Why Contactless Makes Saving Harder
Please note this blog post was published over 12 months ago and so may not include the most up-to-date information, for example where regulation around investing has changed.
Here are two things you may not know about recent consumer spending behaviour: firstly, there has been an increase in the amount of money spent per transaction , and secondly, there has been an increase in the number of transactions made with card compared to cash . Could these two facts be linked?
Since the introduction of credit cards in the late 1950s, and debit cards in the 1970s, spending and saving behaviours have significantly changed. We believe in putting the client first, which is why we have developed new features, such as impulseSave® and Personal Finance, to tailor investing to these changes and make saving a lot easier.
Research has found that people spend 12 to 18% more when using card compared to cash , and people are willing to spend more on something if they are paying using card, compared to buying the same thing with cash . This implies that the tangibility of money has an influence on buying behaviour, which leads to the question, are people spending more because money is becoming less physical?
Money on debit or credit cards could be viewed as ‘virtual money’ and using a card to pay for something makes the cost less visible compared to spending a £20 note. This effect is further emphasised when it comes to contactless or Apple Pay as this quick and easy ‘scan and go’ technology means that the customer doesn’t even have to think about spending money for longer than a couple of seconds.
Psychologists suggest that consumers’ perceptions of spending vary with different payment methods . For example, with cash transactions, customers are aware that they are exchanging something of value which is why parting from cash can be “psychologically painful”. However, with mobile phone transactions such as Apple Pay, consumers may not mentally or emotionally take in how much they are spending as the transaction is so quick and forgettable, leading them to spend more freely and more often.
Research provided by 118 188 Money found that a quarter of 18-24-year-olds say they now spend more due to contactless than they did previously, and they are tending to run out of money much faster too . Swiping your card for a one-off £2.50 coffee on the way to work builds up if it happens every day. This highlights that as spending moves from physical to virtual, saving has become a lot harder – but why?
Firstly, because we are increasingly spending more per transaction, we are unlikely to have money left over to save. We believe the solution to this is to set up a direct debit which transfers money into your savings or investments at the start of every month. This means the issue of running out of money to save each month is eliminated.
Secondly, saving is harder because we may not be fully aware of what we are actually spending our money on, therefore we don’t know what we can do to save. The answer to this is our Personal Finance feature – this allows you to view all your bank accounts, credit cards and savings accounts in one convenient location so you can track your spending and identify how you could improve your saving habits.
And lastly, spending is so much quicker and easier than saving, especially with the new ‘scan and go’ methods, and far less effort is required. However, we believe we have developed a solution for this discrepancy which can turn spending into saving just by swapping between apps – impulseSave®. This world-first, unique technology allows you to top up your investment, from just as little as £1.
Although saving may seem harder since the rise of virtual spending and contactless payments, there is help at hand. Simple changes following these 3 solutions can make the difference and turn impulse spending into impulse saving.