After gradually lifting restrictions on contactless card payments over several years, the UK is now considering eliminating transaction caps entirely.
The current limit for contactless transactions stands at £100 ($136), though many still require a four-digit PIN for authentication. If the Financial Conduct Authority (FCA) moves forward with its proposal, both the cap and the PIN requirement could be removed as early as next year.
This potential change is intended to reduce checkout friction and aid consumers in managing rising costs of goods and services. The FCA also aims to boost economic growth by easing regulatory burdens, a goal set by Prime Minister Keir Starmer last year when he called for reductions in red tape.
Evaluating the Impacts
It’s challenging to predict how lifting transaction limits on contactless payments would affect the UK economy. While contactless payments have become the dominant form of payment in the country, there has been a growing preference for phone-based transactions over card payments.
Transactions made via digital wallets from mobile phones don’t face any transaction limits because they come with an additional authentication layer, typically through PINs or biometrics on the device. This extra security measure is notably absent in traditional cards, leading regulators to worry about potential fraud or theft.
Bearing the Risk
Fraud concerns are well-documented, as evidenced by incidents at New York-based convenience store chain Stewart’s Shops. Criminals made numerous large transactions using stolen cards, prompting the company to shut down its contactless payment system across 350 stores temporarily.
While a complete shutdown might have been excessive, incidents of fraud are becoming more frequent and sophisticated. There have been instances where bad actors stole card data, added it to digital wallets through a process called “ghost tapping,” and made unauthorized contactless payments in-store.
Fraud losses would primarily be borne by card issuers, according to the FCA. Additionally, many lenders allow their customers to set their own transaction limits, an option expected to become more common.
