Blockchain to secure contactless payments
Blockchain, which keeps track of all transactions, makes an excellent tool for financial services, particularly contactless payments.
The global payment industry has seen massive growth in recent years, be it mobile payment apps like Alipay or online payment systems like PayPal. This growth is credited to technologies like Near Field Communication and Radio Frequency Identification, which enable payment devices to communicate information and hence, have made contactless payments possible.
These technologies work by using an embedded chip in a device, which then allows instant payments by waving or tapping it over a reader. The communication between reader and device is done over radio waves, which means that both should be in proximity in order to make the transaction occur.
Contactless payment devices include smart cards, debit and credit cards, smartphones, key fobs, and others. While this method is fast and easy, it still has security loopholes. The main challenge is that there isn’t any way to verify merchant outlets and also find out if they were exposed to risk in the past. Hence, a customer may fall victim to a cyber-criminal where they steal their financial information by intercepting wireless signals from their device.
Enter Blockchain Technology
Blockchain, a distributed database system, records and maintains a list of transactions that take place in real-time. Records on blockchain are time-stamped with high-level data encryption, hence making them indisputable and tamper-resistant. For instance, imagine you have a cash note which comes with an encrypted data ledger. It carries the details of every transaction it has done during its entire lifetime. When you receive the note, you have the entire transaction history with you. You can make a decision whether the person handing over the note to you is worth transacting with or not. This feature is what blockchain basically provides. It provides an additional layer of trust and security to ensure that both parties come out safe and satisfied with a transaction.
When paying through a blockchain contactless payment system, customers can find out if the merchant they are dealing with has been fair or fraudulent in past transactions. This is possible because the system will record all instances of fraud by the merchant and share this data with new customers to keep them warned. Since the data is stored in an encrypted ledger, the merchants are unable to change it.
In a similar way, merchants can also identify a fraudulent customer and take precautions. Hence, a system that is powered with blockchain contactless payments does not give an upper hand to any of the parties.
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Source: Blockchain to Secure Contactless Payments – RTInsights
