The UK’s 2021 Budget, announced last week, raised the limit for contactless payments from £45 to £100 in a move experts are warning could lead to increased fraud and personal debt.
Ahead of the Budget unveiling, some of Britain’s largest banks raised concerns about increasing the limit so drastically, calling for it to be raised more gradually in order to limit the occasions on which contactless cards could be used in a single day amid the growing risk of fraud.
While this follows a global trend of rising limits, the new figure is double that of most countries. National banks across the European Union typically limit contactless card payments to €50, which is roughly equal to the previous UK limit of £45. The same is true for countries including India, Israel, Norway, Mauritius and Saudi Arabia. New limits in countries such as Egypt, Kenya, Tanzania and Qatar remain lower than the old UK limit. Australia, Canada, New Zealand and the United Arab Emirates are in the smaller group of those with a figure around that of the UK.
The Conversation—an independent source of news from the academic and research community—echoed the concerns of British banks and added that, beyond fraudulent contactless payments, ‘our real concern is not fraud, but rather personal indebtedness. Behavioural science suggests that raising the contactless spending limit may encourage reckless spending and high levels of credit card debt’.
The author goes on to say that spending limits have behavioural implications—citing a 2017 study of behavioural priming—and changing those limits can in turn alter people’s behaviour. They give the example of ‘information leakage’, whereby an individual infers additional information based on the surrounding context, ‘potentially incorrectly or unwisely’.
For example, when purchasing a new phone, customers will often be encouraged to buy additional insurance coverage for it. Given the context, a customer may infer that this is an important thing to have, and there could be negative consequences for not purchasing it. This ‘leaked information’—not explicitly stated, or necessarily based in fact—can then influence their decision of whether or not to add extra insurance.
The Conversation article suggests the contactless spending limit produces information leakage, and that the much-publicised raise to it will certainly do so. From this, for example, people might infer that it is normal to spend £100 in a single transaction. This inference could then encourage them to spend more, in order to meet their new perception of what is normal.
Added to this, Chancellor Rishi Sunak—chief architect of the Budget—has been clear on the intent of raising the contactless limit, saying it will provide ‘a welcome boost to retail that will protect jobs and drive growth.’ Especially in the context of around 12 months of Brits being called upon to ‘protect the NHS’, this language is highly likely to create information leakage, openly linking the idea of increased spending with protecting jobs.
A recent study published in the Journal of the Association for Consumer Research indicates cashless payments can increase unhealthy consumption, by making customers less aware of what they are purchasing, and consequently less likely to question whether or not they should buy it. A study by MasterCard looks at this behaviour in the context of payment amounts, showing that in the 15 months following the introduction of contactless payments to bank accounts, total spend increases by an average of 30 percent.
It has long been known that people spend more when paying with cards than with cash. A 2001 study showed people would spend up to twice as much purchasing the same product when using a card instead of cash. This is in line with a key goal of the Budget, to get people spending more, however this additional spending may not be positive for the individual.
Between this and the extraordinary rise in contactless payment fraud seen in 2020, it’s hard to see how the average household is likely to benefit from a more-than-doubled limit on contactless payments.