Contactless Payments–Bad News for Consumers?
The easier the method of payment, the more consumers tend to spend. Research has shown that consumers spend more when paying with credit cards than they do with cash.
Now a study released by MasterCard shows that consumers may spend up to 30 percent more with the new contactless payment methods than they do with credit cards.
Contactless payments take place with credit cards or smart phones that have chips implanted with radio frequency identification, commonly referred to as RFID. Consumers simply “wave” the card or smart phone over a payment terminal rather than having to “swipe” the card through the terminal.
Contactless payment methods are becoming more common. Visa has recently introduced PayWave; MasterCard has PayPass and American Express has Express Pay. The MasterCard study predicts 150 million mobile devices will be contactless enabled within the next few years.
The MasterCard study took some of their customers and divided the accounts into low, medium and high spend segments based on their monthly spend prior to introducing the contactless payment methods. The 30% increase in spending was consistent across all three segments.
The study also found that after the first contactless transaction, users spend an average of 25 percent more online, 64 percent more abroad and 20 percent more in recurring payments.
While this increased spending may be good news for banks and retailers, contactless payments can be dangerous to the household budget. Consumers can now make a purchase with just a wave of the phone without a thought about how much the purchase really costs. It could make it too easy for some people to buy something spontaneously or throw a few more items into the shopping cart. Making good spending decisions takes analysis and discipline.
Here are some tips for making a contactless payment:
* Remember that the rules of credit cards and debit cards still apply. If your account runs through a credit card, pay it off completely on time each month.
* If you can’t afford to pay cash for it now, you can’t afford it with contactless payment.
* Responsibly using contactless payment takes discipline. Think about every item you purchase as if you are paying cash. Write down each purchase in a notebook so you can keep track of where your money goes.