Fear factor slows the digital money revolution

There are more ways to pay for goods and services than ever before, with banks issuing contactless debit and credit cards, and mobile phone and other companies offering their own digital wallet systems. However, fear is preventing many people using them.

According to the UK Cards Association, there are almost 70million contactless cards in circulation and they are making nearly 80m transactions a month.

Matt Sanders, money spokesman at GoCompare.com, said: “The advent of contactless payments now means that providing a signature or even using a PIN to pay for goods with your debit card may seem archaic to some.”

But, although more than a third of adults now have a card with a contactless function, many still insist on using it the traditional way.

GoCompare.com says that, while just over half of all adults happily used PayPal in the past 12 months, only a quarter paid for goods or services with a contactless card, and fewer than one in ten used other digital platforms, such as Paym, Pingit or Apple Pay.

A quarter of those surveyed by the website said they were scared to make contactless or digital wallet payments, and close to a half said they were worried about fraud.

In fact, used carefully, the risks are very low.

Contactless debit or credit cards, which can be identified by a logo made up of four curved lines, like a sideways wi-fi symbol, allow you to spend up to £30 without entering a PIN.

Card readers that accept these payments carry a similar symbol. You hold the card near the terminal, which picks up a signal from the chip inside and processes the transaction.

Simply standing nearby isn’t enough. Although it is theoretically possible to be charged if the card is less than 10cm from the reader, tests by consumers’ organisation Which? found the maximum distance was 5cm.

It should also be impossible to be charged twice, as terminals are programmed to take only one payment from a card for any single transaction, and to reject payment if two contactless cards are within range.

To protect against unauthorised transactions, issuers limit the number of contactless purchases before requesting the PIN. As a result, Which? found a thief could only make two to four before being asked to key this in.

The UK Cards Association says that losses attributable to contactless fraud are less than 1p per £100 spent. But if you do fall victim because your card is lost or stolen, the rules are the same as for other card transactions: unless the provider can prove you were negligent or party to the fraud, it must refund you in full.

If you are still nervous about going contactless, Which? suggests lining your wallet or purse with foil, as this makes it impossible for the chip to be read without your permission.

Digital systems such as PayPal offer a quick and secure way to pay online at no additional cost. When you join, you link it to a bank account, debit or credit card, allowing you to buy goods and services without having to share any card details.

Phone-based apps such as Paym and Pingit pay bills and transfer cash by connecting your bank account to your handset. To prevent misuse, ensure the phone is password-protected - and don’t leave it lying around.

Apple Pay works in the same way as contactless cards: once your iPhone or watch has been linked to a debit or credit card, simply hold it against a reader to make a payment. Rival Samsung and Android systems are in the pipeline.

GoCompare.com says one in five have made a payment through a phone app and around one in 20 have made a contactless payment using their phone.

Smartphones are also changing the way we manage our money. Nearly a third of people have checked their bank balance using their phone and almost as many have downloaded a mobile banking app.

Mr Sanders said: “Many people now reach for their phones, rather than their wallets, to pay for goods and services.

“Perhaps unsurprisingly, 18 to 24 year olds, who’ve grown up in the internet age, are particularly tuned in to and less fazed by the new digital ways to spend money – finding them easier to use than cash or traditional bank cards.”

However, while the new payment methods may be simple, quick and safe to use, they also make it easier to succumb to impulse buys.

He warned: “Many people lose track of their spending and lots of small payments soon add up to a sizeable bill.”

If you are in any doubt about your ability to keep on top of contactless spending, always ask for a receipt.

CASE STUDY

Paul McKenna recently opened a TSB Plus current account, which gives cashback on contactless payments. The Glasgow bus driver says: “I’d already been doing my research for a new account when I drove by a TSB and a poster with a big ‘5’ on it flashed past my face.”

The account pays five per cent interest on balances up to £2,000, can be linked to a monthly savings account paying a similar rate, and gives five per cent cashback on the first £100 of contactless payments every month until the end of 2016.

Mr McKenna said: “It was more than anyone else was offering, and opening the account was simple.

“I haven’t made contactless payments before but I’m not nervous about new technology, and I’m always using One Click on Amazon to buy stuff, so I’ll definitely be doing it.”

He is also planning to operate the new account through his phone. He added: “I’ll be using the app to do everything you’d normally go into a bank to do. It’s the way of the world now.”