UK regulators took the first step towards letting banks and card providers choose their own contactless transaction limits, just last month. Recently, this decision became the subject of wild speculation about new consumer spending sprees. When first rolled out in 2007 in the UK, the contactless card limit was £10. This limit has increased dramatically over the years. It further raised it to £45 in 2020 and then doubled that amount instantly by raising it as high as £100 in October 2021. Even with these updates to consumer protections in place, experts are concerned that the convenience of contactless payments may trigger unused spending habits for consumers.
This is the model that the UK’s Financial Conduct Authority (FCA) is currently piloting. This approach would allow international providers the flexibility to determine their own contactless thresholds, as we’re seeing in the United States and Singapore. This fundamental change would potentially introduce greater variability into limits, moving away from the standardized, one-size-fits-all limits favored by regulators. Alternatively, the UK could follow a Canadian approach whereby the industry sets these thresholds.
Actually, year over year — especially since the introduction of contactless payments — usage has jumped exponentially. In January 2015 the average contactless credit card transaction was £6.36. By March 2020, it was £11.56. Once the contactless transaction limit increased to £45, the average payment jumped to £19.39 only a month later! By September 2020, it had plateaued maintaining a level of £14.28. The biggest increase then came after they implemented the £100 cap. By Dec 2021, average payments had rocketed to £20.12.
This trend should worry retailers, since the most popular purchases are typically unplanned, impulse buys. Academics have found that increasing spending limits can lead to spur-of-the-moment spending. Stuart Mills commented, “Removing such frictions, while offering some convenience benefits, is likely to see many more people realizing they’ve spent an awful lot more than they ever planned to.”
Concerns extend beyond general spending patterns. Sam Smethers, Chief Executive of a prominent charity, highlighted potential risks for vulnerable individuals: “Unlimited contactless spending could give abusers free access to drain a survivor’s bank account with no checks or alerts,” she stated, adding that this could leave survivors without necessary funds to escape potentially harmful situations.
At the same time, other consumers push for increasingly individualized management of their financial lives. Ben expressed a common sentiment: “The most important principle here is personal choice. I would like to set my own personal limit.” This desire for greater flexibility and control rings true to the most salient downloaders among all their users.
Financial institutions have already been making changes in anticipation of these changes. Gabby Collins from Lloyds Banking Group stated, “Lloyds, Halifax and Bank of Scotland customers can already set their own contactless payment limits in our apps – in £5 steps, up to £100 – and we’re absolutely committed to keeping that flexibility.” This forward-thinking move is a smart response to consumer demand for more control over spending thresholds.
Experts such as Richard Whittle warn that without strict oversight or limitations, spending sprees could occur if payment limits are raised. “If this ease of payment leads to consumers spending without thinking, they may be more likely to buy what they don’t really want or need,” he warned.
Hannah Fitzsimons noted the evolution of payment practices: “Regulators are finally catching up with how people actually pay.” Beyond being an acknowledgement of changing consumer behavior, this release is a sign that we’re moving toward a more flexible financial landscape.
While regulators engage in the important conversation about making these changes, consumers need to continue being wary of how they spend their money. That’s why it’s critical to know how raising contactless limits could impact consumers. Recent testimony and discussions should drive a hard look at how the forms of payment we promote affect consumers’ spending habits and money management.