The Inherent Limitations Of The Contactless Card

This week saw an announcement from the UK Cards Association that the transaction limit on contactless cards had been raised from £20 to £30 to cover the average supermarket spend of £25. This is also in response to the news that the first half of 2015 saw £2.5bn spent on contactless transactions, compared with £2.3bn for the whole of 2014. Apple Pay has followed suit, although some retailers are considering scrapping the limit altogether given the authenticated nature of the transaction.

This remarkable growth is to be welcomed as it demonstrates the willingness of consumers to embrace new payment methods. Contactless is a swift and easy way to make payments and it is clear that consumers are, finally, adopting the technology, albeit mostly with the continued use of ‘plastic’.

Yet, a closer look at the statistics shows that the use of contactless is still limited and far from reaching its full potential. Figures, again from the UK Cards Association, show that the average spend on a contactless transaction is £6.98. Yet, the average debit card purchase in 2014 was £43.45, over SIX times greater!

Contactless is used, by and large, for small purchases. Even before the raising of the transaction limit to £30, the average spend represented just over a third of the transaction limit. Consumers use it to buy their morning coffee and lunchtime sandwich, and while contactless is growing in consumer popularity and  merchant acceptance, there are still significant gaps in capability distribution.

A look at a list of the companies that accept contactless payments is an impressive who’s-who of household names but, with the exception of Waitrose and Marks and Spencer, supermarkets are noticeable in their absence.

In part, this could be due to the fact that supermarkets are focussed more on securing consumers’ higher value weekly shops rather than smaller baskets on grocery essentials, but not all PED/terminal estates are capable of accepting contactless. Just about all new terminals are Near Field Communication (NFC) capable, but older models are not. Cost of replacement must be in line with infrastructure end-of-life, not desire for new capability.

Mobile Commerce (or m-commerce) has also added significant complexity to the retailer’s decision-making process. Traditional (and most legacy) terminals are built for purpose; the acceptance of branded payment plastic. The enormous flexibility and functionality of the MUCH cheaper mobile payment acceptance devices can significantly improve the entire consumer shopping journey, something that no retailer can afford to ignore.

Contactless cards don’t require any initial authentication to use them with the exception of mandatory PIN entry after a specified number of uses (usually 5 in the UK). This limits their usefulness to brick & mortar retail as the risk of fraud and chargebacks is fairly significant. With the use of contactless via a consumer mobile device, the number of authentication factors and modes can make contactless payments as secure as chip & PIN.

When consumers have the ability to seamlessly authenticate themselves to make a payment, the limits on how, and how much they spend, are removed.

So, while it is encouraging to see contactless payments become more popular, it is inevitable they will only reach their true potential via consumer mobile devices, and not plastic cards.