We have come a long way from bartering – going to a market with bales of hay to trade against liters of milk. Yes, we have come a long way indeed. Now, we grab our phone, which we have always on us anyway, tap and move on. No rattling cash, counting out change, not even a PIN-number to remember. Not even bales of hay.
As amazing as it sounds, and to be fair, not having to carry around hay is pretty great, there are some potential drawbacks to this development which is so easily hailed as progress. Maybe it is time to give the money on our phone, and our own resulting financial management, a closer look.
Convenience Why pay with your phone? Because it is convenient. Duh. You have it with you all the time, it’s tracking your spending anyway (banking apps, anyone?), might as well do your payments too. Moreover, as mobile payments are part of the contactless-genre they don’t require PIN-verification (not the carrying of haybales). It’s fast and easy. Its appeal is easy to understand and has been corroborated by several studies (Garrett, Rodermund, Anderson & Robb, 2014).
Spending I have written many an article regarding different methods of payments, their effects on spending and the pain of paying. As such I’m going to (try to) keep this brief: when the method of payment is easier and causes less friction and pain, we are more likely to spend more, give into our impulses and spend more frequently. I’m not even going to copy paste the endless slew of references for these findings anymore. I have done it too often. Click on the underlined words if you’d like a more in-depth review or explanation of these phenomena.
However, there is more to this game. It’s no longer just your own spending that you need to keep track of. I remember Monzo being introduced. Monzo is a payment card that was more heavily app-based. The app let you link it to anyone else who also had Monzo. You could become your own Monzo-crowd. I had it, and two of my closest friends had it. As such, one of us footing the bill and the others just sending their share became dirt easy. Honestly one of the quickest methods ever. It transcended currency issues as well.
If splitting bills is suddenly much easier, we are more inclined to agree to purchase something in a social setting. Things that would withhold us from doing so, any type of barrier really, are being eliminated. As such, we spend more and most importantly: more frequently.
Debt The study by Garret et al (2014) looked the use of mobile payments by American consumers. Using a sample of 15,060 respondents from all 50 states and the District of Columbia. Their results indicated that there were strong associations between mobile payment adoption and high cost debt (payday loans, auto-title loans, etc.) and trouble with financial management (making ends meet) as a result of it. Other not so financially clever behaviours regarding credit card also seemed to be associated with those using mobile payment more often. The behaviours they referred to were taking cash advances and paying over the limit fees. It seems that when using mobile payments, people become almost more risk-seeking, or simply less aware of their spending behaviour. This can be explained in two ways.
First, people opting into mobile payments are not that financially literate (yet). But if they keep going like this, I hope they learn the hard way, rather than not learning at all. Second, it is possible that when using mobile payments, the definition of money is changed. For understanding this argument, you need to look into the function of a phone, vs. the function of any other payment mechanism. Cash has one function; cards tend to have one main function as well: paying things now (credit cards can have multiple functions: paying now vs. later). Phones? They have hundreds of functions, depending on how you use them. As such, mobile payments might not invoke the same reactions in our brain, cognition and behaviour due to it not being a main function of a phone, on top of the reduced salience the payment already has due to its convenience.
Risk Not all is lost and people aren’t frantically upgrading their phones (nor their bank accounts) to be able to go all the way. Actually, when it comes to mobile payment uptake there is quite a specific group that has opted-in.
It seems that respondents who were using mobile payments were more likely to be younger, male, minorities, and to have a higher than average income (Garrett et al, 2014). Other groups, often older groups and people who might be more financially vulnerable tended to stay away from these technologies. Surveys have shown that the older age group is hesitant when it comes to adopting payment technologies anyway (Doyle et al, 2017). Often quoting cash usage as the easiest and best way of tracking spending and keeping it within the budget.
Financially vulnerable individuals are not that likely to opt-in either. It seems that the increase in research regarding the new(er) methods of payment has paid off, as often they explicitly warn against overspending. As such, individuals without much wiggle room in their budget are best off not using these methods, and that seems to be a message that has spread well. Whether this is at the heart of the lower rate of adoption within this group remains to be seen. A confounding variable here is that people in the lower economic ranks might not have had the resources to upgrade yet, rather than the motivation to explicitly opt-out. As such, they might still be waiting and saving to opt-into mobile payments, a move which I (based on research of course) would strongly discourage.
Other risks to think of are theft, in both the offline and online way. For those who don’t understand technology very well, getting hold of someone’s phone (a.k.a. stealing it) seems like the perfect way of obtaining someone’s credentials and making off with their money. For those who do understand the technology a bit better, this might seem a bit far-fetched. However, there have been plenty of news cases in which people were scammed out of a lot of money, through online identity theft and card/mobile cloning. Although this is definitely more difficult to do than stealing someone’s wallet (at least, you’d think so), criminals are becoming increasingly more tech savvy, and it is something to keep in mind.
Overall, society is increasingly moving away from cash, towards payment mechanisms that are multifunctional such as mobile phones. Knowing what we know about payment methods, it remains to be seen whether this is actually progressive. I for one, would rather not opt-in.
References Doyle, M.-A., Fisher, C., Yadav, A., et al. (2017). How Australians pay: Evidence from the 2016 Consumer Payments Survey (Tech. Rep.). Reserve Bank of Australia.
Garrett, J. L., Rodermund, R., Anderson, N., Berkowitz, S., & Robb, C. A. (2014). Adoption of mobile payment technology by consumers. Family and Consumer Sciences Research Journal, 42(4), 358-368.