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Pros and Cons of New Credit Card Technologies - Quicken Loans Zing BlogThe origin of the credit card goes back to Frank X. McNamara, who, one day around 1950, discovered he didn’t have cash on hand to pay for lunch. McNamara and some friends, including Alfred Bloomingdale of Bloomingdale’s, went on to devise a system where people were given credit through an intermediary financial institution. This way, customers could use one credit card at many different stores, rather than having a credit card for each individual store.

The next major advance in credit card technology occurred in the early 1970s when IBM developed magnetic strip technology that was more widely adopted when Visa and MasterCard came on board in 1980.

This has been the state of credit card technology until the recent introduction of chips in both cards and phones. Here are the pros and cons of these new payment technologies.

21st-Century Technology

There are a couple of newer credit card technologies that are beginning to gain traction with consumers and businesses. Before we get into the pros and cons, let’s go over each of them.

Contactless Credit Card

A contactless credit card takes advantage of a short-range radio frequency (anywhere between 2–4 inches of the sensor) to transmit the necessary information and complete the transaction. The credit cards have a chip in them so it’s extremely hard for thieves to make a copy. If the credit card terminal is equipped to handle this type of transaction, it will have a wave symbol in the area of the sensor. You can simply wave your credit card in front of the sensor to pay.

This same type of payment can be handled through a fob issued by your credit card provider. Examples include the Visa Micro Tag and MasterCard PayPass keychain fob.

Mobile Phone Payments

Another option is to use your mobile phone to make payments in the store. This is done through a technology called Near Field Communication (NFC). The sensors that work with contactless credit cards will work with NFC as well. You just tap your phone to the waves on the sensor, and your phone transmits the necessary payment information.


There are a number of advantages to using these new payment methods, the biggest one being that they’re more secure than traditional magnetic strip credit cards.

Although the specific combination of security measures used is up to the card issuer (for example, here’s some information from MasterCard), there are a number of different techniques that are employed to protect client information.

The suggested standard for contactless credit cards laid out by the Smart Card Alliance (to which all the major issuers belong) lays out several of these methods that protect your info:

  • Unlike magnetic strip cards, NFC payments and contactless cards often do not share account information like your name, card number or security code. They will either assign a wholly separate number specifically for tap-to-pay transactions or assign a specific number to each transaction in a process known as tokenization. The number is generated through an encrypted secret key on the chip and is only valid for that transaction.
  • You control the card or mobile phone yourself throughout the process, rather than having to hand it over to a store employee.
  • If you ever lose your phone, you can simply wipe the information from the device.


Before getting started with a contactless credit card or an NFC-enabled mobile device, there are a few drawbacks you should know about.

Transactions beyond a certain limit (usually $25) may still require pin entry on the terminal, and in some cases, they will require the swiping of the physical magnetic strip. Android gets around this by allowing you to enter your pin on your phone within Google Wallet.

The technology hasn’t made its way to merchants in a widespread manner. Apple Pay, which was introduced in the iPhone 6 and 6+, is only being supported by point-of-sale systems at 220,000 merchants, according to an October CNET article.

On the Android side, Google Wallet requires users be running version 4.4 of Kit Kat. Google Wallet is also unsupported by newer model Samsung phones. For these people, the PayPal app may work well.

Windows Phone also only offers limited NFC payment support.

Have you used a contactless credit card or your phone to pay in store? How did it work for you? Leave us a note in the comments.

This Post Has 3 Comments

  1. I work at a small business and these chips are a hassle because they take 5 minutes to make a transaction. And we only have one card reader . When we are busy which is often it becomes a huge problem

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