NFC Payment Explained: Tap-to-Pay Guide for 2025

Customers want one thing above all: convenience. They want to be able to shop in the way that is most comfortable for them, by avoiding long queues, skipping the need to carry large amounts of cash, and completing payments in just seconds.

NFC payments offer just that. It is one of the fastest payment methods, as customers can pay simply by tapping their card or device on the POS terminal, and the payment is completed instantly. 

In this guide, we focus on what NFCs are and how they work. We'll also look into what technologies support them, which regulations control their functioning and how adopting NFC payments has a positive impact on your business. 

• An NFC payment is a wireless payment method that allows your customers to tap to pay. For this, they would need an NFC-enabled app on their device or an NFC-enabled card. 

• NFC payments use RFID communication technology. This means your customers' NFC-enabled card or device interacts with your POS terminal through radio waves when they are brought near each other. 

• Offering your customers contactless payments helps you reduce checkout times and improve customer convenience and satisfaction. Satisfied customers are more likely to return for repeat purchases from your business. 

An NFC payment is a contactless payment method that connects two devices, like a smartphone and a payment terminal, when they are near each other. This connection is wireless. 

When a customer taps their phone, smartwatch, or NFC-enabled card at your payment terminal, the two devices connect instantly and exchange information. This way, the payment details can be sent to the payment processor. 

Near Field Communication (NFC) technology is what allows for NFC payments. It is a short-range wireless technology that lets two devices exchange data when they are very close to each other (between 0 and 4cm). 

NFC works using electromagnetic induction at a frequency of 13.56 MHz (HF RFID band). This means that it uses the magnetic field created by devices to enable their communication. This technology builds on RFID (Radio Frequency Identification). 

NFC payments can look like contactless credit or debit card payments, mobile wallet payments, or payments through stored-value cards. Let's take a closer look at the types: 

1. Contactless cards

Debit and credit cards with a chip and the contactless symbol are NFC-enabled. This means customers can tap their card on your POS machine to pay. Some examples of cards that allow NFC payments include: Visa PayWave, Mastercard Tap & Go and RuPay Contactless. 

2. Mobile wallets and payment apps 

Mobile wallets like Google Pay, Apple Pay, and Samsung Pay can store card or payment information in tokenized form. To pay, the customer needs to tap their phone, and the token gets transmitted to the terminal. Some UPI payment apps also have a tap-to-pay feature. 

3. Wearables 

Some wearables like smartwatches, rings and bands may also have NFC chips and paying through them works just like paying by tapping a card or phone. A few devices that support NFC payments include Apple Watch (with Apple Pay), Garmin Pay and Fitbit Pay. 

4. Transit and stored-value cards

Prepaid metro cards, bus passes, and toll cards, where customers can preload money, also work using NFC technology. When a customer taps the card, the fares get deducted. The Delhi Metro Smart Card, the London Oyster Card and the Singapore EZ-link are some examples. 

For an NFC payment to work, the customer needs to have set up a payment wallet or have a card that supports these types of payments. Here's what happens then: 

1. Payment initiation 

An NFC payment is initiated when a customer taps their phone, card or wearable at your Point-of-Sale (POS) terminal. 

2. Activation and data exchange 

The radio frequency of the terminal activates the NFC chip on the card or the device. The card/device then sends the customer's payment credentials in a tokenized form to the terminal. 

3. POS > Payment processor 

Once the POS terminal receives the details, it encrypts them for security and transfers them to your bank, which is the acquiring bank. 

4. Card network 

The acquiring bank passes on the payment request to the card network, like Visa, MasterCard or Rupay. The card network then passes on the request to the customer's bank, which is the issuing bank. 

5. Issuing bank authorization 

The issuing bank runs a few checks on the transaction to see if the card is valid, the customer has sufficient balance and if the transaction looks fraudulent. If no issues are found, the bank sends an authorization approval. If something doesn't look right, it sends a decline message. 

Both authorization and decline messages are routed back to the acquiring bank through the card network, and from there, they come back to your POS terminal. 

6. Transaction complete 

The POS terminal then displays that the transaction has been approved, which means you will receive payment from your customer. 

7. Settlement 

The customer's bank transfers funds to the card network, and the network transfers them to your merchant account. From the merchant account, the payments get settled in your business bank account. This process may take 1-3 business days. 

To start accepting NFC payments from your customers, you need to first check if your merchant account or payment processor offers NFC payment support. If not, find a reliable payment service provider that does. 

Now, to get started with NFC payments: 

1. Request your POS terminal provider to send you a machine that supports NFC. Most modern POS devices in India already offer this by default. 

2. Check that your merchant account can accept contactless card payments. 

With these steps, your NFC payment system is good to go. All you need to do now is let your customers know that you accept NFC or Tap-to-Pay payments. 

There is a whole stack of technologies that work together to make NFC payments possible. Let's look at what they are: 

1. Communication technology 

NFCs require communication between cards or devices and payment terminals. RFID or Radio Frequency Identification is what supports this. NFC is simply a type of RFID. 

RFID uses radio waves to help two devices identify each other and exchange information. 

2. Security technology 

Payment systems need to be safe and secure to use to keep your and your customers' information safe. NFCs use two systems for this: 

• Tokenization: It stores all payment information as a temporary number called a token. A token is unique to that device, which means even if it's stolen, it would be useless elsewhere. 

• Encryption: This scrambles all payment data before it leaves a device. Only banks or payment networks can unscramble it. 

3. Hardware 

The most obvious piece of hardware for an NFC transaction is, of course, a POS terminal that supports tap-to-pay payments. Apart from this, the device that your customer uses has a Secure Element (SE). An SE is a tamper-resistant chip that stores all payment information. 

4. Software infrastructure 

On the software end of it, NFCs are made possible by mobile wallets and payment apps, payment processors and card networks. 

NFC payments are quick and convenient. There is no swiping card or scanning QR codes. This means customers can make payments quickly and securely. Here are some benefits of NFCs that both customers and businesses can enjoy: 

1. Fast checkouts 

NFC payments take just seconds. This means customers can complete their purchase and be on their way quickly. For your business, this means queues move faster and you can serve more customers in less time. 

2. Higher customer satisfaction

Customers appreciate it when businesses make their experience more convenient. Offering them payment methods that they are comfortable with leads to a more positive experience, and that translates to repeat business. 

3. Contactless 

With NFCs, there is no handing over cards or cash, which is cleaner and safer. Also, reducing your dependency on cash brings down the risk of theft and counting errors. 

4. Security

NFC payments are tokenized and encrypted. This keeps the card number protected, and your customers feel safer. Since NFC payments have to comply with various regulations, the risk of fraud and chargebacks is also lower. 

NFCs can be used in any industry that has in-person contact with its customers. They are most commonly used in the retail and food industry. These are fast-moving environments that benefit from tap-and-go payments. The healthcare industry and fuel stations also accept NFC payments. 

NFC payments are also used in the public transport and transit industry. This is done through metro/bus/train cards that can be tapped to pay for a ride. 

NFCs, as a technology, can also be used for non-payment purposes. An example of this is hotels and event venues using cards or wrist bands with NFC tags for access. 

NFC payments, QR code payments and Chip and PIN payments are all popular payment methods, and they are quite different from one another. Let's first see how each one works: 

In NFC payments, the customer taps a card, phone or wearable device on a payment terminal. 

In QR code payments, the customer scans your QR code with their phone, enters the amount and pays through UPI or wallet. 

In Chip & PIN payments, the customer inserts a card with an EMVco chip into the POS machine and enters a PIN to authorize the payment. 

Here's how these methods look side-by-side: 

As a business planning to set up NFC payments, there are a few challenges that you should anticipate: 

1. Hardware costs: Since you need an NFC-enabled POS terminal, it costs you more than a basic swipe machine or QR payment setup. 

2. Customer awareness: Your customers need to be aware that you offer NFC payments and also that their card/phone supports tap-to-pay. Some customers may not be tech-savvy enough to set up an app for contactless payments. 

3. Transaction limits: In India, the tap-and-pay without PIN is capped at ₹5,000. So, if you sell high-ticket items, your customers will have to enter their PIN either on your POS machine or on your phone. 

4. Connectivity issues: While from the customers' end, NFC payments can work completely wirelessly, your POS system still needs a stable internet connection to function. Poor connectivity can result in failed transactions, and you would have to offer customers an alternate payment method. 

5. Security concerns: There are perceived security concerns with NFC payments, such as customers fearing accidental taps or fraud. This, however, is not the case as NFC is made secure through tokenization and one-time codes. 

Setting up NFC payment collection at your business is pretty simple. However, there are a few things to keep in mind for a hiccup-free launch: 

1. POS setup and merchant: Work with a reliable payment processor and merchant account provider. Check their merchant discount rate and settlement cycles before you commit. Also, ensure that they offer good-quality POS terminals that support NFC.

2. Guide your customers: If you want more customers to adopt NFC as their primary mode of payment, you will have to educate them on how to use it. Many won't know that their card or phone supports tap payments. Educate them on how it works and what technologies make it secure. 

3. Risk controls: While fraud is relatively hard to pull off with NFC payments, there are some threats to be aware of, like a customer tapping the machine twice or POS terminals infected with a virus. To prevent such threats, use EMVCo-certified terminals with anti-double tap logic and PCI DSS compliance. 

Just like all payments you receive, you want your NFC payments too to be visible across your backend systems, be it your ERPs, accounting and reconciliation software, or software tracking your loyalty programs, such as your CRM. 

Most payment processors that support NFC also provide APIs that help you integrate with other systems in your tech stack. You can then easily integrate ERP systems for billing and order management or accounting tools like Tally and Zoho Books to keep your accounting processes transparent. 

Middleware platforms can also connect your POS terminals with other business systems and push NFC sales data into loyalty programmes, your inventory management software, or the reconciliation automation tools you use. 

Like almost all payment methods, NFCs are also highly regulated as they deal with sensitive data. Here are the NFC regulations  that need to be followed in India and globally: 

1. RBI Guidelines 

• The RBI places limits on contactless payments. PIN-free NFCs are capped at Rs. 5000. Anything more than that would need the customer to enter their PIN. 

• Two-factor authentication and card tokenization are also mandatory under RBI regulations. 

2. EMVCo standards 

All NFC cards and POS terminals must follow the Europay, Mastercard, Visa EMV guidelines. This means NFC chips are manufactured to meet a certain specification that offers the highest level of security. 

3. PCI DSS 

Payment Card Industry Data Security Standard (PCI DSS) is another standard that merchants and payment processors should comply with. It deals with how data is stored, processed and transmitted during a transaction. 

4. Other security and privacy standards

PSD2 (Payment Services Directive 2) requires Strong Customer Authentication (SCA) according to European standards. Data privacy laws such as the GDPR also apply. 

As NFC payments enter the mainstream, the technology that supports them is also changing. Here's what to expect in the future: 

1. Wearable 

Wearables like smartwatches already support NFC, but in the future, contactless payments will expand to other wearables like rings, jewellery, keychains and more. There will also be wider adoption across industries like entertainment, healthcare and fitness. 

2. Biometric authentication

Smartphones already use biometrics like fingerprint or Face ID along with NFC payments. Biometrics are expected to expand beyond just smartphones and into cards with bio-sensors. 

3. Offline NFC transactions

Currently, all NFC transactions require the POS terminal to be connected to the internet. Offline transitions are limited to small prepaid systems. NFC wallets will soon evolve to allow offline tap-to-pay for small purchases, where the payment details will be stored on the POS terminal or card and will be synced once connected to the internet later. 

Now, NFC payments are an up-and-coming mode of collecting payments from your customers, provided they visit your physical store or have any in-person contact with your business. However, if you also have an international customer base who wants to pay in their own currency through payment methods they are familiar with, NFC payments will not help you there. 

To reach global customers, you need payment solutions like Xflow. Our platform lets your customers pay in their home currency while you receive payments in India into a local receiving account and get settled in INR. Xflow gives you competitive FX rates, no hidden conversion markups and a platform that is compliant with all Indian and global regulations.