The recent rise in the contactless limit is set to influence spending, reshape financial security, and empower the everyday consumer; Chetwood Financial explains.
In light of the recent increase to the contactless spending limit from £45 to £100, Andy Mielczarek, Founder and CEO of Chetwood Financial details the benefits and pitfalls associated with the rise, and how the increase is set to reshape the provision of financial services.
Andy has broad experience in driving commercial performance across entities and jurisdictions. Prior to Chetwood, he was the deputy head of HSBC’s UK Retail Bank, having previously been Commercial Director and Head of Retail Products for HSBC Europe. Andy has also been the CFO at M&S Bank, Head of Commercial Finance at MBNA, and Brokerage Operations Director at Charles Schwab. Andy has been an FCA-approved person for many years carrying out a broad range of regulated roles.
The limit on contactless payments has risen for the second time in less than two years as consumers are now able to spend up to £100 on their cards, without the need to enter their PIN.
You could say that this is a result of the pandemic and the reluctance of many to carry cash during this time. In fact, between January and July this year, 60% of all debit and credit card transactions across the UK were contactless, according to the trade association UK Finance. This accounted for 6.6 billion payments, with a value of £81.4 billion.
However, it’s clear this change has been coming for a while. When contactless card payments were introduced back in 2007, the transaction limit was set at just £10 and has risen gradually since then. According to UK Finance, just 7% of all payments were made using contactless cards in 2016, a figure which rose to nearly one in five transactions in 2018 and more than 25% by 2020.
Covid has no doubt accelerated consumer understanding and utilisation of contactless, however, they already had the option to make payments with no maximum transaction limit through Chip & PIN, and Apple Pay or Google Pay. Therefore, the change to the contactless limit is only matching what has been happening for a while.
As with all changes of this nature, there’s always the possibility that they’ll be an uplift in fraudulent attempts. But fraudsters are likely to be attracted to larger transactions and based on the amount of fraud seen when the contactless limit increased to £45 from £30 in April 2020 (0.02%), it’s unsurprising that the FCA remains confident that a £100 contactless limit in the UK backed by cumulative daily limits is safe for customers.
Not only that, but an FCA spokesman has confirmed there’s been “no material increase in fraudulent transactions in other countries where the contactless limit increased to the equivalent of £100 or above.”
While fraud on contactless cards is relatively small, it can still be very upsetting to those who experience it. Under fraud protection rules, consumers can claim a refund if someone else makes an unauthorised payment from their account.
Furthermore, the second Payment Services Directive (PSD2) has implemented a limit to the number of contactless payments you can make through its Strong Customer Authentication (SCA). This means that consumers can only make five payments using contactless, or if the sum of consecutive contactless transactions exceeds a certain amount before chip and pin is required.
In order to accept the limit increase, payment terminals will also require a software update. This means that not all retailers will introduce the new limit straight away – if they choose to at all. It is therefore up to financial services and independent advice resources to use this period of transition to provide transparent and easy access to support that will educate, encourage and reassure consumers.
We’re constantly talking to our customers to better understand their priorities and pain points, and nervousness about changes like this often boil down to fear of trying something new – or simply inertia – so we shouldn’t underestimate the role of education and support in encouraging consumers to adopt new technologies.
It’s also a reminder for us to continue to listen to consumers about how they want to manage their finances. The rise in the contactless limit doesn’t mean we now instantly live in a cashless society, but we do need to help consumers understand and embrace new and alternative ways of paying where convenience and safety is still the priority – however, there’s a variety of choice on how you do this.
We’re already seeing financial service providers listen to consumers and monitor how they’re adapting to these changes, with certain banks giving their customers the choice to opt-in or out of the contactless limit increase.
Ultimately this change is about giving consumers more options to make the choice that suits them. It will continue to make things easier for those who don’t want to pay by cash or Chip and Pin, providing an additional safe and secure way for people to make more purchases. It’s a positive thing that we’re responding and adapting to what a large portion of the UK will use and benefit from.