The payer and payee only need to bring a digital device, such as a smartphone with a digital wallet/mobile banking app or credit/debit card. People can easily do transactions if their device is linked to a bank account with sufficient funds.
The popularity of digital payments has skyrocketed since the COVID-19 pandemic. In 2023, the transaction value through digital wallets was estimated at $3.1 billion, 50% of the market share. Meanwhile, cash transactions declined by 8.1%.
The immense popularity of digital payments also changed consumers’ spending habits. Before the rise of digital payments, cash was the most common option for the majority. Although cash remains an option, the amount that can be withdrawn from the bank is limited. This limitation has led to greater control over spending for many individuals.
Meanwhile, according to an online survey of 2,000 people by Forbes in 2024, 52% said they are more likely to impulse purchase with card payments. The convenience of digital payments often leads to impulsive purchases. Whether using a card or tapping a phone for contactless payment, these methods remove friction at the point of sale.
Research by EEG also found that digital transactions give a unique psychological pleasure response to their users, making purchases easier and more spontaneous.
The cost of convenience
The convenience offered by digital payments shapes the new habit of how people spend money. Digital payments, especially contactless ones, tend to prompt people to spend more.
Contactless payment cloaks money’s value, and this reduces the pain that comes from spending cash. According to a study by ZenithOptimedia, shoppers who use contactless payment had less accurate recollection of spending than those using cash or traditional cards. This leads to contactless users spending 48% more than people using other methods.
Mobile Wallets
Meanwhile, mobile payment apps or mobile wallets also had a significant impact on consumer spending. Research shows that consumers’ risk of overspending increases while money management time decreases when using mobile wallets.
The mobile wallet strategy of using a brand loyalty program also significantly contributes to overspending. Consumers will gain reward points, discounts, or special offers by spending a certain amount through the mobile wallet program.
This will encourage consumers to repeat purchases and spend more to gain bigger rewards. Consumers will also feel less guilty about spending money as they subconsciously perceive these transactions as more beneficial and convenient.
Since digital payments are mostly done online, providers can gather a huge amount of consumer data. This data can be used to analyse consumers spending patterns and predict their consumer behaviour.
The mobile apps or card providers can send personalised promotions and enhance their customers’ experience. This targeted marketing strategy will also further push spending as people will likely be more interested in what they are offered.
Future trends
As technology advances, digital payments and consumer behaviour will continue to evolve. One potential future trend is the rise of cryptocurrencies.
While many people see crypto as an investment, more platforms are now integrating crypto payments as an option for payments. However, it is still rare to see offline stores accept crypto payments.
In the future, consumers will become more aware of the security issues associated with cryptocurrencies due to their lack of regulation. They will increasingly seek out options that provide stronger security measures.
When it comes to digital payments, the use of Artificial Intelligence (AI) and the Internet of Things (IoT) are expected to be more prevalent in the future. AI can help providers to create personalised experiences by analysing consumer spending habits more efficiently and accurately.
IoT devices like smart fridges can autonomously initiate payments for consumables or services. This could lead to overspending if not managed properly, prompting more consumers to seek financial management solutions through apps or services.
As these technologies become increasingly integrated into our daily lives, the need for robust and reliable financial tools will be more critical than ever, shifting how we manage our finances in a hyper-connected world.
- Digital Payments
