Enabling Trust In Contactless Payments Necessary To Unlock Demand

The Reserve Bank of India (RBI) increased the transaction limit on contactless cards from Rs. 2,000 to Rs. 5,000 on December 4th. The move seeks to “expand the adoption of digital payments in a safe and secure manner”, as it provides consumers with “tap and go” functionality. India is the latest among many jurisdictions including the EU, UK, Bangladesh, UAE, Bahrain, Oman, Egypt, Lebanon, Pakistan, Saudi Arabia to do so.

Contactless cards enable seamless payments in physical retail settings and can prove instrumental for India’s demand recovery. According to a recent domestic survey, such cards were used most frequently in restaurants, bars, fuel stations and pharmacies in the first quarter of 2020. Most respondents suggest a strong preference to transact digitally or use contactless cards whenever possible. The pandemic has cemented the use case for products like contactless cards and the RBI must continue its progressive efforts to exploit this paradigm. It is imperative to reinforce user confidence to ensure that the increased limit on contactless cards translates into higher consumer spending.

Many consumers remain apprehensive about the safety of using contactless cards, which service providers and the regulator have sought to address. Banks already allow customers to set lower transaction limits on contactless cards manually. Additionally, card schemes offer zero liability to users, which means protection from the risk of losing money through fraud. Recent RBI regulations also require consumers to explicitly opt-in to enable their cards for contactless transactions. Users who are unaware of the requirement to opt-in however, are precluded from transacting using this functionality. 

Despite this litany of protections, myths about contactless instruments persist. For instance, many believe that fraudsters can intercept contactless transactions and steal identity information. Conversely, it is impossible to intercept consumers’ personal information since it is not exchanged in such transactions. Similarly, it is not possible to steal enough information to conduct an online transaction, as CVV codes are not transmitted. At most, a fraudster can steal card numbers and the expiration date, which are not sufficient to transact. Another misconception is that transactions can happen inadvertently even when cards are in the wallets or pockets of users. However, contactless transactions are processed only when a card is within 10 centimetres of a machine equipped to conduct such transactions. Further, all POS machines are KYC enabled and owners can be tracked in case there are fraudulent transactions. 

The RBI must empower consumers with the necessary information to safeguard themselves. This includes consumer education on the benefits of the latest technologies, and the tools to control risk exposure. In fact, enabling informed technology adoption should be the top priority for the financial literacy centres that the RBI envisages to set up in every block in the country by March 2024. Reliable redressal and transaction reversal systems are also necessary to improve confidence in new instruments. The RBI’s High-Level Committee on Deepening Digital Payments suggested a fast and fair Online Dispute Resolution mechanism with two layers for redressal, one automated and the other human. Implementing this can ensure that making a complaint is as simple and fast as undertaking a transaction. Such frameworks can reduce the need for regulatory micromanagement. 

The promotion of new technology also requires focus on behavioural hurdles to adoption.  ‘Computerphobia’ was a popular term in the 1980s, used to describe people who were afraid to touch or even speak about computers, mainly because they did not fully understand them. Unsurprisingly, one of the most common methods to address this was to introduce them to user friendly software. Contactless payments fulfil an important function, especially for vulnerable groups, whose spending patterns may be restricted on account of the need for extra care. For instance, older demographics tend to have more savings that can translate into demand, if transaction safety is guaranteed. Contactless instruments may also provide a viable alternative to biometric-based transactions which are popular in rural India. 

It is vital to identify and capitalise on such opportunities as contactless payments to enhance consumer confidence and aggregate demand. Consumption expenditure accounts for approximately 60 percent of the GDP, and is the key to the economy’s prospects. Results from the central bank’s consumer confidence survey in November 2020 suggest future spending will remain low, especially on non-essential items. The use of digital payments is a channel to accelerate consumption, wherever there is pent up demand. Combined with regulatory measures to encourage newer modes of payments, enhanced trust in the digital ecosystem can help accelerate India’s recovery. There has never been a better time to employ this mantra.

(With input from Shivangi Mittal)

*The authors are public policy consultants at Koan Advisory Group, New Delhi. These views are personal.