Raising The Stakes. Contactlessly

Key findings

• A majority of consumers say a higher limit on contactless payments will make it more convenient for them when shopping, but 54% think the new £100 limit is too high.
• 66% of people would like to be able to set their own, personal payment limit
• 41% of people who had missed or defaulted on a housing, bill or credit payment in the past month said they were concerned that a higher limit would make it harder for them to manage their finances.

Introduction

It was announced in the Budget 2021 that the limit on a contactless payment would rise to £100 in October 2021. This follows an increase in the limit from £30 to £45 on 1 April 2020, which was made to reduce the risk of coronavirus transmission.

The rationale is that another rise will further support consumers and businesses during the Covid-19 response, but concerns have been raised that it could cause consumer harm. This might be the case if it led to an increase in fraud or made it harder for people to manage their money. 

In this article we consider the evidence behind these concerns and the attitudes of consumers which we gathered from a nationally representative survey in April 2021.

Many consumers would like an increase in the contactless limit

There is support among consumers for an increase in the contactless payment limit. 54% of consumers who use contactless payments agreed that a higher limit will make it more convenient for them when shopping, while only 19% disagreed. 

Fewer people thought a higher limit would reduce the risk of Covid-19, but this was still a perceived benefit for some. 37% of people agreed that it would make them feel safer when shopping, with 29% disagreeing. 

However, while people might be in favour of an increase in the limit, there is a feeling that £100 might be too much. 54% of contactless payment users said that they thought £100 is too high, 40% said it is about right, just 2% said it is too low and the rest were unsure.

The findings suggest that people hold different preferences for the limit they would like to have. In fact, 66% of contactless payment users in our survey said they would like to be able to set their own personal limits for contactless transactions. 

Concern about fraud is high

There is widespread concern that a higher transaction limit on contactless payments will increase the risk of fraud. 78% of contactless payment users in our survey are concerned about this and it was raised in the FCA’s consultation on an increase to the limit, for example by the Financial Services Consumer Panel.

The FCA dismissed these concerns, arguing that there was no evidence that a higher contactless limit led to increased fraud either in the UK, following the increase to £45, or in Singapore, Australia or Canada, where the limit has already been increased to values above £100. 

Unfortunately, such data actually tells us little about the relationship between contactless limits and fraud. This is because the increases in the UK and elsewhere happened during the pandemic when consumer behaviour had been transformed and this will have had a larger impact on card fraud than the change in the contactless limit.

UK Finance reports that the amount lost to contactless fraud fell from 2.7p per £100 of spending in 2019 to 1.8p per £100 in 2020. It notes that this is related to there being substantially less opportunity for contactless fraud in 2020 - stealing cards became much harder during the pandemic.

Contactless payments and consumer spending

Various studies have shown that the amount people spend is affected by the payment methods available to them. One study specifically examining the impact of using contactless payments concluded that they promote increased spending and increased use of debt.

This evidence does not mean that a higher contactless limit will necessarily lead to greater spending, but some consumers are concerned that a higher limit will make it harder for them to manage their finances. Across all consumers we found that 20% were worried about this, but concern was highest among those with a recent experience of financial difficulty - 41% of people who had missed or defaulted on a housing, bill or credit payment in the past month said they were concerned.

What’s needed now

It is clear that there is support for an increase to the contactless limit as people value the additional convenience this would bring. However, the FCA and industry need to be alert to the continued risk from the two harms discussed in this article.

The FCA has said that it will continue to monitor fraud rates. This is important since we have little evidence yet on the potential impact and meaningful monitoring will need to take into account changes in consumer behaviour that might be having a confounding effect on the level of fraud.

In terms of addressing concerns about contactless payments and financial management, the Financial Services Consumer Panel has called for consumers to be able to set their own contactless limits. There is strong support for this in our survey and it may be a proportionate consumer protection. However, even if card issuers do this then they should also give consideration to what the appropriate default limit is for their customers as this may vary across individuals.