In the UK, a rapid uptake of contactless payments has caused an instrumental decline in cash, and it could be about to displace the number of chip and pin payments too. With the UK’s contactless limit set to increase to £100, businesses can expect to notice a jump in the number of contactless transactions they receive and for much higher values than previously.
Michael Ault is CEO of UTP Group, a credit card and e-commerce payment solutions provider. Having worked in merchant services for over a decade, Michael shares his thoughts on the Covid-19 pandemic, and whether we are on our way to a fully cashless society
Contactless technology was originally designed to speed up card transactions in high footfall locations and to replace low-value cash payments of £10 and under. Contactless payments didn’t arrive in the UK until 2007, when Barclaycard rolled out the very first mass-market contactless card.
Since then, the contactless movement has spread to every corner of the UK. Every region has seen an increase in contactless payments year-on-year. UTP Group reported that in 2021, the North West saw 81% of all face-to-face transactions being made with contactless payment, compared to 49% in 2018. Of all regions, Northern Ireland has seen the biggest uptake, with 82% of face-to-face transactions being contactless in 2021, compared to just 34% in 2018.
The Covid catalyst that created contactless confirmation
When the Covid-19 pandemic arrived on UK soil, nobody could have anticipated what was going to happen to the payments industry. Governments, retailers and industry bodies began advising consumers to ditch cash in favour of alternative safer and quicker payment methods. Contactless become the most favoured payment method for consumers during the pandemic. Consumers who were previously wary or unconvinced of the benefits of contactless, quickly overcame their reluctance, particularly as many merchants refused to accept cash payments altogether.
The payment industry quickly collaborated on finding a way to promote contactless as the Covid-secure way to pay. In April 2020, the UK’s contactless limit was raised to £45 to encourage more contactless transactions for a range of average values. This had a dramatic effect as Visa reported that over 400 million extra contactless payments were made in the UK since the limit increase.
Now that contactless payments have replaced cash for low-value transactions, it could now be about to displace chip and PIN payments too. In the 2021 budget, Rishi Sunak, Chancellor of the Exchequer, announced that the contactless limit will increase to £100. This news has been received with great relief from merchants and consumers, with 53% of people stating that they support the change.
Chip and PIN to step aside for contactless
So what does the future of payments look like? UTP Group have revealed that for retail sectors with lower transaction values, contactless payments account for 80%-90% of all face-to-face transactions. The number of contactless transactions is increasing across all sectors, with off-licenses and tobacconists accepting contactless payments for 90% of all transactions in 2021, which is an increase from just 36% in 2018. According to UTP Group the biggest jump in contactless usage was in clothing and footwear stores, which saw a 72% increase between 2018 and 2021.
When the contactless limit increases to £100, the percentage of transactions which are chip and PIN will shrink even further. When the limit was raised to £45, chip and PIN transactions only comprised of 20% of transactions in 2020, a big drop from 34% the previous year. UTP Group’s data suggests that cardholders will generally use contactless where possible, with the 10-15% of transactions that are still chip and PIN relating to transactions over the contactless £45 limit.
It’s unlikely that chip and PIN payments will disappear any time soon, but what is clear from UTP Group’s data is that contactless is set to take an even bigger slice of retail transactions and boost consumer confidence in turn. While cards may give way to more convenient form factors like wearable devices and mobile wallets, contactless technology is here to stay and will drive even more innovation in the future.