How can retailers tap into the rise of contactless cards?

How can retailers tap into the rise of contactless cards?

Using new research, ZenithOptimedia’s Richard Shotton explains why contactless cards encourage people to spend more.

£2.5 billion was spent on contactless cards in the first half of 2015 – more than was spent on them in the whole of 2014 – according to the UK Cards Association. Further growth seems likely now that the spending cap has increased from £20 to £30.

But the rise of contactless cards poses a dilemma for many retailers: invest in the new terminals or continue with their existing technology?

Up till now the justification for investment was to shorten queuing times. But new research from ZenithOptimedia suggests that there’s another, more self-interested, reason: contactless cards reduce the pain of paying compared to cash.

It has been known for a long time that shoppers spend more when they pay by means other than cash.

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Drazen Prelec and Duncan Simester, two psychologists from MIT, found that participants in their experiment were prepared to pay twice as much for sought after tickets to a basketball game when they paid by card rather than cash.

Credit cards cloak money’s true value and, therefore, minimise the pain that comes with spending. Since contactless cards make payment even easier they reduce that pain further.

ZenithOptimedia decided to quantify the effect of contactless cards on shopping. We asked 47 people leaving a supermarket in Central London two simple questions: how much had they spent and what means of payment had they used? We then compared shoppers’ spend estimates with their receipts.

The findings were striking. People using cash typically over-estimated their spend by 9%, whereas those with contactless cards under-estimated their spend by 5%. Credit card estimates were, in contrast, spot on.

So what’s the explanation? It seems that since the pain of paying on contactless cards is reduced the shopping feels cheaper than when paying with other means.

The variation in spend estimates is an important one: on a typical supermarket shop of £25 the 14% difference between recollections of spend on a contactless card and cash amounts to a £3.50. Contactless cards could be the difference between remembering a shopping trip as an expensive and a good value one.

Retailers therefore need to speed up the roll-out of contactless terminals, not just as a way of shortening queues, but also improving their value perception.

Richard Shotton is head of insight at ZenithOptimedia

Twitter: @rshotton

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