Sure, contactless payment technology enable consumers to buy more easily, with just a wave of a card, or other device. But is that necessarily good for consumers, particularly those burdened by high debt?
Since consumers who use contactless debit cards don't need to provide a signature or PIN number, or even hand their card to the cashier to make a payment (for transactions under $25), they're more likely to lose touch with what they're actually spending, Roberts says. "The lack of a signature makes the money involved in such a transaction more abstract and the consumer more likely to spend."
At least half a dozen major U.S. card issuers, including JP Morgan Chase & Co., American Express Co. and Citigroup Inc., have announced plans to begin issuing either contactless debit or credit cards (or tokens) to their customers within the year. (Watch for "Contactless: The New 'Wave' in Payments" in the Nov./Dec. 2005 issue of Banking Strategies. With support from so many major issuers, Visa USA expects the number of contactless payment devices to top 50 million in the U.S. by the end of 2006.
Roberts has not surveyed contactless card users. But, based on 15 years of research into compulsive spending, he believes contactless payments will lead "to greater financial imprudence, greater tendency to over-spend" for consumers already overly reliant on credit for day-to-day purchases.
Banks are finding it is hard to market HSAs without providing customers with the tools they need to make intelligent decisions about their health care savings requirements.»more
Roberts says MasterCard's well-publicized PayPass-enabled debit cards, which are being issued by KeyCorp. and HSBC Bank USA, illustrate the danger. MasterCard has promoted the fact that merchants participating in its PayPass pilot realized a 28% increase in their customers' weekly spending over the previous year (when they weren't accepting the contactless cards).
But contactless payment advocates dispute the notion that systems like PayPass will send consumers on irrational spending sprees. To the contrary, consumers will just use their contactless cards and key fobs to make the same low-value purchases they typically would have made with cash, says Randy Vanderhoof, executive director of the Smart Card Alliance, which recently formed a Contactless Payments Council.
Vanderhoof says that by making these convenience purchases with a card instead of cash, consumers are likely to be more conscientious about what they're spending, since they can track their expenditures online or on their account statement.
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RANDOM NOTES If reward programs are applied to debit cards, gas discounts demonstrate the most appeal, says to Synergistics Research Corp. During a telephone survey conducted last May and June, Synergistics asked 1,000 consumers which rewards programs would motivate them to use their debit cards more. Gas discounts proved the most popular (39%), followed closely by cash rebates at 36%.
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