What is Contactless Payment? How it Works (2025)

Curious about contactless payments? Ahead, you’ll learn the basics of contactless payments and how to accept them in your store.

Retail payment technology has evolved dramatically. From cash registers to card readers to mobile payments, each advancement makes shopping easier and more secure. Today's customers expect to pay however they prefer—whether that's tapping a card, using their phone, or paying with a smartwatch.

Contactless payments are becoming the norm, with the global market reaching $1.6 billion in 2024. For retailers, this shift presents an opportunity to simplify operations while meeting customer expectations. Modern payment solutions like Tap to Pay let you accept any payment method without extra hardware, helping you serve customers faster while reducing costs.

What is contactless payment?

A contactless payment is one that doesn’t require a customer to run a payment card through a machine. That method applies to cards with magnetic stripes or chip cards that one inserts into a payment terminal. 

Contactless payments simply require a customer to hover a card or a device next to the payment terminal. In some cases, a brief tap makes the transaction simpler, which has led to the expression “tap to pay.”

You can make contactless transactions with an RFID chip in a credit or debit card, or a wireless radio in a smartphone or smartwatch. In both cases, the purchaser makes a tap-to-pay transaction.

A brief history of contactless payment technology

For decades, when a shopper wished to make a retail purchase via credit card, that meant swiping the magnetic strip on the back of the card. 

While the magnetic stripe was a futuristic innovation in its time (it replaced taking carbon copy imprints of the card’s front panel), no one today regards it as cutting-edge payment technology. The magnetic stripe is connected to the customer’s bank account. 

Today’s merchants and customers have directed their focus toward more secure payment options—those that don’t even involve contact between the customer’s payment method and the merchant’s terminal. Contactless payment methods rank among the most consumer-friendly options in today’s retail scene, thanks to their convenience and security. 

How does contactless payments work?

Here’s how a contactless payment typically works:

1. Tap or wave your contactless device over a contactless-enabled payment terminal.
2. The terminal authenticates your device's information.
3. The merchant's system sends the transaction to your card issuer.
4. The card issuer approves the transaction.

Contactless payments transmit via cards and mobile devices, but they ultimately run through financial institutions, just like an old-fashioned credit or debit card payment. The exact mechanics vary, depending on whether you pay with a card, mobile wallet, or wearable.

Types of contactless payment

Credit cards

Many tap-to-pay transactions involve contactless credit cards. They’ve got an embedded chip that transmits all of your card info to a payment terminal. A credit card issued by your bank within the past year is likely to contain such a chip. Visa, Mastercard, and American Express all issue chip cards.

Debit cards

Contactless debit cards work similarly to credit cards. The only difference is the account the card is connected to. In this case, it’s the customer’s checking account. Debit cards also have an embedded chip that transmits the card info to a payment terminal. 

Key fobs

Key fobs are small, portable devices that contain an embedded radio frequency identification (RFID) or near-frequency communication (NFC) chip, enabling contactless payments. They function similarly to tap-to-pay credit cards but are often attached to a keychain for added convenience. Some financial institutions issue payment-enabled key fobs to customers as an alternative to traditional cards. 

Smart cards

Smart cards are contactless-enabled cards with embedded microprocessors or RFID chips, used for secure payments and identification. Unlike traditional credit and debit cards, smart cards can store additional data, making them useful for things like transit, store/warehouse access, and membership verification.

Smartphones

Mobile payments can be made through smartphones or mobile devices like an iPhone, iPad, or Android device. These devices must run a payment app that enables mobile wallet purchases. Such apps include Apple Pay, Google Pay, and Samsung Pay.

Smartwatches

Wearables such as smartwatches are devices worn on your body with NFC technology. With an Apple Watch, for example, you can pay at a contactless reader with the information stored in your Apple Pay mobile wallet.

When making a purchase, you simply double-click the side button on the Apple Watch, select the desired card, and hold the watch near the terminal. The transaction is authenticated and completed without needing to take out a physical card or mobile phone.

Fitness trackers

Fitness trackers like Fitbit and Garmin now feature built-in NFC chips that support contactless payments. Consumers can link their credit or debit cards to the device, allowing them to make purchases without needing a phone or wallet.

Contactless payments and security 

Contactless payments are considered secure for several reasons:

• Encryption: Contactless payments transmit encrypted data, which means that only authorized parties can access the information. Transactions use unique codes that reduce fraud risk and make data difficult to intercept or reuse.
• Tokenization: Payments using contactless technology often use tokenization, which replaces sensitive cardholder data with random tokens. Unlike a card number, this token is used only once, so intercepting it will be useless.
• Transactionlimits: Contactless payments usually have a transaction limit to avoid unauthorized transactions. Typically, users must enter their PIN or sign for transactions over a certain threshold, depending on the country and issuing bank.
• Nophysicalcontact: The card doesn’t have to be handed over or inserted into a terminal, so skimming (copying card data using a compromised device) is less likely.
• Two-factor authentication: Many contactless payment methods require fingerprints or facial recognition.
• Zero-liability policies: Many banks and card issuers offer zero-liability policies, which protect cardholders from unauthorized transactions. Cardholders are usually not liable for fraudulent transactions.

Examples of contactless payments

Shop Pay

Shop Pay is part of Shopify's complete retail platform, making payments easy whether customers are in your store or shopping online. For ecommerce, Shop Pay drives up to 50% better conversion rates compared to guest checkout. In-store, it offers flexible payment options including contactless, cards, and installment plans. Because it's built on the same platform as your POS and ecommerce, you get accurate sales data and customer insights automatically—no complex setup or integrations required.

Apple Pay

Apple Pay is available natively on modern iOS devices like the iPhone, iPad, and Apple Watch. Approximately half of iOS users have used Apple Pay. It also allows for payment plans, subscriptions, and more. For merchants that don’t accept Apple Pay, consumers can use their Apple Cash virtual card number to make the purchase, as long as Visa is accepted.

Google Pay

Google Pay is another virtual wallet and payment app—but this one is specific for Android devices. Google Pay can work across different devices running the Android operating system. Users can also use Google Pay to store cards, tickets, passes, digital keys, and IDs.

Samsung Pay

Samsung Pay is similar to Apple Pay and Google Pay but specific to Samsung devices—including smartphones, tablets, and Galaxy smart watches. It’s part of Samsung Wallet, which allows users to store payment cards, IDs, digital home and car keys, movie tickets, and more.

Advantages and disadvantages of contactless payment

Contactless payments provide clear benefits to both merchants and consumers. Advantages include:

• Security: Contactless payment systems offer greater security than cards that utilize a magnetic stripe. For decades, scammers besieged the credit card industry by skimming consumer information off of magnetic stripes. EMV chip cards and mobile wallets use encrypted systems to transmit customer data, and this has successfully repelled most scammers.
• Convenience: Consumers don’t need to carry around a credit card to make contactless transactions. They can leave the house with only a smartphone, or even a wearable device like an Apple Watch, and get full use of their mobile wallet. Even when consumers do use a physical card, they enjoy the convenience of merely tapping a payment terminal or hovering their card just above it. This makes transactions even smoother than they’d be when scanning a magnetic stripe or inserting a chip card.

For all of their advantages, contactless payments do come with one primary limitation: a lack of universal adoption by merchants. 

While contactless-enabled terminals have become commonplace at major retailers, they appear more rarely at small businesses running on a tight budget. Thus, customers still need to carry cash or a traditional credit or debit card to ensure they can make transactions in every store.

How to set up contactless payments

Accept contactless payments right from your smartphone with Shopify POS—no extra hardware needed. Here's to set up contactless payments for your Shopify store: 

1. Download the Shopify POS app onto your iPhone or Android device
2. Go to ≡ > Settings > Set up hardware. 
3. Select Tap to Pay on Android/iPhone.
4. Tap Next. You might also have to verify your ID at this stage. 
5. Tap Done.

Once set up, you can accept all popular payment methods including contactless cards, digital wallets like Apple Pay and Google Pay, mobile payments, and traditional chip and swipe cards.

Then, when you’re ready to accept a payment, do the following: 

1. From the Cart screen, tap Checkout.
2. From the Select payment option screen, tap Tap to Pay on Android/iPhone.
3. The Tap to Pay on Android interface displays indicate where your customer should hold their tap-activated credit/debit card or their mobile wallet on their mobile device.
4. Ask the customer to hold their contactless payment method behind the tap area until the animation indicates the payment has been completed and you hear the Tap to Pay success sound.
5. Select whether to provide the customer with a receipt.
6. Tap Done to return to the Shopify POS products screen.