The Cost Of Easy Payments: How Digital Convenience Can Fuel Overspending

For a while now, I have been keeping track of my expenses. One big realisation for me was how much money I spent on eating out. This is a pretty new development; an occurrence that goes hand-in-glove with the onset of digital payments.

In the past, people went to the bank, submitted a cheque, and withdrew money. Then came automated teller machines (ATMs), and now there’s digital wallets, online shopping apps, same day deliveries and QR codes, which have turned our mobile phones into instant payment tools that allow us to access the world at any time.

We don’t have to make a trip to the ATM to get cash. We don’t have to step out of the house in the heat or the rain, or get dressed to go out for a meal and get stuck in traffic. We can shop early in the morning or late in the evening, around our work schedule. Convenience is no longer about novelty, but relief. It is now a core value exchange between brands and consumers. This is shaping expectations across categories.

The biggest lure of digital payments is the convenience it offers. But convenience is seductive, and as with all seductions, there is a price lurking beneath. The question is no longer about digital payments and quick home delivery becoming mainstream; it already has, and there is no turning back. The question to be answered is: “How is this reality impacting how I manage my money?”

Digital Payments Have Reshaped Our Relationship With Money

When you pay with cash, the act of handing over money is a physical indication of how much you spent. As cash literally goes out from your wallet and hand, you experience an instant, tangible feeling of loss. The physical interaction evokes a psychological reaction. This first became widely recognised in 1996, when Ofer Zellermayer wrote a dissertation called The Pain of Paying which further neuro-scientific studies built on.

In 2007, a team of researchers from Stanford, Carnegie Mellon University, and MIT ran a novel experiment. They gave subjects cash and told them they could keep the cash or use the money to purchase what was presented to them. Each individual was linked to an fMRI machine to record their brain activity, and shown products at various prices. Some deals were great, others were rip-offs. The researchers found that purchase decisions involve a trade-off between the potential pleasure of acquisition and the pain of paying. Prices perceived to be excessive were most likely to lead to activating the anterior insula—the region in the brain that processes pain and disgust. Evidently, this pain acts as a deterrent of sorts and forces people to give more thought to purchases.

Digital payments lack this tactile element. Since we don’t see physical money, there is no pain. The deterrent or natural barrier to overspending is obliterated. This lack of visibility and psychological detachment leads to overspending.

If you want to understand this better, compare your eating habits before and after Swiggy and Zomato were introduced to India. There is a high probability that you would not have eaten outside food as much as you do today. Now make an effort to track the expenses over months. No assumption; do the hard work, and come up with an exact figure. You may be in for a rude shock. Or, take a look at shopping patterns before Amazon and Flipkart were introduced and the reality today.

The speed and ease of digital transactions has enabled a seamless buying experience. The mental, psychological and physical inconvenience has greatly diminished if not eliminated. All this has made us greater spenders. Frictionless has resulted in super convenience, and the outcome is an increase in thoughtless expenditure. In a single day, you may decide to have a coffee, grab a bite, take an Uber, and buy a bag, even if you have no cash. When you pay in cash, you see the money go. But when you pay with digital resources, you don’t think much about payments. You think about what you are getting. Real awareness has diminished. The slow drain of untracked small payments feels fine in the moment, but looks alarming over time.

Now combine digital payments with sales. I mention this because it is that time of the year. Festivals start from September onwards and end with New Year’s eve celebrations, while the wedding season goes right up to February. All this means that money will be spent on travel, home, wardrobe, gifts, and entertainment.

Sales drive impulsive spending because they play upon urge and emotion, rather than by what you really need.

Let’s say an item is put on sale with the price of Rs 1,200 crossed out, next to the sale price of Rs 799. Our brain does not see the number 799, instead it sees a gain of 401. This is called price anchoring, where a high initial price is used as a reference point to make the current price seem like a fabulous deal. Countdown timers (last 2 days!) give a sense of urgency and drive you into immediate purchase decisions. Clubbing of items trick the mind into believing that you are getting more for less.

Make an effort to prioritise your spending. If you don’t, you will be easily lured by advertising. If you need shoes, go for that sale. If not, stay away. Don’t even take a peek. Be proactive, not reactive.

Digital payments have changed our spending habits, as well as reshaped our relationship with money, which means we must approach this new reality in a different light. There is no avoiding a digital lifestyle, but just being more aware will go a long way. Instead of being an active spender, become a conscious spender.

Break The Impulse Buying Cycle

The adoption of digital payment systems has reshaped how individuals interact with money. To provide a balance, add friction to the shopping process. This means lowering the convenience and questioning your impulses.

• Unsubscribe from store emails.

• Take an inventory of the subscriptions on auto-renewal and delete dormant subscriptions.

• Delete non-essential apps from your phone.

• Delete saved payment info from web stores and browsers.

• Put a monthly limit on how much you will spend on e-commerce or food apps. Once the limit is reached, just stop.

• When you decide to buy something, make it a rule not to make the purchase until 24 hours have passed. This will tame your impulse.

• Try saying, “what if”. What if I do not order anything on Swiggy? What if I do not order that dress? Your mind will immediately see other alternatives.

• Try saying, “instead of”. Instead of buying this phone upgrade, why don’t I use this money for an investment? Instead of ordering pizza, why don’t I go and buy bread and try making it at home?

• If you find yourself spending a lot at cafes, put a daily limit on Unified Payments Interface (UPI) and put the phone down once you reach the limit.

• If you find yourself spending a lot at cafes, put a daily limit on UPI and put the phone down once you reach the limit.

• If you are using your credit card, ensure that all payments are made when the bill is presented. The monthly 2 per cent interest translates into a mind-boggling 24 per cent per annum.

• Introduce a no-spend day every week. On that day, you buy or shop for nothing.

By Larissa Fernand, Behavioural Finance Expert