Contactless payments: a new opportunity for fraudsters?

By Alara Basul | 5 December 2016

The surge of mobile banking services and ease of tap and go payments has inevitably brought on fears about increased opportunities to make fraudulent payments. Contactless payment cards can be unsafe as thieves can carry out multiple contactless payments before they are flagged by the consumer or bank.

Around £9.3bn ($11.5bn) was spent on contactless cards between 1st January and 30th June in the UK this year, according to the UK Cards Association. The total spend on contactless payments in 2015 was £7.8bn ($9.6bn).

A recent survey carried out by Which? found that some stolen contactless cards could be used for up to 10 contactless transactions before the bank notifies the customer.

As fraudsters can easily clock up a number of transactions in a short amount of time, credit card users depend on their banks to immediately alert them to any unusual activity. To prevent fraudulent activity in contactless cards, banks and fraud solutions need to be able to track the high volume of transactions being processed, and adopt a multi-layer security strategy.

So far, it looks like they’ve been successful: “Instances of fraud on contactless cards are in fact extremely rare, with losses of less than a penny for every £100 spent on contactless – far lower even than overall card fraud,” the UK Card Association reports.

This is far lower than the total fraudulent transactions on cards overall, which was 8.3p per £100 in 2015 according to the Financial Fraud Action Organisation.

One reason for the relatively low incidences of fraud on contactless cards may be because they use near field communication, making it difficult for criminals to gain access to card information from afar; the contactless card never leaves the customer’s hand.

A look back at the rise of contactless spending

Contactless payments in the UK have soared in 2016. From their morning coffee to takeaway dinner, consumers are heavily relying on contactless transactions for fuss-free and quick payments. Half of the British population now carries less than £5 ($6) in cash, and 21 per cent use contactless to pay for small items.

It’s no surprise that in March this year alone, people spent a staggering £1.5bn ($1.9bn) on contactless payments. Recent research suggests that monthly spending on contactless has now passed the £2bn ($2.5bn) mark.

Convenience and user-friendliness

Why has contactless become so widespread in payments? Many retailers have switched to contactless-friendly payments in recent years. Furthermore, the limit on the contactless payments increased to £30 ($37) last September. Then there was a shift to using mobile devices instead of contactless cards, and apps allowed consumers to submit card details, and tap to pay with a NFC-enabled smartphone.

Smartphones aren’t the only devices you can make payments with, either; you can also pay with contactless wherever you are on a variety of devices, whether it’s a smartwatch, wristband, or fob.

The Retail Banking Research (RBR) forecasts that by 2021, half of all European cards will be contactless, boosting the volume of tap and go payments more than sixfold over the next five years to almost 25bn – equivalent to 22 per cent of all payments on European cards.

“Contactless cards have exploded in popularity over the past year and are now being used for one in every five card payments,” says Richard Koch, head of policy at The UK Cards Association. The Guardian has reported that computers processed 19,276 debit card payments every minute in the UK in 2015.

The ease of contactless spending has been a key component in the success of payments. It allows consumers to digitally track their transactions on their mobile phone and tablet. The movement has increased throughout all platforms, with offerings from Apple Pay, PayPal, Android Pay, Microsoft Wallet and Walmart Pay. Retailers and brands have steered consumers into a user-friendly concept, so there’s no surprise it’s succeeding.

Innovations in technology

The first contactless cards were issued by Barclays in 2007. The level of payments and technological advances then were not prepared for the financial sector to wholly adapt to contactless payments. Since Apple pay hit the market in 2014, there has been a dramatic shift towards contactless and mobile wallets have flooded the markets ever since. This also allows the financial sector to take a step towards a paperless and more efficient method of payment.

Most of us depend solely on our tablets and mobile devices for storing information. Mobile phones aren’t just used for mobile phones anymore; they’re our messaging outlet, photo sharing device, news source, work platform, and so forth. Retailers and companies are using this generational shift on mobile dependency and pushing for consumers to implement more information into devices and enable easy tech payments.

Advances in tech have also had a positive correlation on mobile banking services. Barclays recently announced that contactless users will be able to withdraw up to £100 ($125) cash using their phone or device. This advance will be a first for withdrawing contactless payments in the UK.

“We are always looking for new ways to make our customers’ lives easier and their finances even more secure. We want taking out cash to be just as easy. With contactless cash, customers can quickly and securely take out money with just a tap of their smartphones – a first for the UK,” said Ashok Vaswani, CEO of Barclays UK.

Barclays suggested the facility was more secure than inserting a bank card, as it avoided the risk of having the card’s details hijacked by a skimming machine. The user also cannot walk off and leave their card in the slot.

Reaching new sectors

It’s not just retailers and brands that are expanding their opportunities with contactless. Since 31st October 2016, London’s black cabs have started accepting contactless payments.

In January 2016, Transport for London recorded 3.2m journeys using mobile devices in six months from July.

“I'm delighted to announce that everyone using our iconic black cabs will be able to pay by card, making their journeys quicker and more convenient,” said Sadiq Khan, Mayor of London in October. Contactless has become a popular choice for transportation in London, and consumers are rapidly switching their oyster cards for contactless payments.

It will be interesting to see what's next for contactless in 2017. 

By Alara Basul