This month, the Financial Conduct Authority (FCA) has confirmed that the single transaction limit for contactless card payments will increase from GBP45 to GBP100 and the cumulative transaction limit before reauthentication will increase from GBP130 to GBP300. This follows on from the FCA’s Policy Statement 21/2 (published in March 2021) regarding amendments to the single and cumulative transaction limits for contactless payments, which coincided with the budget. The decision to raise the contactless limit from GBP45 to GBP100 follows on from the successful increase to the limit from GBP30 to GBP45 in April 2020. You can read more about the Policy Statements on in our February 2021 FinBrief and March 2021 FinBrief.
UK Finance, who will be coordinating the contactless limit increase, has confirmed that the national roll out of the new GBP100 spending limit for contactless card payments will begin from 15 October 2021. Announcing the upcoming contactless limit increase, David Postings, Chief Executive of UK Finance, said “Contactless payment has proved very popular with consumers and an increasing number of transactions are being made using contactless technology. The increase in the limit to GBP100 will allow people to pay for higher value transactions like their weekly shop or filling up their car with fuel. The payments industry has worked hard to put in place the infrastructure to enable retailers to update their payments systems so they can start to offer their customers this new higher limit.”
The move has been welcomed by the Government, with Chancellor of the Exchequer Rishi Sunak emphasising that the new limit will help stimulate the post-Covid economy by encouraging much needed consumer spending.
The regulatory basis for the change: Strong Customer Authentication
Payment service providers are required by regulation 100 of the Payment Services Regulations 2017 to apply strong customer authentication when a payer initiates an electronic payment transaction. This includes card transactions initiated by the cardholder at the point of sale. Strong customer authentication is designed to ensure payments are safer by requiring two-factor authentication (two of three factors based on knowledge, possession and inherence) to validate the transaction. A typical example of strong customer authentication is the use of chip (possession) and PIN (knowledge) at the point of sale.
The Regulatory Technical Standards on strong customer authentication (SCA-RTS) include exclusions from the requirement to apply strong customer authentication for certain electronic payment transactions. One such exclusion is Article 11 of the SCA-RTS for contactless point of sale transactions where:
• the individual amount of the transaction must not exceed GBP45; and • either the cumulative amount of transactions must not exceed GBP130 since the last time strong customer authentication was applied, or the number of consecutive contactless transactions initiated must not exceed five since the last application of strong customer authentication.
It is this exclusion which is now being changed by the FCA as announced in PS 21/2 that has made contactless limit increase to GBP100 and the cumulative transaction limit before reauthentication increase to GBP300 possible.
Payments Industry Response
Large payment network companies and card issuers have welcomed a higher GBP100 limit, saying the move is necessary to support the rapid acceleration of contactless payments in the UK. According to data from UK Finance, the total value of contactless transactions was 43.7% higher in November 2020 than in the previous year, with Covid-19 accelerating shifts in consumer spending habits towards contactless payments. This trend is further evidenced in the data published by Visa Inc., which shows that eight-in-ten ‘in-person’ payments in the UK (e.g. shopping, eating, public transport and other personal day-to-day expense) are now contactless. Visa suggests that the increased limit will support growing consumer demand for contactless cards, and increase the overall versatility and agility of the payment sector.
Other payment technology companies have also voiced their support. Luke Maise, CEO Vibepay said, “the move from the regulator to increase the contactless limit makes complete sense as we rapidly move towards a cashless society – a trend which has been accelerated by the Covid-19 pandemic.” Further, the CEO and Founder of Upside, Andries Smit, opined that “the increased contactless limit is great news for retail. I only wish it was done earlier so that consumers and the retail industry could have benefitted from this during the lockdowns. People want contactless, frictionless payments. People don’t want cards, no bank cards, no loyalty cards. Contactless everything is the way to go and is almost certainly the future of payment.”
In general, payment technology companies and card issuers are typically in favour of solutions that make it as simple as possible for a user to spend money: the rise of digital wallets and proximity-payments such as PayPal, Apple Pay, which can be linked to mobiles or wearable devices, are also driving the contactless trend.
Critics of the new contactless limit argue that such an increase could lead to a rise in fraud and card theft: - various local police districts have urged caution when carrying contactless cards, which may now present a greater temptation for fraudsters and pick-pockets.
However, despite the increase, the FCA is confident that the new contactless limit will not lead to a rise in fraud. In PS 21/2, the FCA found there was “no significant increase in contactless related fraud since industry increased the limit in April 2020. The total value of reported fraud falling within the new increased limit (between GBP30 to GBP45) equated to 0.02% of the total amount spent using contactless cards since April 2020”. The FCA has also pointed to the absence of any material increase in fraudulent transactions in other jurisdictions where the contact limits are also similarly high, such as Singapore, SD200 (GBP110), Australia AUD200 (GBP112), and Canada CAD250 (GBP143).
The relative safety of contactless payments is borne out by data from UK Finance: - in 2020 there was a total of GBP574 million lost through card fraud, of which only GBP16 million represented contactless fraud, despite there being GBP9.46 billion worth of total transactions. This would equate to 1.8 pence in every GBP100 spent using contactless technology. Moreover, contactless fraud limit has actually decreased since 2018, where it was recorded as 2.7 pence per GBP100 by Which?.
Research from Visa, which monitors global payments fraud in real-time, suggests that contactless remains one of the most secure ways to pay, with one of the lowest fraud rates of any type of payment. Visa argues that, despite the contactless limit rising by 50% last year, there has been no rise in fraud rates with the European contactless fraud rate remaining below 0.01%.
The decline of cash
There are industry concerns that raising contactless payment limits will contribute further to the decline of cash transactions in the UK. According to research from UK Finance, in 2020 cash use fell by 35% and accounted for less than a fifth (17%) of all payments in the UK. In comparison, 44% of UK payments in the same period were made by debit cards. Covid-19 has merely accelerated a growing shift in consumer spending habits, with the continuing rise of ecommerce and peer-to-peer payment transactions further contributing to the decline of cash. The Access to Cash Review has previously warned that the country’s “cash infrastructure” – from ATMs to cash-sorting centres – could be in danger of collapsing because while the costs are largely fixed for such entities, their income is declining quickly.
Whilst a higher contactless limit on debit cards facilitates flexible payment solutions, a decline in cash may have unintended negative impacts on the economy and wider society. One such impact could be a loss of anonymity as, unlike cash, contactless/ digital transactions require user information. Age UK has highlighted another negative impact of cash: - if large retailers start refusing cash in favour of card payments, this would have a disproportional affect vulnerable members of society and the elderly who rely on cash transactions. Finally, a decline in cash could lead to an increase in consumer debt. Martyn James, from complaints website Resolver, says: “We are already starting to see people seeking help with financial difficulties after coming out of lockdown and realising they are overspending. Contactless payments allow people to disconnect from their purchases, and someone could easily spend GBP300 without realising it”.
Finally, with the continued growth of new digital currencies – such as stablecoins and central bank digital currencies (soon to be released) – cash use is set to decline yet further, with potentially large economic and social ramifications. Continue to read FinBrief for more on such developments.