In a move to adapt to the growing trend of contactless payments, Nigeria’s financial regulator has announced new guidelines for digital payment providers offering contactless payment solutions. These guidelines aim to enhance the security and efficiency of contactless transactions while mitigating the risk of fraud.
Contactless payments, also known as proximity payments, allow users to make transactions by simply tapping or waving their payment devices at point-of-sale terminals. The new rules enable users to tap or wave their devices, including smartphones and cards equipped with contactless technology, without the need to input a PIN to confirm the transaction. However, these transactions will be limited to ₦15,000 ($19.65) for a single payment or ₦50,000 ($65.5) per day. Contactless payments rely on radio frequency identification (RFID) or near-field communication (NFC) technology, enabling enabled devices to initiate and authorize payment transactions without additional confirmation from the user.
The COVID-19 pandemic has played a significant role in accelerating the adoption of contactless payments worldwide. In 2020, the World Health Organization (WHO) encouraged the use of contactless payments as a measure to slow the spread of COVID-19. Responding to this recommendation, 30 European countries raised their contactless payment limits. In 2021, the United Kingdom increased its contactless payment limit to £100 in October, making UK consumers some of the world’s highest spenders without requiring identity verification. In Europe, three-quarters of all Mastercard transactions and up to 80% of in-person payments made with Visa are contactless.
Under the new guidelines, the liability for fraudulent contactless transactions in Nigeria lies with acquirers (the payment recipient’s bank), issuers (the customers’ bank), and merchants (the business offering contactless payment channels). These entities will be held accountable for fraudulent transactions resulting from negligence or connivance. Additionally, the guidelines stipulate that contactless payment should only be enabled for users who possess Bank Verification Numbers (BVNs). Transactions exceeding the set limit will require additional authorization, such as a PIN, mobile code, or biometric identification.
It is worth noting that regulators in the United States and Ecuador do not impose any limits on single contactless transactions. To combat fraud, Nigerian fintech companies have implemented additional identity verification measures during the onboarding process, rather than solely relying on transaction limits. Paga, founded in 2009, recently announced that all customers would be required to undergo additional ID verification, regardless of their Know Your Customer (KYC) level.
The Central Bank of Nigeria stated that the decision to limit contactless transactions was based on a thorough assessment of the associated risks. Limiting transaction amounts in contactless payments is a common practice to mitigate fraud. Data analytics company FICO reported that, in the United Kingdom, contactless payment fraud accounted for only £16 million out of a total of £574 million lost to card fraud in 2020. This amounted to 1.8 pence of fraud for every £100 spent using contactless technology, despite the total value of contactless transactions reaching £9.46 billion.
While Nigeria is taking steps to regulate contactless payments, South Africa is leading the way in Africa. According to Tech Central, over half of First National Bank’s (FNB) customers in South Africa use contactless payments. Ashley Saffy, the head of business development at FNB South Africa, noted that consumers have shown a strong preference for contactless payments using their contactless-enabled cards or smart devices.
These new guidelines and transaction limits in Nigeria aim to strike a balance between convenience and security in contactless payments, providing users with a safe and efficient payment option while reducing the risk of fraud.