Impact on small businesses as contactless limit rises to £100

Contactless payments have become a necessity for any small business looking to provide customers with a quick and easy way to make a transaction.

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contactless payment being made from smartphone to countertop card machine

Impact on small businesses as the contactless limit rises to £100

15 October 2021

card machines

Contactless payments were something of a novelty when they were introduced for credit card use back in 2007. A decade and a half later, they’ve become a necessity for any small business looking to provide customers with a quick and easy way to make a transaction.
 

UK Finance reports that the last two years have seen the highest ever increase in rate and value of spending using contactless methods. Figures from June of 2021 show a jump of 73.8% in the amount of contactless spending when compared to the previous year, with 1,169 million transactions in that month alone. In total, £14.2bn was spent during that period. 

With the limit raising from £45 to £100 on October 15, contactless transactions are likely to become more important than ever. But just where does that leave small businesses? Let’s look at what’s triggered this hike in the contactless limit, as well as what it might mean for companies across the UK.  

 

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Why is the contactless limit increasing to £100?


Whether you’re in favour of or against the decision to raise the limit, it’s hard to argue with the logic behind the decision. A number of factors have led us to the point we’re at now – although it could be argued recent global events have sped the process along. 

Here are some of the core reasons why the Government has decided that now is the right time to make the jump. 

  • The pandemic and its impact. Before the pandemic hit in late 2019, the contactless limit in the UK sat at just £30. With people experiencing an unexpected heightened sense of hygiene awareness, the relatively detached nature of tap-and-pay transactions was a welcome alternative to the physical handling of cash. As a result, in just over a year-and-a-half that contactless cap has now more than trebled. 

  • The popularity of digital payments. Digital competency has come on leaps and bounds in recent years. With both businesses and consumers more familiar than ever with smart devices, electronic payments and online banking now is the perfect time to take another step towards contactless transacting. 

  • Ease for the customer. We live in a busy world. Everything we do, from the way we order food to how we engage with social media, is constantly being redeveloped to become as streamlined as possible. And while chip-and-pin was once a speedy alternative to cash payments, contactless transactions are now the go-to in payment efficiency. Raising the limit means more payments will be able to be made at the literal tap of a screen. 

Potential benefits of increasing the contactless limit to £100

The change to the limit has the potential to benefit small businesses across a number of sectors and industries. But how? Let’s explore why this shift could be a major help to an SME’s bottom line. 

 

  • Encouraging larger buys. It stands to reason that increasing the cap on spending will directly result in consumers making higher value purchases than ever before. With the same UK Finance report showing a £2.1bn increase in spending between the same point in 2020 and 2019, it’s clear that even the shift from £30 to £45 was enough to have a significant impact on spending rates. 

  • Shorter queues in store. As much as you’d like to hope they have the patience to wait, a lot of customers will be put off by long lines. A larger limit means more purchases being processed quickly – having the knock-on effect of keeping queues to a minimum. The quicker someone is in and out, the better it is for both them and your business. 

  • Customer satisfaction. Whether it’s the flexibility provided, the speed of transactions, or even just highlighting to customers that you’re keeping up with your rivals, consumers will be happy to see you’re a brand they can rely on. As we recently highlighted, as many as 67% of customers now expect brick-and-mortar stores to accept contactless payments

By taking steps towards cashless alternatives, you’re going to continue to keep your customers happy. What’s more, as many as 74% of small business owners surveyed reported that they expected future consumers to opt for contactless methods as much or more than they do now. 

 

The risks to small businesses when the contactless limit increases to £100

But while there are wins to be had, it would be wrong to blindly assume it’s all sunshine and roses. Just as with any large change to the way your company operates, you need to approach this shift with a sense of caution. Here are some of the ways the rise could be harmful. 

  • Higher risk of fraud. As a business, you’ll do whatever you can to ensure you aren’t processing fraudulent payments. In the age of contactless, it’s easier than ever for a thief to pick up a card and spend money without needing to know any private financial details. While the amount they could take from an account was capped at £30 and then £45, we’re now looking at the potential for illegal purchases of up to £100. 

While banks should always support customers, the experience could leave a bitter taste in their mouths. No business wants to become associated with credit or debit card fraud, even if it wasn’t their fault. 

  • An increase in returned items. Snap-decision purchases might feel like a win for your business, but there are always repercussions. If your returns policy is generous enough, you could find customers with buyer’s remorse returning items with higher regularity than ever before. And while your business might be able to absorb a few of these hits, if you’re a small company you won’t want to be giving back thousands every month. 

  • Further isolation of certain demographics. While moving towards a more contactless form of payment platform is going to work for some, it’s important to remember that not everyone feels comfortable buying things this way. 

This is real food for thought if the bulk of your customer base is in an age bracket that don’t regularly make contactless purchases. For example, less than 5% of people aged 65 and over are registered for mobile payments, compared to nearly 40% of those aged 25 to 34.

In summary, businesses should approach the rise with tentative optimism. While flexibility for customers and higher revenue are tantalising prospects, it’s important to remember every rose has its thorns. 

And remember, if you haven’t done so already you’ll need to update your card machine to be able to process the rise to £100. Click this link to find out how you can make the switch.