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  • Thierry Spanjaard

When Covid leads to contactless

Since the beginning of the Covid-19 crisis, all governments and health organizations have communicated about preventive measures, the first of which is physical distancing. The response has been outstanding, at least from the payments industry standpoint: to avoid physical contacts and the risks associated with touching a POS terminal, more credit and debit card users have switched to contactless operation than ever before.

The Bank of International Settlements, an organization owned by 62 central banks, recently published its annual report in which it says that even if the risk of transmission of the SARS-CoV2 virus through banknotes was low, the arrival of the virus has pushed many people to switch to contactless payments. According to BIS, contactless payments have surged globally to more than 33% of card-present transactions from just over 27% in September. BIS also noted the health crisis has been beneficial to digital payments in the eCommerce context while cross-border credit card transactions fell 19% and remittances are projected to fall by about 20% in 2020.

In Northern Europe, the contactless payment ratio has grown from around 57% in early January 2020 to 75% of all in-store card payments in late October 2020, according to data from Nets, a leading Nordic payment provider. ​Contactless payments have been encouraged by health authorities and merchants to limit physical contact among consumers during the pandemic. The result has been that behavioral changes anticipated to take years have happened in mere months. In Norway in January 2020, only 35% of payments were made contactless; by late October, it had more than doubled to 77% - overtaking Sweden and Finland in the process. In Sweden, use of contactless payment rose from 44% in January to 60% of all in-store card payments by late October. Denmark is leading the pack with around 86% of all card payments in physical shops made in contactless mode in the last week of October. Norway is second with a share of 77%, with Finland third at 70%. Meanwhile, thresholds for contactless in-store payments without PIN presentation have been raised in Norway from NOK 400 to 500 (EUR 37.30 to 46.64), in Sweden from SEK 200 to 400 (EUR 19.58 to 39.17), while it was already DKK 350 (EUR 46.97) in Denmark and EUR 50 in Finland.

In France, the Banque de France has recorded a spectacular rise in contactless transactions during the first months of 2020. This rise was also the consequence of the shift from EUR 30 to EUR 50 of the contactless payments threshold in the country, in accordance with EBA guidelines on Strong Customer Authentication (SCA). Users are also comforted by the security brought by the smart card based payment infrastructure: “While the card remains by far the most widely used cashless payment method and accounts for 60% of the number of cashless transactions, its fraud rate remains stable and close to its historic low, at 0.064%,” declares François Villeroy de Galhau, the governor of Banque de France. More specifically, the Observatory for Security of Payment Means, an entity of Banque de France, establishes that the fraud rate for contactless payments at point of sales is 0.019% while it stands at 0,170% for remote payments, especially thanks to an increasing adoption of strong authentication.

Many national authorities have conducted similar research that were leading to the same conclusions. In South Korea, contactless payment posted a double-digit growth in the first nine months of this year. The daily contactless payment, including face-to-face contactless transactions and online shopping, averaged KRW 833 billion (EUR 635 million) in the January-September period, up 17% from the same period of last year, according to the Bank of Korea (BoK).

The health crisis has made the adoption of contactless payments faster. The deployment of both contactless cards and contactless POS terminals has already been ongoing for years and many financial institutions had already switched from contact to dual interface payment cards. Now that the contactless payment infrastructure is present globally, there is little risk they would step back, and the spread of contactless cards and terminals is global. For instance, Visa says that in India, there is more than one million terminals able to support contactless payments already installed. In India, transactions below INR 2,000 (EUR 22.70) can be completed by just tapping the card while payments over this limit require a “Tap and PIN” operation. Consequently, in Asia-Pacific, including India, 44% of Visa transactions have been contactless in Q2/2020, according to the payment scheme.

The expansion of contactless cards is global. In Africa, Standard Bank Group is rolling out contactless payment cards across fifteen African countries. It is currently enabling contactless payment capability in, among other, Botswana, Ghana, Kenya, Zambia, Malawi, eSwatini, Tanzania, Uganda, Namibia, Lesotho, Mozambique and Zimbabwe. The financial institution says the decision to introduce contactless payments has been fueled by the physical distancing measures imposed by governments and health agencies throughout the continent.

Some countries are ahead of others when it comes to dematerialization of payments. A survey commissioned by Zwipe and TietoEVRY found that 70% of respondents in Sweden expressed interest in a biometric, contactless payment card. Moreover, 80% of these respondents declared they were concerned about touching POS terminals when shopping in-store.

Leading players in the smart card industry are, of course, happy to have had to manufacture dual interface cards and deliver them to financial institutions faster than they anticipated. However, will this faster rollout of 2020 continue or will there be a pause after the peak of first supply of contactless cards to cardholders? Actually, some analysts anticipate the peak triggered by the migration to dual interface cards might be short lived, and cards sales may soon be driven essentially by the regular replacement rate.

Photo credits: Nets - Viktor on Picjumbo - Energepic on Pexels - Jonas Leupe on Unsplash

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