Contactless as a method of payment has been introduced in 2007 within the UK. As of December 2014, there were approximately 58 million contactless-enabled cards in use (Campbell, 2015). Figures from The UK Cards Association (2015) indicate that the increased adoption of contactless cards and the growing popularity of mobile payment has accelerated the replacement of cash. An American study by MasterCard (2013) argued that 70% of the contactless transactions were under 25 dollars, and argued that most of these transactions would be a direct replacement of cash.
However, the explosive growth of contactless might not be solemnly driven by cash replacement. MasterCard (2015) has released numbers showing that spending by British consumers using contactless cards has increased more than five-fold in one year, however the frequency of “tapping” has only doubled. Cardholders have driven 560% year-on-year growth in the value of transactions, up from a 373% increase in the year to July 2014. At the start of 2012, when the “tap”-limit was £20, the average contactless purchase by cardholders was £4.52. Data from 2014 show that this average has increased to £7.29. These numbers drove the decision to increase the limit to £30 per transaction.
Although research indicates that people already have a strong preference for using contactless (Vista Retail Support, 2017) the development towards a “tap&go” or even a cashless society might not be a positive one. As seen with the debit and credit card, contactless users are also prone to increase their card expenditures (James, 2017; MasterCard, 2013; MasterCard, 2015; Trütsch, 2014). This is due to the fact that contactless cards suffer from (intentionally) reduced salience, leading to a lower pain of paying, diminished impulse control and reduced awareness of spending.
Research by Trütsch (2014) showed that the increased spending found by MasterCard (2013, 2015) could be replicated. Making use of the 2010 Survey of Consumer Payment Choice, Trütsch tried to estimate the impact of using contactless cards on the spending ratio at the individual level. In agreement with MasterCard (2013), the analysis found a significant increase in expenditures, however the increase was much smaller. For credit cards, the usage of contactless led to an increase in the spending ratio of 8.3 percent at the point of sale, while the effect for retail and services purchases was 4.8 and 3.5 percent, respectively. For debit cards, the usage of contactless led to an increase in the spending ratio of 10 percent at the point of sale. The effect on retail and services payments resulted in a 4.5 percent increase. Seemingly, the effect of contactless holds stronger for debit cards than it does for credit cards. This can be due to frequency of use: debit cards tend to be used more frequently. If an effect were to be found, it would be strongest for the most frequently used method. Trütsch (2014) did not elaborate on whether these increases were due to the replacement of cash, or whether individuals are distinctly spending more, without replacement occurring.
Research by James (2017) also brought me some worries. Having used surveys and interviews, he established that contactless was the preferred method of payment, in line with findings by Vista Retail Support (2017). However, when asking participants how they experienced contactless compared to other methods of payment, most participants indicated feeling a lack of control with regards to their spending. Over 75% indicated being unable to correctly track their expenditures and misremembering their account balances.
Now I am not worried about contactless replacing PIN-verification. There is very little to no evidence supporting that this change should affect the purchasing experience and lead to higher expenditures. It is the replacement of cash that worries me.
I have written multiple articles about the power of cash compared to other methods of payment. It is more painful, allows for succumbing to temptations less and is more salient in memory as a result. If you use cash you can’t spend money twice, just because you misremembered how much you have spent before. If you stick to cash you’ll never find yourself finding a bill for an item you purchased three months ago, plus interest costs. Cash is nice and safe. The fact that there is a limit to it, is its best redeeming feature.
Also, I am not one to wear an aluminium foil hat and hide under the table, but I remain a sceptic. Contactless cards are a product of banks. Mass institutions that make money of your money AND your debt. I like to emphasize that it is also banks that have rolled out the credit card and massively profit from them, whereas the individual can very quickly spiral into debt. It is also banks that have given out shady loans and mortgages that were not actually as reliable as they seemed in terms of output. I’m just saying: if a bank is giving you a financial product, it is not very likely that it is to your benefit. Products are not released by companies if they can’t make a profit.
Overall, as sceptical as I am, there is a lack of research. I have quoted only a few pieces or research on the effects of contactless as they stand now. That does not an argument make. But it is suspicious that we are still so clueless about contactless. As a result that is what I am researching in my own PhD: the effect of payment methods, specifically contactless, on expenditure and expenditure recall. In the next article I will outline the methodology and the preliminary results of my first study.
Until then, the best advice I can give is this: stick with cash, you’ll know when you’ve hit the limit.
References Campbell, (2015). Contactless payments taking off in the UK in 2015. mobiletransaction.org. Retrieved Jan 24, 2018.
James, B. (2017). How has the Adoption of Contactless Payment Affected UK Students’ Spending Habits? (Doctoral dissertation, Cardiff Metropolitan University).
Mastercard (2013) Mastercard paypass performance insights. https://newsroom.mastercard.com/wp-content/uploads/2011/09/PayPass-Performance- Insights.pdf
Mastercard (2015) Press Releases: MasterCard reports strong European growth for contactless payments. https://newsroom.mastercard.com/eu/press-releases/contactless-momentum/
Trütsch, T. (2014). The impact of contactless payment on spending. International Journal of Economic Sciences, 3(4), 70-98.
UK Cards Association (2015) Shift to cards continues as consumers go contactless and spend online. Retrieved March 10th, 2018 http://www.theukcardsassociation.org.uk/news/UKCardPayments2015news.asp
