Issue 7 - Contactless Payments on the Rise: Should Businesses be Worried?

In recent years, the convenience of contactless payments has propelled this technology into the mainstream, making it a preferred choice for consumers globally. Africa is no exception, with the continent witnessing a fairly rapid adoption of contactless payments, particularly in regions where mobile money services are already well-established. However, as with any new technology, the rise of contactless payments has also opened new avenues for fraud. For businesses operating in Africa, understanding and mitigating these risks is crucial to maintaining consumer trust and ensuring the security of financial transactions.

The Surge in Contactless Payments

The adoption of contactless payments in Africa has surged in response to the COVID-19 pandemic, which accelerated the shift towards cashless transactions. According to a report by Visa, nearly half of all card-present transactions in Sub-Saharan Africa are now contactless payments. Visa has upped its efforts with contactless in Botswana, South Africa and Kenya. The ease of transfers or tapping a card/ smartphone to make a payment has driven consumer adoption, with an increasing number of merchants accepting contactless payments in the regions.

Data from the GSM Association reveals significant growth in Africa's mobile money landscape in 2023. Registered mobile money accounts surged by 19%, reaching 835 million. Monthly active accounts also saw a 12% increase, totaling 234 million. The number of transactions skyrocketed to 62 billion, marking a 28% rise, with their combined value reaching $912 billion, a 12% increase. The GSMA reports that there are now 156 active mobile money services across the continent.

The Growing Fraud Threat

While the convenience of contactless payments is undeniable, it has also become a target for fraudsters. Fraudsters have developed sophisticated methods to exploit vulnerabilities in contactless payment systems, often using stolen or cloned cards to conduct unauthorised transactions.

Taking the UK as an example, contactless card fraud has more than doubled since the payment limit was increased to £100 in 2021. The popularity of contactless has continued to grow post-pandemic, making up nearly four in 10 payments in 2022. We may see the same trend in Africa as more markets begin adopting the technology if proper measures aren’t implemented.

• Unauthorised Transactions: Unauthorised transactions are a significant risk associated with contactless payments, as they require minimal interaction and can be exploited by fraudsters. This risk is heightened due to the ease with which contactless cards can be used without a PIN for low-value transactions.

• Relay Attacks: One of the most common forms of contactless payment fraud is the relay attack, where a fraudster intercepts the communication between the card and the payment terminal to make unauthorised transactions. 

• Card Not Present (CNP) Fraud: With the rise of e-commerce, CNP fraud has become a significant concern. In South Africa, CNP fraud accounted for 76.9% of all card fraud in 2022, a figure that is likely to increase as more consumers and businesses adopt contactless payments for online transactions.

Mitigating These Fraud Risks

One of the most crucial steps is adopting enhanced authentication methods. Businesses should implement multi-factor authentication (MFA) for contactless payments, incorporating biometric authentication like fingerprint or facial recognition. This approach is especially vital for transactions exceeding a certain limit, providing an additional layer of security that makes unauthorised access significantly more difficult.

Beyond authentication, real-time fraud detection plays a pivotal role in safeguarding financial transactions. By leveraging advanced technologies such as artificial intelligence (AI) and machine learning, businesses can monitor transactions in real-time, swiftly identifying unusual patterns that may indicate fraudulent activity. 

Consumer education is another critical component of a comprehensive fraud prevention strategy. Businesses must take an active role in informing their customers about the risks associated with contactless payments. Educating consumers on best practices - such as keeping NFC-enabled cards in protective sleeves and being cautious about where they use their cards - can significantly reduce the likelihood of fraud.

Ultimately,

As contactless payments continue to grow in popularity across Africa, businesses must be vigilant in addressing the associated risks. By implementing robust security measures, educating consumers, and staying informed about emerging fraud trends, businesses can safeguard their customers and maintain trust in their services. 

The battle against contactless payment fraud is ongoing, and the stakes are high - but with the right strategies, businesses can stay one step ahead of the fraudsters.

Fraud Watch

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Country News Coverage

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Ask the Experts

Let’s hear your thoughts or questions you may have. Hit reply and let's chat on anything identity verification or AML compliance related in Africa.  

Till next time,

The Smile ID Team.