Raising contactless transaction limits for public health is expected to spur a shift in tap-to-pay payments around the world
With people the world over trying to limit physical contact, contactless has suddenly become attractive for reasons beyond convenience. On Monday, the United Kingdom followed Ireland in increasing the value limit to combat the spread of Covid-19. The limit in the UK will increase to £45 from its previous level of £30 on 1 April. The average debit card transaction value at the POS currently stands at around £25, so this increase should see a large proportion of transactions falling under the limit.
Data collected by Verisk Financial Research on markets around the world shows that contactless has proven hugely popular with consumers once conditions are favourable and a critical mass of cards and acceptance points has been reached. It also suggests that the limit with which transactions can be made without a PIN is one of the drivers of adoption.
In Australia, the limit has been set at the comparatively high level of 100 Australian dollars for several years. The majority of card transactions at the POS fall under this limit and contactless is used for more than four in five in-person transactions. The average Australian makes one such transaction per day, the highest level of any country globally.
By contrast, in Spain, growth in this respect has started to slow as consumers are already tapping for virtually all transactions under the much lower limit of €20. Although a higher limit increases the risk of fraud, data suggests that contactless fraud is not a major problem. According to UK Finance, this type of fraud accounted for just 3.3 percent of the value of card fraud in Britain in 2019, despite being used for 44 percent of card transactions.
Another factor which has complicated the introduction of contactless is the presence of a domestic scheme. In New Zealand, where debit cards carry the local EFTPOS
badge alongside either Visa or Mastercard, tap-and-go transactions are routed through the international networks as the local scheme does not support the technology. Though the method has proven popular with cardholders, many retailers have blocked the technology to avoid the higher acceptance fees on Visa and Mastercard transactions.
In Denmark, contactless was rolled out on the dominant Dankort scheme in 2015, resulting in a surge in contactless transactions in the subsequent years. With the proportion of these transactions surpassing 50 percent in 2018, the limit was raised to the equivalent of over $50, covering 85 percent of transactions at the POS. In Norway, a similar growth surge is underway following BankAxept enabling contactless in 2018.
While many of the markets with widespread contactless use were already cash-light economies, there are some where contactless is more obviously reducing dependence on cash. The country where tap-to-pay has had the most transformational impact is arguably Poland. Traditionally a cash economy, card use has grown dramatically since the introduction of tapping, which now accounts for around 90 percent of card present transactions.
The big outlier globally when it comes to contactless is the United States, where only a small fraction of transactions are tap-and-go. However, banks are intensifying their focus on the technology this year with the leading issuers committed to rolling out contactless to their cardholders. Acceptance is strong among leading retailers, largely due to the existence of Apple Pay in the market since 2014, while the technology is also being enabled on New York's public transit network. With widespread acceptance in place, use could begin to grow rapidly as cards flood the market, particularly if, as expected, the coronavirus crisis continues for the coming months.
Covid-19 is impacting every aspect of financial services. At the point of sale, the pandemic has already changed both consumer behaviour and regulatory thinking. How permanent the change remains to be seen but, given that consumer enthusiasm for contactless was already on the rise, it seems that tap-to-pay, further supported by increased transaction limits, is here to stay.
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