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Contactless Card transactions limit to be enhanced to Rs 5,000 from January 1, 2021

Ashish M. Shaji

| Updated: Jan 04, 2021 | Category: Digital Payments, RBI Notification

RBI increases limit for contactless card transactions to Rs 5,000 from January 1

The RBI governor Shaktikanta Das announced that the central bank has proposed to increase the limit of contactless card transactions from 2000 rupees to 5000 rupees per transaction from January 1, 2021.  The announcement made by the RBI governor was part of the RBIs bi-monetary policy[1]

What do you mean by the term Contactless Card?

Contactless card use the technology of Near Field Communication that allows customers to make transactions at payment terminals enabled with the technology without the need to swap cards physically. Earlier regulations allowed customers don’t need to enter PIN for such transactions in case where the purchase value is less than 2000 rupees.

As per RBI, in a contactless Near Field Communication card, the card is read by keeping the card near to the card reader. The EMV chip and PIN cards and contactless cards are considered to be safer as compared to magnetic stripe cards.  

How does Contactless Card Work?

These cards use the technology called near field communication. It uses magnetic field induction to allow communication between NFC devices when they are brought close to each other.

Moreover, each card is loaded with contactless chip and an antenna therefore when you have your card over a contactless terminal, the radio frequency allows you to complete your purchase. This form of payment is done in a matter of few seconds.

RBI’s statement on Developmental and Regulatory Policies: Contactless Card Transactions

As per RBI’s statement, contactless transaction and e-mandates on cards for recurring transactions have enhanced the convenience in general for customers while benefitting from increased use of technology. It is well suited to make payments in safe and secure way, especially during these times (Pandemic). As per RBI, the recent instructions on disablement of contactless feature on cards and empowering customers to control limits on cards have brought in added safety for users.

With a view to further adoption of digital payments in a safe and secure way, the Reserve Bank has proposed to enhance the limits for such cards transactions and e-mandates for recurring transactions through cards from 2000 rupees to 5000 rupees from January 1, 2021. RBI stated that operational instructions or guidelines would be issued separately.

What does it mean for customers?

Many industry experts believe that the increase of the limit proposed by the RBI from 2000 to 5000 rupees is a positive and progressive decision and that it would add to the customer convenience. Especially during these times of pandemic this would be an advantage for users. Further they believe that it will boost the digital payments ecosystem in India.

The increased limit may also boost the average value of transaction and push the digital payments adoption. The announcement will assist RuPay cardholders to make secured transactions of up to 5000 rupees thereby facilitating them with free of hassle transaction experience. This was stated by Dilip Asbe, MD and CEO of NPCI.

Benefits and Challenges of Contactless Cards

 There are two sides to the use of this medium to transact. There are benefits as well as challenges. Let’s take a look at them one by one.

Benefits-

As you would be aware of the fact that the transactions on these cards are processed without any security code therefore you don’t require remembering the PIN. Another benefit is that in these times when the country is dealing with Covid-19 pandemic, these cards are safer than handing over a card and punching PIN. Another advantage with this is that it will give a much required boost to digital payments industry in India.

Challenges-

As the transactions on these cards are processed without any security code there is a risk of unauthorized transaction to take place without your authentication. Moreover, online financial frauds have also increased significantly with the increase in online transactions during the pandemic. You may refer to our blogs for more information on the rise of online frauds during Covid-19. Cybercriminals have deployed various new tactics to exploit people during these times. They are looking to gain access to databases of businesses to retrieve sensitive payment card information.

How to tackle the risks associated with the use of contactless cards transactions?

It is critical to safe keep these cards as transactions are done without security code. In case you lose the card, there are also chances that you may lose money as well. As the limit is raised the risk is also increased therefore be careful.

Another way you can reduce the chances of risk is by ensuring that the transactions on such a card are performed at reliable places in order to prevent data theft.

What are the other options available for customers for contactless payments?

There are some other options available with customer like UPI, IMPS and payment wallets.

contactless payments

Payments wallets and UPI-

Payments wallets were popular when they used to offer discounts on transactions. They were also easy to use. However the popular ones have incorporated UPI and are now payments apps. Apps such as Google pay only focus on UPI payments.

After the launch of UPI, use of wallets reduced. The numbers of transactions performed through UPI are far more than electronic transfers. Maximum fund that a person can transfer through UPI is 1 lakh rupees for each transaction. Moreover, a maximum 10 transactions may be done in 24 hours through UPI.

IMPS-

IMPS can be termed as the traditional payment online channel. If you want to make transaction through IMPS, a bank customer needs the account details of the receiver. For bigger amounts this is the preferred option.  However, for small amount payments, it may be cumbersome.

Read our article:All you need to know about Mobile Wallet in India

Conclusion


The main objective behind expanding the limit for contactless card transactions is to expand the adoption of digital payments and to promote safe payment especially during the times of pandemic. Another significant change made by the RBI is that the RTGS system shall be made 24*7. It is expected to reduce the settlement and default risk.

Read our article:RBI Notification on Escrow Account of Scheduled Commercial Bank

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Ashish M. Shaji

Ashish M. Shaji has done his graduation in law (BA. LLB) from CCS University. He has keen interests in doing extensive research and writing on legal subjects especially on criminal and corporate law. He is a creative thinker and has a great interest in exploring legal subjects.

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