Contactless Overtakes Chip & PIN in UK

16th October 2018
Callum Godwin
Callum Godwin

Contactless usage jumped by 30% in the past year to become the most popular form of card payment for in-store transactions, overtaking Chip-and-PIN for the first time in the UK.

Data from Worldpay shows that contactless payments accounted for 51% of in-store card transactions by volume in June, and increased to 52% in July. The value-add proposition of contactless is clear, and if it reduces time and effort at the POS then it has the potential to drive revenue increases for merchants in the F2F space.

The danger, however, is that this movement to contactless drives cost increases as well. A decline in cash volumes (where costs are generally fixed) and an accompanying increase in card volumes (where costs are generally variable) clearly has the potential to result in an increase in the cost of payments acceptance. CMSPI has found, in previous studies, that contactless cannibalises card volumes more than cash, which may result in a dampened cost impact resulting from the previous argument. Although there is certainly more room for growth of contactless in both the card and cash spaces, as the market reaches maturity, contactless may simply run out of transactions to absorb from Chip-and-PIN due to the contactless limit (currently £30 for a single transaction).

Increasing the limit would likely shift the percentage share of contactless outwards, and Worldpay research has found that 65% of consumers would already happily make a contactless purchase of up to £50. Australia’s contactless limit is currently $100 (~£50), and contactless is used for more than 85% of card payments in the region. With the rise in prominence of mobile wallets and the added security of having to unlock these devices prior to payment, limitless contactless is certainly possible much further down the road. One issue with this is the increase in fraud that would likely come with a limit increase. Contactless fraud is currently relatively low compared to other payment methods, accounting for just 2.5% of overall card fraud in 2017, but a limit increase would impact fraud rates twofold:

  1. Increasing the maximum value of fraudulent payments per transaction
  2. Incentivising fraudsters to commit more fraud due to the increased potential pay-out

In Summary

Clearly, increases in contactless usage can have varying impacts – both positive and negative – on merchants. A good visibility of aggregate costs across all payment types, as well as their respective benefits, must be maintained in order to better inform acceptance decisions.

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