Behaviourial professor warns payments tech can cause overspending
Contactless and mobile phone payments, such as Apple Pay, are taking the pain out of spending, potentially causing problems for consumers who overspend, according to Niro Sivanathan, associate professor of Organisational Behaviour at the London Business School. Official figures say credit card, loan and overdraft debt stands at £190bn, up 11% on 2015 and the highest level for 11 years, while £2bn was spent on contactless cards on Black Friday, a rise of 13% from the previous year. Sivanathan said people must "decouple the pleasure of consumption from the psychological pain of expenditure".

Tap and pay plastic cards are removing the pain and guilt from over-spending on Christmas, threatening a ‘dangerous’ debt storm.

Research by experts at the London Business School say the process of taking real notes out of a purse or wallet acts as brake on spending.

By contrast, a tap and pay card does not seem like using real money, it is quick and provides instant gratification.

Tap and pay plastic cards are removing the pain and guilt from over-spending on Christmas, threatening a ‘dangerous’ debt storm

The feeling is an extension to that felt by shoppers decades ago when credit cards first emerged on the High Street to replace hard cash.

Associate Professor of Organisational Behaviour, at the London Business School, Niro Sivanathan, said: ‘Parting with cash is psychologically painful.

‘Consumers are therefore less likely to spend as much when cash is the only payment option available.

‘Paying with credit decouples the pleasure of consumption from the pain of paying.

‘Paying with contactless payment further reduces the friction and anaesthetises the psychological pain that accompanies payment, seducing us into splashing out even more on those pricey purchases.’ The problem is magnified around Christmas when there is a huge pressure to spend to satisfy children and family.

At the same time, the use of contactless cards and mobile phone payments, such as Apple Pay, is growing rapidly.

Some £2billion was spent on contactless cards on Black Friday – half in the High Street and half online. This was up by 13per cent on last year.

Official figures show that families are bingeing on debt at the fastest pace in 11 years.

More than £190billion is now owed on credit cards, loans and overdrafts – 11 per cent more than only a year ago.

Research by experts at the London Business School say the process of taking money out of a purse or wallet acts as brake on spending

The increase is the biggest since October 2005 – two years before the run on Northern Rock and the start of the global financial crisis.

Dr Sivanathan said shoppers using plastic cards are not only likely to buy more products, but they are also more willing to pay a higher price than if using ‘hard earned cash’.

‘The more consumers can decouple the pleasure of consumption from the psychological pain of expenditure, the bigger the risk of a Christmas financial hangover,’ he warned.

He said the findings could have worrying implications for people with low self-esteem, who find solace in purchasing high-status goods.

Research by Dr Sivanathan and his co-author Nathan Pettit, Assistant Professor of Management and Organisations, NYC Stern School of Business, found purchasing luxury goods on credit is especially attractive to those who have low self-esteem.

When contactless cards were first introduced in the UK in 2007, people were suspicious of it and very few used it

He said: ‘In addition, our research shows purchasing luxury goods on credit, is especially attractive to those who have low self-esteem.

‘These individuals seek to boost their self-esteem by purchasing high-status goods to make them feel better about themselves.

‘The combined effect of low self-esteem, high status goods and the ability to purchase on credit creates a ‘perfect storm’. This can be dangerous; consumers with low self-esteem are at higher risk of falling into debt.’

When contactless cards were first introduced in the UK in 2007, people were suspicious of it and very few used it. Today, one in every seven card payments are now contactless and 67 are made every second.

The Money and Mental Health Policy Institute is concerned about how plastic cards have fuelled compulsive spending.

Its director, Polly Mackenzie, said: ‘People lose track of how much they are in debt and how much it is costing them. In the end people can suffer enormous stress.’

The Institute supports the idea of an ‘off switch’ for credit cards. This could include capping spending on single transactions or for a 24 hour period.

They could also include curfews banning spending for certain periods.