Long reads

The fintech sentiment: is the £100 contactless limit a step towards a cashless society?

Níamh Curran

Níamh Curran

Reporter, Finextra

The British Government has announced that they have approved the contactless limit being raised to £100 from 15 October 2021. In response to this news, Starling Bank immediately stated their plan to allow customers to choose their own contactless limit, citing consumer concerns and little demand for the change.

When contactless was initially launched in the UK 14 years ago the limit was set at £10. While this gradually rose to £30 in 2015, the pandemic catalysed the use of contactless as businesses and customers became less comfortable with cash for sanitary reasons.

The limit was raised to £45 during the Covid-19 pandemic , making this step a considerable jump. However, Peter Alcock, head of product marketing at NMI notes that nearly 30% of consumers do not feel comfortable using cash to make purchases, and over 53% of consumers used contactless payments often when shopping in-store during Covid-19.

However, as shown by Starling’s stance, there are some apprehensions over what this means from both the consumer perspective and the industry’s. Finextra has taken a deep dive into what the fintech industry is saying on this matter.

Decreasing friction means increasing profit

Many of those in the industry are seeing this as an opportunity to decrease the level of friction from purchases. Additionally, much of those commentating on friction are making the connection of this lowered level of friction with a need to reinvigorate the post-pandemic economy.

Altay Ural, chief product and technology officer at Modulr, comments: “raising the contactless limit to £100 is a good move. We need to make spending in stores as easy as possible to get the economy back on its feet. This starts with taking the friction out of paying that comes with lower limits (£45) and replacing it with convenience for customers. There is a real opportunity here to promote greater consumer spending across UK stores, especially in busy locations like supermarkets, petrol stations and DIY stores where you can easily spend more than £45 in one go.”

Mick Fennell, business line director of payments at Temenos, adds: “The decision to increase contactless payments to £100 from today is another clear landmark in the journey to the land of ubiquitous, seamless, frictionless digital payments.”

Fennell makes a further connection between this change and the wider digitalisation of our payments systems. He continues: “while card payments continue to lead, we are also observing a definite trend to direct account payments, which are gaining momentum through the accelerated use of tokenisation, open banking, and instant payment schemes. We’re witnessing significant growth in the automation of direct pay-ins and pay-outs on websites, and we expect to see much more of this open banking-led payments technology in e-commerce in the coming years.”

Time will tell whether the increase will actually be able to provide these benefits. However, what is clear is that the pandemic-related sanitary motivation is being used to justify this move within the industry. Alcock, adds that “the emphasis on sanitation and cleanliness in all aspects of shopping sparked by the pandemic lends itself well to these contactless transactions since they remove the need to touch the card machine.”

Ian Bradbury, CTO, financial services at Fujitsu UK&I further adds: “Cash remains a carrier for infectious diseases and the beginning of the pandemic meant businesses had to encourage digital card payments, while some now refuse to accept cash altogether. When we think about cities like London, consumers often enter stores that are mostly made up of self-checkouts with digital payments the only option.”

Fraud risk

A lack of friction for consumers could create a lack of friction for criminals. A £100 limit may raise alarm bells for consumers around getting their card stolen and being used multiple times.

Those in the industry acknowledge these fears. Ural assuages some concerns, stating: “we can’t ignore the very real threat of fraud. But the truth is, the risk of this type of fraud is fairly small and consumers are well protected. With secure, in-built technologies like virtual cards (on smartphones) to customer controls like card freezing, as well as customer compensation like chargebacks.”

Amir Nooriala, CCO at Callsign, warns over the lack of security for such a high spending limit, noting: “Unlike Apple Pay or Android Pay, which use biometrics or a passcode to authenticate the user, contactless bank cards don’t require any authentication. This lack of friction comes at the expense of security, and it could leave customers at risk of losing up to £150 should their card go missing.”

He continues: “This is a perfect example of the constant trade-off between friction and security. As a society, we’ve come to expect frictionless checkouts. However, as with any change in consumer behaviour, we will see criminals respond to the new threat landscape, and it’s likely we’ll see a rise in contactless payment fraud. Banks must be prepared to step in quickly and protect their customers’ money.”

Armen Najarian, chief identity officer at Outseer, further lessens the severity of these concerns stating: “The rise in the contactless payment threshold to £100 may seem risky at first, but it shouldn’t yet be a huge cause for concern. Contactless fraud rates are currently low, equivalent to less than 1p in every £100 spent in the UK and a very small percentage of overall card fraud.”

Najarian notes the responsibility of the public in preventing this fraud.  “As long as consumers regularly track their bank accounts (particularly for smaller payments to test the waters); stay vigilant and call their bank as soon as their card goes missing or they spot suspicious activity, they should be refunded in full.”

Nooriala offers some more systemic solutions. “In order to make this work, banks must ensure they are clearly communicating changes to their customers, and give them the option to reduce the contactless amount, or turn it off all together. Indeed, they could go one step further and make the process opt-in, meaning the £150 limit isn’t on by default, but rather a setting a user controls through the banking web portal or mobile app and can be dynamically and real-time changed as desired, with a default value at the current level of £45. They must also ensure they are able to identify odd spending patterns as they occur and intervene with a need to enter a PIN.”

Najarian similarly sees more of a structural approach, in addition to public awareness, and says that “the limit rising to £100 also means the threshold for multiple contactless transactions will reach £300. Previously, the money available through contactless fraud has been negligible, but as it becomes more lucrative, its appeal to fraudsters also increases. Perhaps now is the time to embrace stronger authentication for contactless payments, and it should certainly be part of the conversation if limits are raised again in the future. At the end of the day, who would grumble over a quick biometric or PIN code challenge when their weekly wage or Christmas budget is at risk?”

Towards a cashless society

For many in the industry, while the pandemic as acted as a catalyst accelerating the move towards a cashless society, they view this as an inevitability, meaning Covid-19 was not the reason this happened.

Vincent Vinatier, fintech strategy manager at AXA Investment Managers, comments: “The coronavirus pandemic has undoubtedly accelerated the move to a cashless society. Data has shown this trend has momentum as significant numbers of consumers have indicated they will continue to use digital payments when the pandemic is over. Analysis from PwC found that cashless payment volumes are expected to increase by more than 80% globally between 2020 and 2025, from around one trillion transactions to nearly 1.9 trillion, and to almost triple that by 2030. “

However, Vinatier stresses that while the pandemic has caused a surge in cashless transaction, “there is also an underlying structural change at play. Financial and fiscal regulators are largely supporting the move to cashless payments, as tax evasion and black-market dealings are far more difficult to carry out in a cashless society.”

Bradbury adds:  “It was unsurprising to see Rishi Sunak announce that contactless would rise to £100 for major retailers as lockdown restrictions last year warranted for a socially distanced society. And while those changes are only coming into effect today, this emphasis on card and contactless payments will continue to be a staple of our daily lives.”

However, Bradbury stresses that a move to a cashless society can result in the exclusion of certain players in the economy. “Although this new way of spending might be convenient for the majority as 13.7 million consumers didn’t use cash at all in 2020, the move to contactless shouldn’t come at the expense of others in the UK. A 100% cashless society can increase security, accessibility and convenience day-to-day but there are many who still rely on cash, physical stores and ATMs.”

He continues: “nearly 2.2 million people in the UK still use cash for all of their daily transactions – like those with cash-in-hand jobs, without a digital device or in rural areas with limited signal. It’s only with a thorough understanding of society – and therefore the ability to educate those at risk of being left behind – will consumers of all ages become more comfortable in leaving cash behind and relying on digital payment services 24/7.”

Sulabh Agarwal, Accenture’s global payments lead, shows a little more scepticism over the importance of this change “In many ways, though, the limit increasing is unlikely to expedite the so-called ‘death of cash’ any further. £100 is at the upper end of what shoppers are likely to spend on their cards day-to-day, so we could see the use of chip and pin payments plummet as these transactions are replaced with contactless purchases. Cash usage will continue to decline but will hit a plateau, with regulators and lenders alike already preserving access to cash for those who choose to use it.”

The future of contactless

It is clear from these statements that while some in the industry are extremely positive about what this change means, many others remain sceptical. Concerns over fraud remain and with any move towards a cashless society, the issues of financial inclusion are inevitable.

Regardless of safeguards, £100 to the average member of the public is a considerable amount of money. Starling’s intention to allow customers to set their contactless limit shows this worry among the public, with CEO Anne Boden commenting: “The benefit of being a digital bank is the ability to listen to customers and implement wanted changes quickly. Analysing our spending data we can see that there appears to be little demand for the increased contactless limit and that many would like to retain the same contactless limit or even reduce it.”

Given these fears, it is clear from commentators that the lack of security provided by contactless means it may not entirely be the way forward. Many still believe that some kind of biometric or passcode-led solution will be the way forward.

Alcock concludes with this prediction of the future of contactless payments: “As we look to the future of contactless payments, mobile wallets such as Apple Pay and Google Pay bring about all the benefits of contactless payment but with the huge added benefits of no bank-imposed transaction limit and user authentication. Phone payment is far more secure than contactless card alone because the user has to authenticate themselves through fingerprint or Face ID. That said, shoppers will likely start to leave their cards at home for fear or risk of theft and rely solely on their phones for any transaction. Ironically, increasing the contactless card limit will actually drive people away from using physical cards to pay, and onto their smartphones!”

 

Comments: (3)

Chris Vincent
Chris Vincent - Exela Technologies - Leicestershire 20 October, 2021, 12:591 like 1 like

Yes, clearly it is. However the real transformation will happen when account to account (A2A) transfers become commonplace as it does not require 'card acceptance' capabilities of the biller. Fortunately, in the UK, we now have all components in place (FPS, OB and RtP) that can deliver the cashless future, whilst being fairer, faster and cheaper.

Faraz Hassan
Faraz Hassan - Habib Bank Zurich plc - London 21 October, 2021, 02:08Be the first to give this comment the thumbs up 0 likes

Very thought provoking & baanced article. As a whole I think like with every thing in payments arena, the apetite for spending via contactless on high value purchases will be low initially however inevitably with continously inch forward eventually becoming a norm. 

It is imperative that banks have roboust controls in place to safe gaurd not only the customer but themselves from the fraud risk it poses as under the PSD2 guidelines these loses will have to be borne by the bank as chargeback on such transactions are not permissible. 

Thanks

Jeremy Light
Jeremy Light - Fourdotzero - London 25 October, 2021, 21:54Be the first to give this comment the thumbs up 0 likes

In the context of consumer protection, an objective at the heart of financial regulation, this increase in the contactless limit to £100 makes no sense and is nothing to celebrate.

The average contactless card payment is about £12 and that on a mobile (Samsung Pay etc) is a few pounds higher, so the previous £45 limit was more than sufficient.

Instead, now it is open season for fraudsters with stolen cards to use them to steal up to £300 in three £100 tranches,instead of seven £45 ones, before a card is checked requiring a PIN.

The liability for contactless fraud can be unclear and the banks' instinct is to withold settlement of fraudulent payments from retailers who have made the sale in good faith. Luckily, in most cases they can set their own contactless limit below the maximum and I expect many will, especially small businesses and petrol retailers (which are highly susceptible to card fraud) - few can afford to take multiple hits of £300 losses.

So consumer protection is compromised, the consumer experience becomes unpredictable and small business exposure to fraud has increased significantly. With APP fraud rising rapidly, risking increased card fraud in addition is inexcusable.