By Dr Jane Leighton, head of behavioural consultancy, behave.
In recognition of our changing spending behaviour during the pandemic, the contactless payment limit will increase to £100 on October 15, adding an extra £55 to the current spend cap. The cap on contactless was raised from £30 to £45 after the onset of the pandemic, amid fears that the virus could be spread through surfaces. Some retailers stopped cash payments altogether, while others lowered the value of transactions they would accept them for to encourage customers to use their cards.
Although fear has receded, the switch to contactless has gathered pace. What started off as a risk-reducing tactic has turned into a habit. Those who preferred the security of using their PIN or cash have been encouraged to switch to contactless. And, when a new behaviour is found to be advantageous, the likelihood of it sticking increases.
There are some clear benefits to an increased contactless limit. The move will make shopping easier than ever for consumers, offering them a fast and seamless payment experience. It’s hoped that the change will give a boost to the struggling retail sector, helping to support jobs and businesses.
However, the change could come at a cost to our personal finances. Behavioural science suggests that raising the contactless spending limit may encourage reckless spending and could increase levels of debt, for a number of reasons.
Payment limits set anchors in our minds about value. Because the limit was £30 for a number of years, consumers typically associate a simple tap of the card with a smaller value purchase, such as a coffee or a train ticket. Conversely, the process of entering a PIN for a transaction is associated with a higher value purchase in our minds.
For example, in the context of grocery shopping you might think of your basket spend as cheap if you were able to pay with contactless; if you had to enter your PIN you may consider it an expensive shop.
Once the contactless limit is raised, it’s likely that any purchase up to £100 will feel like a small value purchase. Thus, spending up to £100 in one purchase becomes more normal, nudging people to spend more.
Reduction of friction
Handing over cash or entering a PIN or adds friction to the paying process, as it requires more physical and cognitive effort. Contactless transactions are fast, effortless and require minimal thought. Behavioural science tells us that the easier it is for someone to perform an action, the more likely they are to do it. Therefore, more opportunities to use a frictionless contactless payment method will likely result in more spending.
Furthermore, the convenience and ease of contactless payments reduces our opportunity to reconsider our purchases. Ordinarily, the process of paying provides us with a final touchpoint to reconsider our purchasing decision. At the last minute, we have the chance to ask ourselves whether we really want or need what we’re about to purchase. Contactless payments are so quick and simple that we’re denied this final touchpoint, making it much easier for us to part with our money.
Pain of payment
Psychologists have been studying the pain of paying for two decades. It refers to the negative emotions, or psychological ‘pain’, we can feel when making a purchase. Both making a payment and pain activate the insula, a brain region involved in interoception, that is, your ability to recognise sensations from inside the body. Activity in this brain region is reduced when paying by card compared to cash. Credit cards disguise money’s true value and, therefore, minimise the pain that comes with parting with cash. Since contactless cards make payment even easier they reduce that pain further still.
The opportunity to purchase higher value items with less psychological pain means we will likely to do so more often, and have a more pleasant experience in doing so.
Research by behavioural scientist Richard Shotton has shown that contactless payments can reduce our sensitivity to, or awareness of price. Customers who had just walked out of a shop were asked how much they’d spent on their purchase. Those who paid by cash were highly accurate; chip and pin payers were predominantly accurate to the nearest pound, and the contactless payers typically had no idea. If people are less aware of what they spend when using contactless, they will have less control over their finances; this becomes more worrying as those purchase values increase.
Although there are clear benefits of contactless payment, these behavioural biases highlight the risks to the financial welfare of consumers if contactless limits are increased. This new limit could encourage reckless spending, resulting in some customers spending beyond their means, leading to debt issues at a time when many are already suffering financial strain owning to the pandemic.
HOW MERCHANTS CAN IMPROVE THE ONLINE PAYMENTS EXPERIENCE
By Alan Irwin, Senior Director of Product at Global Payments UK
The dramatic increase in online shopping over the past 18 months has encouraged many businesses to invest in developing their omnichannel shopping experiences. The reasons vary – some are keen to capitalise on the trend of older shoppers migrating towards ecommerce and some are trying to make up for loss of sales in brick-and-mortar stores during the pandemic. It is also true that many businesses are shifting their models to sell direct to consumers to avoid high marketplace fees and are therefore building their ecommerce channels for the first time.
The checkout experience is arguably the most important and delicate part of the ecommerce transaction, as it can make the difference between a happy customer likely to return, and a shopping cart abandoned out of frustration and confusion. A survey from March 2020 suggested that 88% of online shopping orders were abandoned, i.e. not converted into a purchase. A seamless, customer-centric online payment experience is therefore critically important in ensuring completed transactions. But with so many payment providers available, what should businesses be looking for when trying to keep friction to a minimum?
Keep clicks to a minimum
Less touchscreen interaction equals less abandonment. Adapting the payment page to fit any device and supporting popular mobile digital wallets like Google Pay ensures a seamless, stress- and hassle-free checkout experience for the customer and keeps clicks to a minimum. Friction can present itself in the most minor features – for example, when the customer is navigating the payment form, the appropriate keypad should be shown to the customer when required. It’s much easier to enter a card number using the dial pad instead of switching between QWERTY keypad layouts.
Simplifying online forms with autofill and tokenisation also significantly reduces friction at checkout and shortens necessary time taken. Ensuring checkout forms are tagged correctly for “autofill” is a great way to offer customers a single-click to input the payment, shipping, and billing data that they have stored in their browser profile. Similarly offering a guest checkout option will help convert customers who are in a hurry or looking for a one-off purchase. This can also be achieved by offering to store the payment details (called ‘tokenisation’) for express repeat and one-click purchases.
Make it easy to understand
A tailored payments approach can increase both domestic and international global sales. By offering a checkout experience in the customer’s language, the option to pay in their currency of choice, and use their preferred method of payment (whether it’s PayPal, Alipay or card), businesses can build loyalty quickly and put customers at ease. It is equally important for merchants to ensure they always display simple direction and information about next steps to instil confidence and prevent customer drop-off. The customer should be informed of what is happening at every stage in the process, for example, whether they will proceed to SCA (Secure Customer Authentication) next or go straight through to completion.
In addition, validating forms in real-time means merchants can highlight potential errors to the customer early on, and payment providers should provide this functionality. This could be an invalid expiry date, an incorrect digit in the card number or incorrect CVV number based on card type. When issues are only flagged at the end of the process, this forces the customer to go back through the steps to figure out the error. Real-time signposting of problems removes this potential friction and reduces the potential for a declined transaction.
Ensure seamless security
Merchants should work with a payment partner who offers the right blend of security and compliance management without it coming at a cost to the end-to-end checkout experience for the user. Instilling trust and security in your checkout flow while utilising the right solutions to drive seamless authentication flows will increase customer confidence and help prevent drop-off.
The greatest level of security and control comes from either utilising hosted payment fields that the
merchant can natively integrate into their checkout flow, or a hosted payment page where they can
manage the look and feel. Showcasing your brand on the checkout page with trust signals and logos also adds to building trust with the customer.
Staying ahead of regulations is also important. Secure Customer Authentication (SCA) will soon be mandatory in the UK for all eligible digital transactions, and this doesn’t have to be a friction-full process. Tools like Transaction Risk Analysis (TRA) and Exemption Optimisation Service (EOS) can quickly score transactions and drive exemptions where there is the right blend of transaction risk.
The devil is in the details
These three rules for successful ecommerce checkout experiences may seem straightforward, but it is important to apply them at a micro level. It can take only one minor point of friction to cause a customer to abandon their cart, and this will inevitably be replicated across other similar customers. It is critical to identify friction points early on and anticipate customer needs throughout the process. Discussing these points and any opportunities to improve customer checkout experience with your ecommerce team and payment provider is an important first step towards ensuring your entire shopping experience remains competitively seamless and loyalty is won. It may be that your payment provider cannot address them, in which case it could be time to move on in order to stay competitive.
NAVIGATING FINANCIAL SERVICES IN 2021: LOW-CODE TO THE RESCUE
Nick Ford, Chief Technology Evangelist, Mendix
Financial services are the poster child of great digital transformation: today, Britons can pay from their watches, check their balance directly from their phone at any time and even automate trading. This level of innovation isn’t only about customers: traders are able to operate faster than ever before thanks to better predictive analysis and forecasting tools, and finance teams are able to collaborate from anywhere in the world.
While we embrace all this innovation, it’s easy to forget that the reality of the sector is incredibly complex. The radical changes induced by COVID-19 have highlighted how challenging maintaining innovation today really is, while putting more pressure on IT teams to accelerate the digital transformation of the sector even further.
On top of this, the sector is one of the most affected by Brexit. Mendix’s Navigating the UK Landscape research found that businesses in the financial services sector have serious concerns about the impact of Brexit on their industry. Many believe that Brexit has damaged the reputation of the UK as a centre of finance (67%) – as well as creating functional challenges for businesses in the country.
Many financial services organisations are turning to technology, and specifically low-code, to deal with these challenges. This piece will look at how firms in the sector can use low-code to navigate the new world.
A sea of challenges
Financial services are complex: there are thousands of products to choose from, from savings to investment and mortgages. These services are then managed by lots of different companies, creating an additional level of complexity: banks, fintechs, brokers, wealth management specialists, government bodies… the list goes on. To add yet another layer, there’s a network of regulations, which change over time, forcing IT leaders to constantly keep on top of the latest evolution in the sector. Knowing these is only the first step: every time new laws are implemented, the sector needs to adjust to them, and that can mean anything from revising security protocols to radically changing the way information is processed, transmitted or audited.
This may already look complicated, but the real complexity starts underneath, in the realms of processes that the IT manages to keep the company operating as normal. It would be fair to say that the mission of financial IT leaders is often underrated: they deal with antiquated systems dating back decades, inadequate data management processes and minute security and compliance considerations every day, simply to keep the business afloat. Add to this the need to get all staff to work remotely during the lockdown, and the already time-poor IT leaders are now completely swamped.
Brexit also makes things difficult for financial services organisations. Two thirds anticipate costly and complicated processes for crossborder payments and investments, while 59% believe it will be harder to attract foreign investments. Ultimately, 61% admit they will no longer be able to support some of their customers because of the transition.
Tech as a raft
While the sector is mired down with complex processes and inadequate tools, it also needs to deal with a major challenge: fierce competition for tech-savvy customers. Now, all banks, investment firms and wealth management companies are investing in tech to help them cope with new customer demands for easier access to their capital and increased transparency. Two thirds have deployed digital projects to make the business more flexible as a result of Brexit, with data management (62%) and digital processes (62%) particular focal points.
And this is not just about pleasing digitally minded customers: it’s also about improving productivity and operational efficiency, harnessing data, and solving compliance challenges. This balancing act between priorities is gathering pace and spreading across the business: today, IT teams must deliver innovation that’s fast, reliable and secure, and that supports many divisions — all at once. It’s a big challenge, but it’s one that IT leaders are willing to tackle head on: two thirds of IT leaders believe the value of digital transformation initiatives outweighs their inherent risk. Yet, IT leaders know that rushing would be a mistake: although IT teams face high demand for their support, most would not prioritise speed over caution, even if they could innovate faster. This measured pace ensures that financial organisations are delivering the right solutions at the right time, reducing the risk of service disruption and security challenges.
Low-code to the rescue
To manage all these priorities, the IT team needs to look beyond its own team to create revenue-generating services that truly answer the clients’ needs – and it needs to empower all developers with the right tools to do so. This improves collaboration between IT and customer-facing staff to design services that suit the needs of the customer base, while reducing the pressure of an already-stretched IT team. Enter low-code: most leaders (58%) say that low-code has enabled the development of new applications to support their companies post-Brexit.
One example of this is a Financial Institution, which perceived its digital user experience lacking and engaged low-code to install a new user experience for its portal, consumer and wholesale digital services. It was able to do this in just eight months, providing numerous benefits to stakeholders.
Low-code software development provides a simple solution to address these constraints and challenges: based on a visual approach for building applications using drag-and-drop components, it enables non-technical staff to participate in creating business applications, even if they have little to no coding experience. Working separately or in close collaboration, professional developers and business-side “citizen developers” can create, iterate, and release applications in a fraction of the time it takes with traditional methods, all under the watchful governance of IT to ensure their applications comply with enterprise standards and architecture.
A low-code approach allows for flexible, iterative app development for many use cases in the financial services sector, including legacy application upgrades to comply with new regulations, apps supporting smart banking or portfolio management, and mortgage application management. With low-code, the financial services industry has the right tools to untangle its complex processes, simplify its evolution and focus on its core mission: keeping the economy thriving.
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