Contactless vs. Chip and PIN: What’s the Difference?
In New Zealand, the way we pay for goods and services has evolved rapidly over the past decade. With the rise of digital payments, two methods have become particularly prevalent: contactless payments (often referred to as payWave) and Chip and PIN. Both offer unique advantages and cater to different consumer needs. This article explores the differences between these payment methods, their benefits, and their implications for Kiwi consumers and businesses.
Understanding Contactless Payments
Contactless payments, commonly known as payWave in New Zealand, have surged in popularity, especially in the wake of the COVID-19 pandemic. This payment method allows consumers to make purchases by simply tapping their card or mobile device on a payment terminal, without the need to insert the card or enter a PIN for transactions under a certain limit.
How Contactless Payments Work
Contactless payments use Near Field Communication (NFC) technology, which enables two devices to communicate when they are in close proximity, typically less than 4 cm apart. When a contactless card or device is tapped on a compatible terminal, the transaction is processed almost instantly.
Benefits of Contactless Payments
- Speed and Convenience: Contactless payments are incredibly fast, often taking less than a second to complete a transaction. This efficiency is particularly beneficial in high-traffic environments like supermarkets and public transport.
- Hygiene: With no need to touch the terminal or exchange cash, contactless payments offer a more hygienic option, which has been especially important during the pandemic.
- Security: Contactless payments are secure, with multiple layers of protection including encryption and tokenisation. Additionally, for transactions under $200, no PIN is required, reducing the risk of PIN theft.
- Widespread Acceptance: In New Zealand, contactless payments are widely accepted, with most retailers offering this option. The increase in transaction limits and reduction in merchant fees have further driven adoption.
Drawbacks of Contactless Payments
- Transaction Limits: For purchases over $200, a PIN or signature is still required, which can be inconvenient for higher-value transactions.
- Potential for Misuse: Although rare, there is a risk of unauthorised transactions if a contactless card is lost or stolen. However, banks typically offer protection against fraudulent transactions.
Understanding Chip and PIN Payments
Chip and PIN payments involve inserting a card into a payment terminal and entering a Personal Identification Number (PIN) to authorise the transaction. This method has been a staple of secure payments for many years.
How Chip and PIN Payments Work
Chip and PIN cards contain a microchip that securely stores data and interacts with the payment terminal to authenticate the transaction. The cardholder must enter their PIN to complete the payment, adding an extra layer of security.
Benefits of Chip and PIN Payments
- Enhanced Security: The requirement to enter a PIN makes Chip and PIN payments highly secure, reducing the risk of fraud compared to magnetic stripe cards.
- No Transaction Limits: Unlike contactless payments, Chip and PIN transactions have no upper limit, making them suitable for high-value purchases.
- Global Acceptance: Chip and PIN technology is widely accepted worldwide, making it a reliable option for international travellers.
Drawbacks of Chip and PIN Payments
- Slower Process: The need to insert the card and enter a PIN makes Chip and PIN transactions slower compared to contactless payments.
- Wear and Tear: Frequent insertion of the card can lead to wear and tear on both the card and the terminal.
Comparing Contactless and Chip and PIN Payments
Speed and Convenience
| Feature | Contactless Payments | Chip and PIN Payments |
|---|---|---|
| Transaction Speed | Very Fast | Slower |
| Ease of Use | High | Moderate |
| PIN Requirement | No (under $200) | Yes |
Contactless payments are significantly faster and more convenient than Chip and PIN, especially for small, everyday purchases.
Security
| Feature | Contactless Payments | Chip and PIN Payments |
|---|---|---|
| Security Level | High | Very High |
| Fraud Protection | Yes | Yes |
| Transaction Limits | Yes ($200) | No |
While both methods offer robust security, Chip and PIN payments provide an additional layer of protection through PIN verification, making them more suitable for higher-value transactions.
Acceptance and Usage
| Feature | Contactless Payments | Chip and PIN Payments |
|---|---|---|
| Acceptance | Widespread | Universal |
| Usage in NZ | Increasing | Stable |
| Suitability for High Value | Limited | Unlimited |
Contactless payments are becoming increasingly popular in New Zealand, driven by convenience and changing consumer preferences. However, Chip and PIN remains a universally accepted and reliable method, particularly for larger transactions.
Future Trends in Payment Methods
The payments landscape in New Zealand is continually evolving, with innovations such as digital wallets, mobile payments, and potentially Central Bank Digital Currencies (CBDCs) on the horizon. The Reserve Bank of New Zealand is actively exploring these new technologies to ensure the country’s payment systems remain robust and efficient.
Both contactless and Chip and PIN payments have their unique advantages and are suited to different types of transactions. Contactless payments offer unparalleled speed and convenience for everyday purchases, while Chip and PIN provides enhanced security for higher-value transactions. As the payments landscape continues to evolve, Kiwi consumers and businesses will benefit from a range of options that cater to their diverse needs.
Ultimately, the choice between contactless and Chip and PIN payments depends on the specific context of the transaction and the preferences of the user. By understanding the strengths and limitations of each method, New Zealanders can make informed decisions that enhance their payment experiences.