Understanding Contactless Payments
The term “contactless payment” refers to a secure method for consumers to purchase products or services using a debit, credit, smartcard, or another payment device utilising radio frequency identification (RFID) and near-field communication (NFC) technologies. This payment method works by tapping a payment card or other device near a point-of-sale terminal equipped with contactless payment technology. Contactless payment is also referred to as tap-and-go or tap by some banks and retailers.2
The Regulatory Framework for Contactless Payments
The Central Bank of Nigeria (“CBN”) issued the Guidelines on Contactless Payments in Nigeria (“CBN Guidelines” or “the Guidelines”)3 pursuant to the provisions of section 2(d) of the Central Bank of Nigeria Act, 2007 (CBN Act)4 and its power to make regulations for bank and other financial institutions under section 56(2) of the Banks and Other Financial Institutions Act (BOFIA 2020)5.
Key Provisions of the CBN Guidelines on Contactless Payments in Nigeria
The CBN Guidelines cover the operations of contactless payments in Nigeria and below are some of the key provisions in the guidelines:
- Minimum Standards Required of Stakeholders:The guidelines require that all industry stakeholders who process or store customers’ information are to ensure that their terminals, applications and processing systems comply with the minimum standards set by the Guidelines. These minimum standards include ISO/IEC14443 which is an international standard for identification cards, contactless integrated circuit cards and proximity cards specifications contactless payment instruments and point of sale systems (POS). Each operator is to maintain valid certification and regularly ensure compliance with these standards.
- Option to Withdraw: Customers have the option to opt-in to contactless payment by consenting to the terms and conditions regarding contactless payments. They also have
the option to withdraw from contactless payments.6
- Transaction Limits: The Guidelines mention that the CBN shall determine appropriate transaction and daily cumulative limits for contactless payments from time to time and stakeholders are permitted to set limits within the limits set by the CBN.7 In pursuance of this, the CBN issued a Circular alongside the Guidelines setting the limit for a single payment through contactless means to ₦15,000.00 (fifteen thousand Naira) while the total limit for a day’s transaction is ₦50,000.00 (fifty thousand Naira). Transactions that exceed the limit would require verification and authorisation while transactions that are below the stipulated limits may not require customer verification in accordance with the Guidelines.
- Dispute Resolution:All participants in contactless payments are expected to have clear processes for the resolution of disputes.9 Where disputes cannot be resolved by the existing payments dispute resolution system the matter can be escalated to the CBN, if the dispute persists.
- Reporting:Participants in contactless payments must regularly submit reports to the CBN regarding contactless payment transactions. These reports should encompass details such as transaction volume, transaction value, instances of fraud, failed transactions, and any other relevant data. The format of these reports will be specified by the CBN and may change periodically. Additionally, participants are obligated to promptly inform the CBN of any fraudulent transactions they encounter.
Stakeholders in Contactless Payments
The CBN Guidelines identifies eleven (11) stakeholders10 as regards contactless payments in Nigeria, and they include:
- Acquirers:Acquirers are banks or financial institutions that provide a company with the tools needed to collect payment from issuers. Acquirers do what their name implies — they acquire the money from the issuer and ensure that it gets deposited into the business’s account, allowing the transaction to be processed and completed. While acquirers sometimes serve as payment processors, more commonly they function as a go-between that make sure a transaction reaches the appropriate card network and is completed successfully. 11
- Issuers:The Issuer, also called the Issuing Bank or Card Issuer, represents the customer in a transaction. The Issuing Bank is the financial institution that supplies an individual with a payment card they use to initiate a transaction.12
Other stakeholders include payment schemes; card schemes; switching companies; payment terminal service providers; payment terminal service aggregators; merchants; terminal owners; customers; and any other stakeholder/participant as designated by the CBN.
The CBN Guidelines sets roles and responsibilities for each stakeholder mentioned above. For instance, only CBN licensed institutions shall serve as acquirers and issuers for contactless payments.
The dynamic nature of contactless payments necessitates a flexible regulatory approach that can adapt to emerging challenges and opportunities. Striking the right balance between promoting innovation and safeguarding against risks is a delicate task that regulators are tasked with. It is evident that regulators must keep pace with the ever-evolving payment landscape, collaborating with industry stakeholders to ensure that the regulatory framework remains effective and up to date.
For contactless payments, data is transmitted wirelessly using radio frequency technology. This data can include the card number, expiration date, and other sensitive details. If intercepted by malicious individuals, this information can be used to create counterfeit cards or to conduct unauthorized transactions.
To ensure safety and protection of contactless payment cards users can get an RFID -blocking wallet which creates an electromagnetic cage around credit and debit cards. This protects users from electronic pickpocketing, a process by which credit card data is read remotely by a wireless device.
Customers must also stay proactive by regularly checking their card statements or reviewing their online banking activity and promptly report any discrepancies or suspicious transactions to the card issuer.15
For further information on this article and area of law,
Please contact Niniola Ayantoye at:
S. P. A. Ajibade & Co., Lagos by
- Niniola Ayantoye, Trainee Associate, S. P. A. Ajibade & Co., Lagos, Nigeria.
- See, ‘Contactless Payment: History, Advantages, and Examples’, available at https://www.investopedia.com/terms/c/contactless-payment.asp accessed on 31st July 2023.
- See, Guidelines on Contactless Payments available at https://www.cbn.gov.ng/Out/2023/CCD/Contactless%20Payments%20Guidelines.pdf accessed on 12th September 2023.
- See, Central Bank of Nigeria Act, 2007 available at https://www.cbn.gov.ng/OUT/CIRCULARS/CSD/2007/CBN%20ACT%202007.PDF accessed on 21st August 2023
- See, Banks and Other Financial Institutions Act, 2020 available at https://www.cbn.gov.ng/out/2021/ccd/bofia%202020.pdf accessed on 21st August 2023.
- See, Regulation 6.10 of the Guidelines on Contactless Payment in Nigeria available at https://www.cbn.gov.ng/Out/2023/CCD/Contactless%20Payments%20Guidelines.pdf accessed on 8th September 2023.
- See, Regulation 9.0 of the Guidelines on Contactless Payment in Nigeria available at https://www.cbn.gov.ng/Out/2023/CCD/Contactless%20Payments%20Guidelines.pdf accessed on 14th August 2023.
- See, Circular to Banks and Other Financial Institutions and Payment Service Providers available at https://www.cbn.gov.ng/Out/2023/CCD/Circular%20on%20Contactless%20Transaction%20Limits.pdf accessed on 12th September 2023.
- See, Regulation 10.0 of the Guidelines on Contactless Payment in Nigeria available at https://www.cbn.gov.ng/Out/2023/CCD/Contactless%20Payments%20Guidelines.pdf accessed on 14th August 2023.
- See, Regulation 4.0 of the Guidelines on Contactless Payment in Nigeria available at https://www.cbn.gov.ng/Out/2023/CCD/Contactless%20Payments%20Guidelines.pdf accessed on 14th August 2023.
- See, ‘Acquirer vs. issuer: What they do and how they’re different’, available at https://stripe.com/resources/more/acquirer-vs-issuer accessed on 21st August 2023.
- See, Regulation 6.0 of the Guidelines on Contactless Payment in Nigeria available at https://www.cbn.gov.ng/Out/2023/CCD/Contactless%20Payments%20Guidelines.pdf accessed on 14th August 2023.
- RFID- Radio Frequency Identification.
- See, https://viindoo.com/blog/business-management-3/dangers-of-contactless-cards-1603#:~:text=What%20are%20the%20dangers%20of,protect%20your%20financial%20well%2Dbeing accessed 19th October 2023.