is challenging for someone to get your payment details or use your card to pay without your knowledge.

How to Use Contactless Credit Cards

Payment terminals accepting contactless cards work in a similar fashion. If unsure where to use your contactless card, use a contactless card locator. You will find traders accepting such payments near you.

Transactions take a few seconds to complete. You can use your card as many times as you deem fit. Next are steps to using your contactless Mastercard or VISA:

Step 1: Look for a payment terminal with a contactless card reader.

Step 2: Hold your contactless card next to the seller’s card reader point of sale, one or two inches away.

Step 3: Continue holding the card until you hear a beep to signal approval of your purchase.

If you own several contactless cards, keep them far from the merchant’s card reader. One of them may process a payment you never intended. The good news is that you can hold your smartphone at a trader’s point of sale to pay for your items. You only need to link your device to an e-wallet like Google Pay or Apple Pay.

Contactless Cards Funding and Transaction Fees

A fee kicks in after a seller’s card reader gathers your data. It then signals your bank to process the contactless credit card for items bought. The charges and payment time vary based on the transaction rates and speed.

There are two ways the processing bank deducts transaction fees. It can be daily—before a merchant receives net sales or monthly. In the second instance, the bank will deduct its dues once a month but deposit a trader’s sales daily.

Contactless cards usually channel money the next day after processing sales. But again, a seller should batch its transaction on bank business days.

How to Settle Contactless Payments

Now that you know how to fund your contactless cards, let’s look at how banks settle payments. As mentioned above, the trader’s bank sends signals to card networks after a transaction. It also deposits money from sales into the seller’s bank account and deducts any linked fees. Afterwards, the credit or debit card network pays the seller. It then debits the cardholder’s account.

Benefits of Contactless Payments Technology

Many traders in Europe, Canada, and Australia have used contactless credit cards. The United States is also picking up the technology for shopping online. But why is it the better option? Below are the benefits you stand to enjoy.


The security concerns with card payments are a significant reason why many casinos and gambling establishments use cash transactions only. However, even in casinos that allow credit or debit card payments, most dealers receive their tips in cash. So, while it is not clear how much casino dealers make in general, it is safe to assume that their income relies heavily on tips, which can vary widely depending on the casino, the game, and the customer.

Despite a secure contactless credit card requiring no PIN, it can ask you to verify your identity. You can set a daily limit to protect your funds further in case you lose the card.


Swiping or inserting magnetic strip credit and debit cards takes longer than a contactless card. That makes contactless payments faster and easier to use.

Less Card Wear And Tear

Frequently swiping in magnetic strip cards allows for wear and tear over time. The case is different when using a contactless credit card chip.

Not Physical Contact

In the post-COVID-19 pandemic business world, most shoppers prefer online buying to in-store shopping. Contactless credit card shoppers avoid touchpoints, regardless of where they shop.

Overseas Travel and Shopping

Most overseas entities don’t accept money transactions. They leverage secure Chip and Pin technology to accept payments via a customer’s bank. A contactless card can be the only option if you lack an alternative payment method.

Eliminate Cash Use

You no longer need to carry cash or withdraw from an ATM. With a contactless credit card, you make payments electronically, reducing the chances of your money getting lost or stolen.

Bottom Line

A contactless credit card is handy for paying for goods and services. You can use it for online and offline transactions securely. A rule of thumb is to connect your credit card to trustworthy mobile wallets. That way, you will easily pay merchants’ terminals without needing your card. Ensure you also set your credit card spending limit to secure your funds in case it gets lost.