Contactless in the age of COVID-19
Ohad Maimon is the EVP of Strategy & Business Development at Max and Michael Segal is Head of Innovation & Advanced Payments. Below, they describe how the nature of the current global pandemic is spurring contactless payments adoption.
We live in exceptional times, which now affect the majority of earth’s population. The implications of the SARS-COV-2, causing the COVID-19 pandemic, have affected every aspect of our lives. It is not only the magnitude of effects which are nothing short than baffling, it is also the speed in which they are happening. These dire times create alterations in all of our daily habits. Though it seems most of the changes are for the worse, a few might be for the better. Specifically, in the payments’ space, the COVID-19 has created a disposition urging us to embrace more advanced technology and more secure methods to pay. To be clear, we are referring to the surge in use of digital payments, or more specifically, contactless payments.
Contactless payments include several methods: credit cards and debit cards, key fobs, closed loop smart cards, or other devices, including smartphones and other mobile devices, that use radio-frequency identification (RFID) or near field communication (NFC) for making secure payments. The embedded integrated circuit chip and antenna enable consumers to wave their card, fob, or handheld device over a reader at the point of sale terminal.
The first contactless payment was made available by Exxon, as early as the end of the 90’s in the previous century. Slow and gradual progress in adopting the solution was made, first by closed loop solutions – mainly for public transportation – and then by usage of the EMVco standard. For example, the first Contactless cards in the UK were issued by Barclaycard in 2007.
At first glance, it seems contactless payments made by cards or other methods should be a worldwide norm. It is quick, easy and elegant. However, the challenge in universal adoption is driven by two factors. First, it takes two to tango. Not only does the customer need to want to use contactless payment; the merchant needs to enable it with a suitable point of sale. Fortunately, the process of changing the POS terminals across countries is happening gradually – either with the governments support or without.
Second, it is challenging to find the balance between freedom and security when it comes to contactless payments, that is because banks and issuers are liable for fraudulent transactions charged to the contactless cards. This is true for most card transactions, but as no signature or PIN verification is typically required, contactless purchases are limited to a set maximum amount per transaction, known as a Cardholder Verification Limit (CVM limit). In other words, for the contactless transactions to become widespread and common, the CVM needs to be high. This creates risk for the issuers and it is quite challenging to strike the right balance. This results in a unique scenario, in which a great payment capability is not being fully utilized.
It is said that necessity is the mother of invention. Well, it seems need can also drive adoption. The COVID-19 pandemic has created an immediate need to avoid touch. The many downsides of cash have become more evident, specifically the potential it holds to transmit diseases.
As already mentioned, everything is happening at an extraordinary pace. "The last contactless limit increase to £30 took two years to implement, but, given the extraordinary circumstances we face today, this new £45 limit will be rolled-out from next week," Andrew Cregan, head of payments policy for the British Retail Consortium, said in a statement.
Indeed, the main change made across Europe is the increase of contactless payments. The ability to Tap’n’Go is now more relevant than ever, in an era where everything is done to avoid actual physical contact. In order to support this effort, contactless limits have been raised. Starting April 1st, the UK will shift to a 45 £ limit. Dutch banks have already raised the limit to 100 €.
Other countries are also following this trend. Governments and issuers in Greece, Ireland, Malta, Poland and Turkey have worked together to raise their contactless payments limits. Turkey announced it is increasing the current contactless limit of 120TL and will only require a PIN entry for purchases above 250TL; Poland has raised the limit to 100PLN, Ireland, Greece and Malta are raising the limit to 50EUR, and many more European countries are reviewing an increase.
The immediate response of the payment industry is undoubtedly quite remarkable, and should be a model for the right collaboration between payment stakeholders, regulators, and policy makers. Additionally, it is further evidence of the importance of good payments infrastructure, as these changes could not have been enabled without the ability to accept and pay with contactless.
In the next few months as we, hopefully, return slowly to "business as usual", the usage in contactless payments will continue to rise. Contactless payments made by mobile devices will soon follow, as the CVM limit is less of an issue there. It seems quite safe to say that the exceptions of today will become the standards of tomorrow.