The new measure aims to reduce the need for physical contact with PIN-Entry terminals at the point of sale in shops. The new limit will be available only at some stores initially and may take some time before it can be applied everywhere.
In Ireland, the limit for contactless will increase from €30 to €50 and will also be implemented at the beginning of April. The EBA has also announced they are encouraging all national authorities to increase the contactless limit to €50.
"While a positive move for many consumers, the increase in the contactless limit could be another nail in the coffin for cash. If we had other major payment options to use in the UK other than Visa/Mastercard and cash, then this wouldn’t be such an issue."
"However, if cash becomes a niche and scarcely used payment method, and Visa/Mastercard continue to exploit their domination of the market with increased fees for merchants, consumers could– lose out through higher retail prices overall as merchant costs increase dramatically. Now, more than ever, we need competition to mitigate the unintended negative consequences of fundamentally good ideas like raising the contactless limit."
Robbie MacDiarmid, Senior Economist at CMSPI
Impact on Cash
While contactless may be seen as displacing, or even replacing, cash by some, it is important that this increase in the contactless limit is an altruistic move in response to the current crisis, and not a tactic to further accelerate the decline of cash. Many experts predict that there is a critical level of cash usage below which the entire supply chain breaks down – somewhere around 7% – as the costs of accepting cash exceed any marginal profits of cash sales.
Merchants must not stop accepting cash entirely, as not only is the competition between payment types incredibly important in terms of the cost of acceptance for retailers, but the most vulnerable – like the elderly – will be at a severe disadvantage. These people are more likely to still use cash to shop, and without it, they may be left without access to food and necessities.
Impact on Fraud
Furthermore, the fraud rate for face-to-face payments is currently low, however, the introduction of the higher limit could see a significant shift in fraudster priorities. Contactless fraud amounted to just £19.5 million of losses during 2018, compared to spending of £69 billion over the same period. Clearly, a higher limit comes with greater opportunity for fraudulent transactions. Whilst liability for contactless fraud often lies with the issuers, that does not guarantee merchants avoid a chargeback fee – even if they avoid the chargeback. Over the coming months, merchants should be aware of the potential of chargeback fees racking up and continue to track this to prevent a large, unexpected cost increase.
Impact on SCA
Regarding how this will affect Strong Customer Authentication (SCA), the £45 limit will fall within the contactless exemption €50 cap. It does mean, however, customers are more likely to hit their €150 cumulative 24-hour cap than they were before the limit increase – meaning around 1 in 4 contactless payments could actually require a customer’s PIN, significantly dampening the intended benefits of the £45 limit. With many terminals and point-of-sale systems not yet ready to handle soft declines for contactless transactions, customers and cashiers could be left wondering why contactless payments are being declined so frequently, causing unnecessary confusion at the checkout.
Merchants will need to keep a close eye on the implications of the higher contactless limit, or they could be at significant risk of increased fees, fraud and SCA – in an already particularly challenging time.