Banks should identify fraudulent contactless payments, says FCA

The Financial Conduct Authority has said the onus should be removed from customers to identify fraudulent payments on contactless cards when they have been reported stolen or lost.

The watchdog’s call comes as MPs are set to meet at the Treasury select to voice their concerns that banks are not informing their customers when their cards are being used when they are stolen.

In a letter to the committee, FCA chairman John Griffith-Jones said that contactless fraud only accounted for 0.5% of card fraud, but accepted that “public confidence could be eroded without further action”.

Contactless payments have increased in popularity over the last few years and it allows customers to make payments of up to £30 through the touch of a card on a reader, rather than through chip and PIN.

In 2015, £7.75bn was spent using contactless cards, generating £2.8m of reported fraud losses, which accounted for just under 0.036% of transactions, according to Financial Fraud Action.

He said that the risk to customers happens when retailers store payments in a batch ‘offline’ and processes them later, which is usually over night for big retailers but could be a few days for small shops.

About 45% of contactless card transactions occur offline according to the UK Cards Association.

Griffith-Jones said that that Visa and MasterCard have a lower cap on the value of transactions that are allowed to be processed offline to tackle fraud.

Later this year Visa will require almost all UK contactless transactions to be authorised online, which is likely to significantly reduce offline processing of contactless transactions, and therefore reducing contactless card fraud, given Visa's large market share of the contactless card market in Britain, said Griffith-Jones.

He also proposed technical enhancements to reduce post-cancellation contactless fraud, improving customer communications at the time of cancellation, providing clarity to customers on clearing times for contactless payments, and raising awareness of the Industry Hot Card File, a lost and stolen card database.

Labour MP and committee member Rachel Reeves welcomed the FCA’s letter and said that said that the “security flaws that allow fraudsters to use contactless cards even after they have been cancelled need to be tackled urgently”.

“Customers are in the unacceptable situation that they are still vulnerable to fraudulent transactions despite reporting their cards lost or stolen,” she said.