Contactless Payment Frauds: How to Handle Them

What are Contactless Payments?

Contactless payments, also known as tap and pay, are a fast and convenient way to pay for goods and services without entering a PIN or signing a receipt. With contactless payments, customers simply tap their contactless credit, debit or prepaid card on a contactless-enabled POS terminal.

The transaction is completed within seconds without any physical contact between the card and the terminal.

How Do Contactless Payments Work?

Contactless payments use radio-frequency identification (RFID) technology, which embeds a small antenna in the card. When tapped on a payment terminal, the card transmits the payment details through radio waves to the terminal, which then verifies the transaction with the bank or card network. 

Most contactless cards have a per-transaction limit, usually Rs.5000 or less, to reduce the risk of contactless payment fraud. The transaction is complete within seconds of tapping the card on the terminal. This fast and frictionless experience has led to a rapid adoption of contactless payments globally.

Understanding Contactless Payment Fraud:

While contactless payments offer convenience, they also introduce new avenues for payment fraud. Criminals can exploit RFID technology to steal payment details from contactless cards and mimic legitimate transactions without the actual card being present. A survey by ACI Worldwide found that 1 in 10 consumers fell victim to contactless payment fraud in 2021.

Ways in which Contactless Payment Fraud Could Happen:

1) Lost or Stolen Cards: 

If someone loses a contactless card, others can easily use it to make unauthorised transactions until the card’s transaction limits are reached. Without the need for a PIN, it becomes difficult for banks or users to detect fraudulent activity immediately.

2) Skimming: 

Skimming involves using a hidden device to steal card data during legitimate transactions. Fraudsters install skimming devices on contactless terminals to capture card information, which they use to make unauthorised transactions.

3) Relay Attacks: 

In a relay attack, fraudsters use devices to extend the communication range between the card and the payment terminal. This trick makes the card appear near the terminal, allowing fraudulent transactions to be conducted without the cardholder’s knowledge.

4) Device Cloning: 

Fraudsters can use special equipment to clone a contactless-enabled card and make unapproved transactions using the cloned device. Though challenging, this type of fraud has been known to occur in highly subtle schemes.

5) Public Wifi Attacks:

Attackers can intercept data from digital wallets if the connection is unsecured when using public Wi-Fi. Although payment apps use encryption, unsecured networks increase the risk of hacking and payment data theft.

6) Man in the Middle(MITM) Attacks:

In this type of attack, a fraudster intercepts communication between a contactless card and a payment terminal, capturing sensitive information that they can later use for fraudulent transactions.

7) Social Engineering Attacks:

Attackers use social engineering to trick victims into revealing details about their contactless cards, such as the three-digit CVV on the back, which may be used to verify transactions in some cases.

Methods To Handle Contactless Payment Fraud:

Here are some effective techniques to handle “Contactless Payment Fraud”:

1) Enhanced Authentication: 

Many banks and payment providers enforce security measures, such as requiring PINs or biometrics for more significant transactions. Consumers can also set up multi-factor authentication (MFA) on their digital wallets to add another layer of security.

2) Transaction Limits: 

Contactless transactions are typically limited to small amounts, reducing the potential impact of fraud. Banks can work with cardholders to adjust these limits or set customised spending alerts that notify users of suspicious activity.

3) Tokenisation and Encryption: 

Tokenisation replaces sensitive card information with a unique token that’s useless if intercepted by fraudsters. Encryption further protects transaction data, ensuring it remains unreadable to outlawed parties.

4) Card Freezing and Remote Blocking: 

Most banks allow customers to freeze or block their contactless cards or digital wallets remotely in case of loss or theft. This feature can prevent prohibited use and is vital for handling fraud.

5) Regular Monitoring and Reporting: 

Both consumers and businesses should monitor transaction activity regularly. Suspicious or unusual transactions should be reported immediately to the bank or payment provider to initiate a timely investigation and preventive action.

6) Education and Awareness: 

Educating consumers about the risks associated with contactless payments and encouraging best practices, such as using secure devices and not sharing sensitive information, can significantly reduce fraud incidents.

Legal Regulations and Compliance:

To protect consumers and businesses from contactless payment fraud, many governments and financial regulatory bodies enforce strict compliance standards for contactless payments. These regulations often include the following.

1) Payment Card Industry Data Security Standard (PCI DSS):

A standard that mandates stringent security measures for companies handling card data, covering encryption, data protection, and network security.

2) Strong Customer Authentication (SCA):

Implemented in some regions, SCA requires multi-factor authentication for certain transactions to mitigate fraud risks.

3) General Data Protection Regulation (GDPR):

In regions under the GDPR, payment data is treated as personally identifiable information, demanding higher security standards for businesses handling such data.

4) Anti-Money Laundering (AML) Regulations:

AML laws mandate banks to monitor suspicious activities, prevent illicit money transfers, and help combat fraudulent transactions.

Adhering to these regulations ensures financial institutions have the tools and frameworks necessary to secure contactless payment environments against fraud.

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Conclusion:

While contactless payments offer ease and speed, consumers must remain vigilant against emerging risks of contactless payment fraud. Cardholders can stay protected by understanding standard fraud methods, regularly reviewing statements for unaccredited activity, and enabling additional authentication layers wherever possible. 

Financial institutions need robust systems to detect fraud patterns, reimburse customers as per regulations, and plug security gaps. With collective efforts, we can curb the growing menace of contactless payment fraud and allow frictionless digital payments to fulfil their true potential.

FAQs

1) What is contactless payment fraud?

Contactless payment fraud involves criminals stealing payment cards or digital wallet details through techniques like skimming, relay attacks, device cloning, etc. and using the stolen data to make prohibited transactions without the actual card or device being present.

2) How common is contactless payment fraud?

According to a survey by ACI Worldwide, around 1 in 10 consumers reported falling victim to contactless payment fraud in 2021. However, the risk remains relatively low due to transaction limits and other security measures.

3)  What should I do if I suspect contactless payment fraud?

Contact your bank or payment provider immediately if you suspect fraudulent activity on your contactless card or digital wallet. Report the unauthorised transactions and freeze/block the card to prevent further losses. The bank will investigate and reimburse you per regulations if fraud is confirmed.

4) What regulations are in place to prevent contactless payment fraud?

Key regulations include PCI DSS for data security, SCA for multi-factor authentication, GDPR for data protection, AML laws for monitoring suspicious activity, and local banking laws that mandate timely fraud investigations and customer reimbursements. Compliance with these helps curb fraud.

5) Is it safer to use contactless or regular card payments?

Both methods can be secured with precautions. Contactless is considered marginally riskier due to the need for signatures or PINs for smaller transactions. However, banks continually enhance security, and users can enable extra authentication.