On 3 March 2021, the Financial Conduct Authority (FCA) published Policy Statement 21/2 on amendments to the single and cumulative transaction limits for contactless payments (PS 21/2).
Coinciding with the budget, PS 21/3 announced that the single transaction limit for contactless card payments will be increasing from GBP45 to GBP100 and the cumulative transaction limit before reauthentication is increasing from GBP130 to GBP300. The changes apply from 3 March 2021.
Announcing this change in the budget, the Chancellor of the Exchequer stated "As we begin to open the UK economy and people return to the high street, the contactless limit increase will make it easier than ever before for people to pay for their shopping, providing a welcome boost to retail that will protect jobs and drive growth".
The decision to increase contactless limits for customers is a question for the payments industry, with coordination by UK Finance. The updated rules in PS 21/2 change the level at which the regulatory requirement of strong customer authentication will apply to payment service providers (such as banks) who process electronic payment transactions.
It remains to be seen whether all payment service providers will choose to provide customers with the full increase in the contactless limit.
Strong Customer Authentication
Payment service providers are required by regulation 100 of the Payment Services Regulations 2017 to apply strong customer authentication when a payer initiates an electronic payment transaction. This includes card transactions initiated by the cardholder at the point of sale. Strong customer authentication is designed to ensure payments are safer by requiring two-factor authentication (two of three factors based on knowledge, possession and inherence) to validate the transaction. A typical example of strong customer authentication is the use of chip (possession) and PIN (knowledge) at the point of sale.
The Regulatory Technical Standards on strong customer authentication (SCA-RTS) include exclusions from the requirement to apply strong customer authentication for certain electronic payment transactions.
One such exclusion is Article 11 of the SCA-RTS for contactless point of sale transactions where:
- the individual amount of the transaction must not exceed GBP45; and
- either the cumulative amount of transactions must not exceed GBP130 since the last time strong customer authentication was applied, or the number of consecutive contactless transactions initiated must not exceed five since the last application of strong customer authentication.
Practically, the payments industry has opted to apply the cumulative transaction value of GBP130 rather than transaction volume limit.
It is this exclusion which is now being changed by the FCA as announced in PS 21/2.
Prior increase in the contactless limit
On 1 April 2020, the payments industry had increased the contactless limit from GBP30 to GBP45 in response to the COVID-19 pandemic. At that time, the FCA confirmed that it was unlikely to take enforcement action where a payment service provider failed to apply strong customer authentication when a customer exceeds the cumulative transaction value limit based on this higher limit. This supervisory flexibility was provided on the condition that payment service providers had the necessary fraud monitoring tools and systems in place and would take swift action where appropriate.
Impact on fraud?
Consumers and merchants have continued to rely more on contactless payments during the COVID-19 pandemic. According to data from UK Finance, the total value of contactless transactions was 43.7% higher in November 2020 than in the previous year.
Contactless payments remain relatively safe as compared with other payment methods. According to the FCA in PS 21/2, there was “no significant increase in contactless related fraud since industry increased the limit in April 2020. The total value of reported fraud falling within the new increased limit (between GBP30 to GBP45) equated to 0.02% of the total amount spent using contactless cards since April 2020”.
The FCA also noted in PS 21/2 that other countries where the contactless limit had increased to the equivalent of GBP100 or above had not seen material increase in fraudulent transactions. The card industry in Singapore, Australia and Canada have increased their single limits to SD200 (GBP110), AUD200 (GBP112), and CAD250 (GBP143) respectively.
The new increase in contactless limit
In PS 21/2, the FCA notes that it is increasing the single transaction limit for contactless card payments from GBP45 to GBP100 and the cumulative transaction limit from GBP130 to GBP300. This will be reflected in Article 11 of the SCA-RTS.
The increase in the single transaction limit will enable consumers to use contactless payments for higher value transactions such as purchasing fuel and weekly grocery shopping without the need to authenticate with strong customer authentication.
The change in the cumulative transaction limit replaces the FCA’s supervisory flexibility in respect to the prior increase. From 3 March 2021, payment service providers may set up payment limits to these new levels but not exceed them without applying strong customer authentication. Payment service providers must continue to have in place systems that mitigate the risk of unauthorised transactions and fraud, including having appropriate fraud monitoring tools in place.
According to the FCA, this change removes the regulatory barriers to future increases by the payments industry to contactless limits in the UK. Any decision to increase contactless limits is a matter for the payments industry.
Feedback to the Consultation
The increases to the limits announced in PS 21/2 were consulted on in FCA Consultation Paper 21/3. That consultation closed on 24 February 2021.
The FCA noted in PS 21/2 that most respondents were supportive of the proposed increase in the single limit to GBP100. Most argued that the cumulative limit should be further increased to a minimum of GBP300 and some suggested the limit should be scrapped altogether. Several respondents raised concerns about the potential for an increase in fraudulent transactions and other crimes. Additionally, two respondents commented on the possible negative impact these changes could have on the availability of cash to consumers.
In response, the FCA states in PS 21/2 that it believes these changes balance the need for appropriate security when making higher value payments with the benefits of convenience offered by contactless payments. The FCA did not agree with the arguments put forward in respect to the risks of fraud by noting that the data did not suggest than an increase in fraud or other crime was likely. In respect to cash, the FCA noted that it is part of the FCA’s Business Payments priority to make sure consumers can access the cash they need. In March 2020, the Government announced an intention to legislate to protect access to cash for those who need it.
Payments Industry Response
Responding to the Chancellor’s announcement, the chief executive of UK Finance David Postings said that “UK Finance welcomes the flexibility to increase the contactless limit to GBP100. This is a great move for customers and will allow them to use contactless to pay for higher value transactions like their weekly shop or filling up their car with fuel. This could not have been achieved whilst still in the EU so is a true Brexit dividend. We will work closely with the payments sector and retailers ahead of increasing the limit later this year.”
Managing Director of VISA Jeni Mundy has responded by noting that the increase “is a good move for British shoppers and for our high streets alike. Contactless payments offer a fast, secure and seamless payment experience.”
CEO and founder of Starling Bank, Anne Boden said: "With a GBP100 limit, we would like to give Starling customers the chance to opt-out and use a lower limit if they want. We would build this capability into the app. Our customers are increasingly using mobile wallets as a preferred payment method over contactless payments by card. In fact, they are three times more likely to use their mobile wallet than to pay by contactless, especially given the higher limits and added security this gives them.”
Whether and how the payments industry will use the increased contactless and cumulative transaction limit provided by the FCA in PS 21/2 will become clearer later in 2021.
DLA Piper Payments Team
The DLA Piper payments team is a market leading cross-jurisdictional group of specialist payments lawyers. The team has a broad range of clients, from dynamic FinTech offerings to established banks and merchant acquirers. The team advises clients on the full range of payments matters including payment scheme participation, sourcing tech solutions, the regulatory framework, commercial contracts, mobile and online payments, digital currencies and disputes. For more information, please contact the authors.
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