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Despite Risks, Contactless Payments Accelerate in the U.K.

Categories : Cash is a public good, Cash is available to all users, Cash is the first step of financial inclusion
April 1, 2021
Published in : Contactless, Coronavirus, elderly, payment fraud, UK, United Kingdom
The U.K. government has endorsed the accelerated adoption of contactless payments during the Covid-19 pandemic, despite risks of fraud and contradicting its plans to ensure people have access to cash.
Manuel A. Bautista-González

Columbia University in the City of New York

Contactless Payments Accelerate in the U.K.

As of 2019, consumers in the United Kingdom used credit and debit cards and contactless solutions for over half of all payments (UK Payment Markets Summary 2020: 1). The Covid-19 pandemic has accelerated the adoption of payments with contactless cards. In the United Kingdom, the Johnson government has enthusiastically endorsed this trend, despite warnings about how it might hurt consumers who rely heavily on cash and increase fraud against consumers.

The Johnson government promotes contactless payments in its Covid-19 guidelines for businesses, despite better advice from medical professionals, the Bank for International Settlements, and central banks worldwide. It has advised staff canteens and restaurants to adopt “a system to reduce the use of cash for food or to facilitate the exclusive use of debit cards and contactless payment[s].” The government has also instructed hotels to “encourage contactless payments where possible” and advised drivers of taxis and private hire vehicles to “take contactless payment if you can.” The official guidelines also recommend travellers to “where possible, pay by contactless card” in airports and during flights.

Contactless Limits Raised, Despite Risks

Since the pandemic started, contactless payment limits have increased twice, going from £30 to £45 in March 2020 and from £45 to £100 in March 2021. The move makes the U.K.’s contactless payment limits converge to other countries such as Australia, Canada, and the United States, which have recently increased their limits to AUS$200 (£112), CN$250 (£143), and US$200 (£145), respectively.

The Chancellor of the Exchequer, Rishi Sunak, said, “As we begin to open the U.K. economy and people return to the High Street, the contactless limit increase will make it easier than ever before for people to pay for their shopping, providing a welcome boost to retail that will protect jobs and drive growth.” Sunak framed the measure as a Brexit win, as the European Union sets lower contactless payment limits through its Payment Services Directive. David Postings, chief executive of U.K. Finance (the U.K. banking lobby group), considered the increase  “a great move for customers [as it] will allow them to use contactless to pay for higher value transactions like their weekly shop or filling up their car with fuel.”

Earlier in the pandemic, the U.K.’s Financial Conduct Authority (FCA) indicated it would not enforce legal action against firms failing to require chip and personal identification numbers (PINs) from customers exceeding their contactless transaction limits. Sheldon Mills, FCA executive director of Consumers and Competition, placed the monitoring onus on U.K. payments incumbents, as he said that “it is important that the industry continues to ensure the right protections are in place to keep payments safe and secure.” FCA guidance states that “firms should also remind consumers to be aware of fraud and protect their personal data.”

Contactless Payments Do Not Pre-empt Fraud or Excessive Spending

The increase to contactless limits has come as experts point to the obvious increase in cardholders’ risks if their cards are lost, stolen, or cloned. Raising the limits will make it “easier for a fraudster to spend large sums of the victim’s money in one go,” according to Ian Johnson, Europe managing director of payment business Marqeta. “Physical cards provide very little security, and a fraudster could continue to use their contactless function until they are cancelled.” According to Angus McFadyen, partner and payments expert at law firm Pinsent Masons, “the industry will need to actively monitor for this and have efficient systems in place for better detection.”

U.K. Finance has acknowledged an increase in fraudulent activity relating to the Covid-19 pandemic. Authorised push payment (APP) scams increased 15% in the first semester of 2020. The lobbying group has even released a guide on preventing theft and fraud during the Covid-19 pandemic.

Researchers have documented the behavioural implications of rising spending limits and frictionless payments. When limits are raised, consumers think that higher-value transactions are relatively normal, and the pain to pay diminishes accordingly. In a post at The Conversation, academics pointed to Mastercard Advisors’ research showing a 30% increase in total spending once customers shift to contactless cards.

Elderly Consumers are Highly Vulnerable to Contactless Payments Fraud

Age UK, a charity for older people, has called the FCA to ensure that older consumers have access to cash during the Covid-19 pandemic. According to Age UK, older people rely on cash to pay carers, gardeners, and friends, relatives, and neighbours who do the shopping for them. Older people and disabled people usually hand over cards, PINs, and online banking information to others to manage their income, savings, and expenditures, exposing them to abuse and fraud.

Natalie Ceeney, chair of the Access to Cash Review, has pointed out the high fraud potential of increased contactless payments against the elderly. “Take someone relying on a neighbour for their shopping. Handing over a £20 note is safe – you limit your potential loss and can easily see whether the change looks right. [A contactless card] could be used many times – now at up to £45 a go – and customers wouldn’t be protected by their banks, as they’ve handed over their card voluntarily.”

Several high street banks have created special card products for the designated trusted person of their disabled and older customers. The U.K.’s Post Office partnered with the Department for Work and Pensions to offer a cash delivery service for around 27,000 vulnerable customers.

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