New digital payments: Convenience or over-spending?

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New digital payments

Almost three centuries ago, Benjamin Franklin said “time is money”. Fast forward to today and digital payment technology has turned that advice squarely on its head.

Contactless and mobile payment technology speeds up our ability to spend money but with that convenience often comes temptation. Research suggests that the psychological and emotional impact of handing over cash dissipates when paying with digital formats.

The impact on society is only just beginning to play out, according to the OECD International Network on Financial Education, which is investigating the trend.

“While mobile banking with real-time account updates may help users keep an eye on, and better manage, their money, some technologies have also made it easier to carelessly tap or wave a smartphone/contactless card for quick spending, which can be a problem for those consumers who are struggling with, or vulnerable to, impulse buying,” the organisation wrote in a recent report on digital financial services.

Purchases made with credit already separate the pleasure of consumption from the pain of paying, while quick digital payments – even with our own money – created an even larger divide.

Australians were among the earliest adopters of contactless cards, but few are aware of the way it can also change behaviour.

“While the convenience of going cashless is undeniable, it comes with an inadvertent downside – we tend to value purchases less when using a card than when we pay via the more ‘painful’ methods of cash or cheque,” according to a study led by Professor Avni M. Shah and published in the Journal of Consumer Research.

One experiment, found that consumers who bought identical $2 mugs with cash valued their purchases by an average $3 more than those who paid with a credit or debit card.

But while technology has created some unforeseen problems, it is simultaneously creating a range of new solutions. Fintech apps are now using extensive digital data trails to turn manual budgeting with spreadsheets and receipts into a more accurate and automated process.

However, this may mark just the beginning of a new digital relationship people are forming with money.

The underlying algorithms in apps are becoming better at predicting whether, and by how much, people will overspend monthly based on certain triggers. Common events, such as shopping online or withdrawing money from an ATM, can then act as key moments when people are primed to learn and change their behaviours.

For example, the OECD report cited a start-up called RevolutionCredit, which is serving customers bitesized financial education videos at the point of transaction to improve their credit card use. Even traditional financial institutions are pushing the boundaries, such as British bank Santander. It offers customers a smartphone app that uses artificial intelligence to respond when asked questions like “how much did I spend last week?”

ASIC’s MoneySmart site offers a range of financial information including calculators and apps as well as strategies to tackle debt and build wealth.

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