The two technologies involve embedding a chip in a device that
will then allow instant payments just by waving it over a reader. The
communication between the device and the reader involves radio waves, meaning
that, in order for a transaction to occur, the two must be in close proximity.
Contactless payment devices include debit and credit cards, key fobs, smart
cards, smartphones and more.
The technology has reached such an advanced point that a new
method, involving surgically inserting an NFC chip into a hand to enable
payments just by a wave, has emerged, taking the contactless payments game up a
notch. According to Vlad Zaitsev, a Russian engineer who is among the first to have the
contactless payment chip implanted into his hand, this has eliminated the
inconvenience of having to carry his payment cards.
While the contactless payments method is easy and fast, it is
not without security loopholes. The key challenge with contactless payment
methods is that there is no way to verify the merchant outlet and
simultaneously determine whether they have been exposed to risks or have had
fraudulent transactions occur in the past. Consequently, customers may find
themselves falling prey to fraudsters when the wireless signals from their
devices are intercepted and their financial information is stolen.
Enter Blockchain Technology
Solutions, such as Tone Tag, are trying to counter these issues by ensuring that all
payments are processed through a three-layer encryption protocol powered by
blockchain technology. Distributed ledgers not only provide data safety but
also enable users to verify that the merchants are reputable and will,
therefore, have systems in place so as to avoid falling into traps set by
When paying through the Tone Tag contactless payment
system, customers can identify whether the merchant outlet they are dealing
with is prone to risk or if it has been involved in any fraudulent issues in
the past. In other words, the blockchain-powered contactless payment system records
instances of fraud and shares this data with other customers to warn them. The
data is encrypted and stored in a distributed ledger, and the merchants in
question cannot alter it.
Similarly, through the blockchain-powered contactless payment
system, merchants can identify fraudulent customers and take the necessary
precautions. The technology enables them to verify genuine customers and
determine if a transaction is unusual or if they have been involved in any
fraudulent transactions in the past. With the blockchain-powered contactless
payments, no party has the upper hand over the other since all data is
presented to all users without compromising their personal security.
Deloitte, in partnership with SETL, a London-based company that
focuses on blockchain payments and settlements, is
also implementing a blockchain-based contactless payment system with
the same goals as Tone Tag. According to a report by Deloitte, apart from ensuring security, the application
of blockchains in contactless payments also makes settlement and payment
processes more efficient. The report also noted that the combination of the two
technologies reduces costs-per-trade for institutions, saving up to $80 billion
in associated costs.
As the blockchain-powered contactless payment technology
continues to advance, it is highly likely that more advantages will become
known. The contactless payment industry is growing fast, which means that this could
be the best time for innovators and entrepreneurs to get in the game.