In recent years, we've noticed a significant change in how we handle payments. Whether it's getting off a rickshaw, approaching a store counter, or settling the bill for dinner, our first instinct is to look for a QR code. If we don't see one, we often ask for it. This shift has been particularly noticeable after events like demonetisation and during the pandemic. More and more people are embracing cashless, contactless payment methods, altering the way we spend money, even in real life.

 

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Gone are the days when we had to make compulsory trips to the ATM, hoping it would dispense lower denomination notes. We no longer need to pull out our wallets to swipe cards for payments. While cash is still widely used, some find it perfectly normal to leave home without their wallet.

 

The Unified Payments Interface (UPI) revolution has brought numerous benefits. One of the most significant advantages is the convenience it offers – you can pay for almost anything without needing your physical wallet. This convenience alone has led millions of Indians to download digital payment apps. Moreover, these digital payment platforms assure secure transactions, providing users with peace of mind. Additionally, they often come with a wide range of rewards and discounts, further enticing people to use them. These perks serve as the icing on the cake, making digital payments even more appealing.

 

Digitisation has changed how we deal with money a lot. It changes how we buy things, pay bills, and send money to other countries. It's like money has a whole new meaning now. But is all of this change always good? Is digitisation altering your spending habits? 

 

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The Rise of Digital Payments

According to the latest market insight issued in Statista, the amount of money people spend using digital payments is expected to reach $11.55 trillion in 2024. It's predicted that this amount will grow by about 9.52 per cent every year until 2028, reaching a total of $16.62 trillion by then. 

 

Ways E-Money Makes You Spend More

When using cash, there's a physical act of handing over money that makes the transaction more salient. This can create a psychological barrier to spending because it's a more immediate and concrete loss. In contrast, swiping a card or tapping a phone often feels less real and immediate, reducing the perceived cost of the purchase.

 

Electronic money, or e-money, can sometimes encourage people to spend more due to several factors:

1. Ease of Transaction: When we use things like credit cards or digital wallets instead of cash, we might end up spending more. That's because when we pay with cash, we physically see the money leaving our hands, and it feels like a bigger deal. But with digital payments, it's like the money disappears without us really feeling it. So, we might not think as much about how much we're spending.

 

2. Overspending: With e-money, transactions are quick and convenient. Sometimes, when we're shopping online or in a store, we end up buying things we don't really need. Especially when we're shopping online, it's easy to get carried away and buy stuff on impulse without really thinking about it.

 

3. Auto-renewal and Subscription Services: You know those streaming services like Netflix or Amazon Prime? Sometimes, even if we haven't watched anything on them for a while, we keep paying for them every month. It's like we forget about it or don't really notice the money going out of our bank account. And this can lead to recurring spending every month, potentially on subscriptions that aren’t needed anymore. 

 

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4. Suggested Spending: Social media platforms often use algorithms to suggest products or services based on your spending habits or preferences. These personalised recommendations can tempt you to make additional purchases that you might not have considered otherwise.

 

5. Cashback and Rewards: Many banks, wallet apps and platforms often offer cashback, rewards, or loyalty programs to incentivise spending. While these rewards can be beneficial, they may also encourage you to spend more than you originally intended in pursuit of earning more rewards.

 

6. Social Influence: Online platforms may also incorporate social features, such as sharing purchases or gift-giving options. Seeing what others are buying or receiving as gifts can influence your spending decisions and lead to increased spending to keep up with social expectations.

 

The shift to a cashless society has its pros and cons. While it offers convenience and security, it also comes with a downside known as the 'cashless effect.' This effect is a cognitive bias that tends to make people more willing to spend money when transactions involve no physical currency exchange. Unfortunately, this can lead to less mindful spending habits. Without the tangible aspect of physical money leaving our hands, it's easier to overlook the true value of our purchases. As a result, we may find ourselves spending more impulsively or without considering the long-term consequences.

 

In essence, while digital transactions offer many benefits, it's crucial to remain mindful of our spending habits and avoid falling into the trap of overspending due to the 'cashless effect.'

Click here to learn more about the UR.Life Corporate Wellness programme and unlock better health.