Contactless cards – still the golden touch?18th October 2017
This year marks the tenth anniversary of the introduction of the first contactless credit cards by Barclaycard in the UK. According to statistics from UK Finance, however, contactless only started to make significant inroads into the payments landscape in the last couple of years, and its prevalence is growing at an exponential rate. In June 2017, almost 470 million transactions were made using a contactless card – more than double the number made 12 months prior.
Contactless transactions now account for almost a third of card transactions made in the UK, and are often used in the place of cash for low-value transactions. As a result of this, as can be seen in the graphs below, the average transaction value (ATV) for all cards has fallen from over £50 in 2012 to £43.06 in April 2017, despite the value of card transactions rising from £40 billion per month to almost £60 billion in the same amount of time.
Figure 1: ATV of all transactions (12 months average)
Figure 2: Proportion of all transactions that are contactless
During this time, the limit on contactless transactions being raised from £20 to £30 in September 2015. Since the contactless limit was raised, the ATV of contactless transactions has also gradually risen, from £7.12 in August 2015 to £9.23 in June 2017.
Figure 3: Contactless ATV
A significant milestone in the growth of contactless was in September 2014, when Transport for London began accepting contactless cards on the London Underground. More than one billion contactless transactions have now been made on London transport.
What does the future hold?
So what does the future hold for contactless in the UK? Near-field communication (NFC) technology is nearly ubiquitous, with an impending requirement that all UK terminals must be contactless-enabled by 2020.The potential rise of mobile payments such as Apple Pay and Android Pay could also contribute to higher volumes for contactless cards, as they also work using NFC technology. However, should a QR code based platform take off, as in China with Alipay and WeChat, then we could yet see volumes eroded.
In addition, despite fraud rates being low – accounting for just 0.5% of overall card fraud, many consumers are still distrustful of the technology. Indeed, afound that 69% of people are concerned about their contactless cards being stolen and used to make purchases – almost as many as think that contactless cards make it quicker to pay. A number of newspaper articles written about the potential for contactless-specific fraud have gone viral, as have videos appearing to show fraudsters surreptitiously scanning people’s cards on busy Tube platforms.
Figure 4: Evolution of the number of transactions (contactless vs chip & PIN)
Regardless of any new competitors, contactless spending looks to continue to rise into the near future as consumers take advantage of its convenience and speed. It is however likely that this growth rate will begin to tail off soon, unless the contactless limit is raised once again, as the market reaches maturity and contactless cards simply run out of transactions to cannibalise from Chip and PIN. Merchants of all sizes should be keeping a close eye on any new contactless developments and should be fully considering the potential impact to their business.