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Contactless payment limit hike: economic boost or fraud risk?

23 February 2021: What will be the impact and consequences of the FCA’s proposed increase in the contactless limit to £100, intended or otherwise?

Cash makes up just 23% of transactions in the UK, according to UK Finance, and is now third by popularity behind debit cards and credit cards (in that order). Cards and contactless payments now account for more than half of all transactions conducted in the UK. 

So, with the trend toward a cashless society and COVID-19 speeding up the normalisation of ‘card-only transactions here’ on the High Street, what will the consequences of the FCA’s proposed increase in the contactless limit to £100 be, intended or otherwise?

The previous pre-pandemic contactless spend limit was just £30. This was lifted to £45 across the UK from 1st April 2020 in response to COVID-19, leading to a surge in contactless card payments to number just under 9 out of 10 transactions in 2020. This is a far cry from the original £10 contactless spend limit when such payments were first introduced back in 2007. International contactless card limits vary significantly by country across Europe to a maximum of €76 in Switzerland. If the FCA’s proposal is enacted this would place the UK at the top of this list.

Contactless fraud represents just 2.5p in every £100 spent in the UK but this number is likely to rise as contactless spending frequency increases along with a potential new limit increase proposed by the FCA. Nonetheless, the additional fingerprint security which is commonplace for existing digital wallet payments such as Apple Pay is likely to be replicated by traditional banks such as Natwest who have already explored biometric credit and debit cards. Howard Berg, a Senior Vice President associated with the project said that “authenticating payments with a fingerprint isn’t just easy – it boosts security and opens the door to larger contactless payments”.

The FCA’s consultation on the proposed contactless payment increase is open until 24 February 2021. The benefits of a more frictionless economy where even a sub-£100 full tank of fuel for a normal-sized car would not require you to touch the keypad is a compelling case. Transaction processing would be quicker and arguably more hygienic in the pivot by retail consumers to adjust to a new normal, living (and spending!) with COVID-19. Moreover, as biometrics and digital identities proliferate our financial lives further, such a limit rise may be emboldened further as biometrics begin to further influence our control over building access, digital wallets and the overall march to a potential internet of things (IoT) economy

There is a worry in some quarters that a potential increase in the limit will further embolden malevolent payment fraudsters. However, with increasingly sophisticated fraud and counter-fraud approaches rooted in Big Data and A.I., the net impact may be one of faster transactions and a more COVID-secure retail experience for consumers. 

Gavin Brown is an Associate Professor in Financial Technology at The University of Liverpool and Fellow of the ICAEW as a chartered accountant.

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