Thanks to rapid growth in contactless payments in the UK, the spend limit has now increased from £20 to £30
Contactless payments in the UK reached a record £2.5B in the second quarter of 2015, more than double that of the previous six years combined, according to the UK Cards Association. In London last year, nearly one in three card transactions were contactless; clearly, it’s no longer just early adopters who are using tap-and-go cards.
Fuelling this rapid growth, in September, UK authorities increased the spending limit on contactless payments to £30, up from a £20 limit before. This is expected to drive the adoption of contactless cards and card readers even further, since consumers are now able to use the payment method for a greater amount of purchases. It is also a boon for near field communication (NFC), the cards’ underlying technology, as more merchants invest in NFC-enabled checkout systems to attract customers.
London tube behind increase in contactless payments
Before we look to the future of contactless payments in the UK, it’s important to understand why the technology saw such rapid uptake last year in the first place. After all, the contactless payment method has been available in the UK since 2008. What finally convinced people to get behind contactless payments?
One crucial factor was London’s public transport network, which allowed contactless payments for train and bus fares in September 2014 with the mobile wallet Vodafone SmartPass. By December, London commuters were responsible for about 1 in every 10 contactless payments in the UK. One year later, about 180 million journeys were paid contactless. Convenience has always been one of contactless technology’s main differentiators from traditional payment cards, and it’s clearly an advantage in busy tube stations.
Consumers and merchants create symbiotic support for NFC
Another important factor was the increased availability of contactless cards and card readers over recent years. In July 2015 the number of contactless payments in the UK were accounted for 8.0 percent of total card purchases – up from 2.6 percent one year before. There are more and more contactless cards in circulation in the UK, thanks to the fact that many banks now supply customers with contactless credit and debit cards whether they want them or not. That’s around one contactless card per person age 15 and older. And now they can use those cards at over 300,000 NFC-enabled terminals at M&S, Waitrose, Starbucks, Costa, Co-Op, Lidl, McDonalds and Boots, as well as at independent stores. That’s a 200 percent increase in merchant adoption of NFC from 2013.
More and more merchants are likely to invest in NFC technology
With the spending limit increasing to £30, even more merchants are likely to invest in NFC technology, driving further consumer adoption. At supermarkets for example, the average card transaction is about £25, so most purchases fall above the £20 limit. After the spend limit increase, supermarkets may now see NFC as a way to attract and retain customers who are used to making tap-and-go payments elsewhere. The same logic applies to other merchants that usually ring up bigger transactions.
And as different types of merchants enable larger purchases to be made with contactless cards, the overall value goes up for consumers too. Those who have not adopted tap-and-go payments may be more motivated to do so once their local supermarket or favourite retailer invests in the technology. Those who already use contactless cards will be able to make it a regular habit, rather than having to stop and think whether a particular merchant accepts NFC-based payments.
British Shoppers would prefer contactless payments for Christmas
While security and trust remain consumers’ greatest concerns about alternative payments, a large share of UK shoppers are already familiar with contactless payments and feel confident with the technology. According to a survey by The Logic Group, 74 percent of British shoppers would prefer to use contactless card payments for Christmas 2015. They have good reason to: contactless cards registered only £51,000 of fraud in the first six months of 2014 – just 0.007 percent of all contactless spending.
As consumer confidence in contactless payments grows, diverse opportunities for the application of NFC will flourish in the future. More and more use cases have been piloted in the last year, more recently from payment wearables working with NFC capabilities including contactless bracelets, rings and clothing. Furthermore some companies are offering mPOS credit card readers for tablets or smartphones that can accept NFC-based payments. The excitement and experimentation around contactless payments and NFC is clear. And it is just the beginning.