Consumers must be given more protection against contactless card fraud, the regulator has warned.
In a letter to the Treasury Select Committee, the Financial Conduct Authority (FCA) says consumers are at an increased risk of fraud because of the way retailers handle payments.
Around 45% of contactless transactions take place offline, with the money debited from customer accounts overnight or a few days later. This means that a lost or stolen card could still be used in contactless transactions, even after it has been reported missing by the customer and cancelled by the bank.
The FCA says there are more than 100 million contactless cards in the UK, and in 2015 £7.75 billion was spent using contactless, of which £2.8 million was reported as fraud.
The regulator describes this 0.036% fraud rate as “relatively low” but says further action is required to protect consumers in future.
Its recommendations include removing the onus from consumers to identify fraudulent transactions and to make it easier to be issued with a non-contactless bank card. It also wants banks to work on technical solutions to cut down this kind of post-cancellation fraud.
The regulator is working with banks to implement these changes and says “public confidence could be eroded” if it does not take action.
This issue ‘needs to be tackled urgently’
Andrew Tyrie MP, chairman of the Treasury Select Committee, says: "As things stand, in order to mitigate the risk of fraud, customers are expected to comb through their bank statements months after they have instructed their banks to block their lost or stolen cards. That seems unreasonable. The Treasury Committee has urged the FCA to sort this out.
Rachel Reeves MP, a member of the Committee, adds: “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.
“The current chaotic system needs to be reformed to minimise the risk to consumers of fraudulent transactions. Bank customers must have full confidence the system works and that their money is safe. That's not the case at present."