Dear Luc: Why are people so divided about the £100 contactless limit?
In Dear Luc, we answer the questions the industry’s fintech founders are too afraid to ask, and solve the problems they don’t want their VCs to know about.
From regulation readiness to technology teething troubles, our start-up agony uncle, Luc Gueriane, is here to help.
Luc has over seven years’ experience working with flagship fintechs like Revolut, Wise (formerly TransferWise), Monzo and Curve.
His expertise and extensive work in the fintech ecosystem mean that Luc is able to offer unique insight into the building of a successful fintech company.
Confession #15: Contactless concerns
Dear Luc,
With the contactless limit increasing to £100, why are people so divided?
Contactless card payments have boomed since the onset of Covid-19 and 15 October marks yet another milestone with shoppers able to spend £100 per transaction with a tap of their card.
At first, an initial increase from £30 to £45 in April 2020 was deemed essential when the Covid-19 pandemic first started and avoiding contact, especially the use of cash, was paramount. Now that two-thirds of transactions in the UK are contactless, and both consumers and merchants have become more comfortable with higher limits, the maximum spend is being increased.
However, the latest increase has been met with concern and confusion.
The fraud conversation
With a £100 contactless limit and a cumulative payment cap of £300 being possible before a PIN is required, criminals potentially can use any card to spend higher amounts than previously possible. There were fears that this would set banks and fintechs against the change since the Payments Services Regulations state that customers must be refunded for any unauthorised payments, including those by contactless.
However, the reality is that contactless fraud rates are low. They are currently equivalent to less than 2p in every £100 spent, which explains why banks and fintechs alike welcomed the Financial Conduct Authority (FCA) and HM Treasury proposal to increase the limit earlier this year.
What already exists
It’s important to remember that higher contactless limitations already exist through other payment routes. Google Pay and Apple Pay, which support most major credit and debit card providers, currently have no contactless limit – something that many consumers may not realise. Although you do need a mobile device to verify these services and must authenticate each payment with biometrics.
Responsible banking
But there is also an argument that consumers should be able to set individual contactless limits. A recent study by KIS Finance has revealed that despite 44.8% of people being happy with the increase, 73.1% of people want the option to set their own.
Fintechs have long driven innovations that allow customers to bank safely and responsibly. With the introduction of freezing and unfreezing your card, blocking certain transactions, or limiting the value of transactions in online apps, fintechs are ahead of the game compared to their traditional counterparts.
Now the whole banking industry has also caught on to rising public concerns.
For example, Lloyds, Starling Bank and Halifax have introduced the option to allow customers to lower their contactless limitation and Nationwide gives the option to turn off contactless entirely.
It will come as no surprise that once the contactless limits increase, more banks will register customer requests and far more banks and fintechs will offer additional options to support responsible banking.
The opportunities
With every new regulatory, technological, or industry-wide change there is an opportunity for your fintech to become top of wallet – even if that means changing the approach customers take to money management.
For instance, customers may be concerned by the idea of using the same bank card they use for high value payments for contactless payments as well. Especially with heightened public concern around fraud. Instead, this is where providing different form factors and linked accounts might prove advantageous.
Primary and secondary linked accounts and wearable devices could be a way to encourage customer loyalty, whilst making it clear that you don’t have to use traditional banks for big-ticket items and fintechs just for day-to-day transactions.
One option could be motivating your customers to feel comfortable having their salary paid into one account and then dividing this into monthly outgoings vs daily spend through different linked accounts.
They could then block contactless payments on their primary account and have a secondary card or wearable device to provide ease when making everyday contactless payments of up to £100.
When looking for opportunities to differentiate yourself, fintechs can use this opportunity to market to new customers with unique offerings as well as increase their current customer loyalty.
The future of contactless
Starling Bank recently reported that it expects little demand for the new contactless limit. Yet with so many prominent figures discussing the benefits for consumers and businesses alike this may be a surprising claim to make.
Starling also comments that although the new limit for UK banks is £100, not all UK merchants will be ready for this change straight away, so the previous limit of £45 may still apply in certain instances.
Despite Starling’s reservations, the increase is a positive change for the industry and wider economy. High streets are looking very different to how they once were and so providing faster and more convenient payment options will be a welcome boost to many struggling industries.
Not only will consumers benefit from this ease of use but legacy banks and fintechs can create unique services to change and support the way customers shop and ultimately manage their finances.
Do you have an embarrassing question you want answered, or a seemingly unsolvable problem you’d want help with? Post an anonymous comment below, or email FinTech Futures’ Alex Hamilton in confidence.
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