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.
Anchoring
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.
Price sensitivity
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.
