The Impact of Mobile Payments on Spending Behaviors

14 Jun 2024

You probably know what mobile payment apps are since their popularity has skyrocketed. You likely don’t know that they influence your purchasing habits on a psychological level. How do digital transactions affect your spending?

The Rise of Mobile Payment Apps

Digital wallets are popular. One estimate put their transaction value at $3.1 billion — 50% of the market share — in 2023. It also declared a 14.9% compound annual growth rate from 2023 to 2027. In comparison, it said the growth rate for debit cards is 0.4% while the rate for credit cards has declined by 0.7% and cash by 8.1%.

Mobile payment app popularity isn’t just defined by the numbers investors produced — data shows it’s one of the most popular transaction methods. In fact, six in 10 Americans use one. Statistically, you probably have at least one downloaded right now.

Indicators suggest these transactions could soon become the norm in the United States. After all, 56% of retailers accept them already. Inevitably, as acceptance rates rise, a greater number of people will use them. In time, they could all but replace credit and debit cards just like those essentially replaced cash.

Do Mobile Payment Apps Influence Spending Behavior?

Mobile wallets and payment apps influence your spending habits. Have you ever noticed your spending increases when you use them? It’s not just you — research shows that using a device like a phone or smartwatch increases your odds of buying something and affects the amount you’re willing to pay for it.

One research team used an electroencephalogram (EEG) — a test that measures the brain’s electrical activity — to track participants’ cognitive responses to digital wallets, credit cards, and cash. Their study is the first to produce neural evidence that paying sends pleasure and pain signals electrically.

The EEG showed that digital transactions had a unique psychological pleasure response. At first, only 49% of the participants were fine with buying high-priced headphones. However, when using an app, their willingness rose to 52.59%. In comparison, it dropped to 44.88% when paying with cash.

The Psychological Effects of Digital Transactions

There are a few psychological reasons digital transactions influence you. One of the most common is impulse buying. Experiencing satisfaction when making purchases is one of the top factors driving you to spend money without considering the financial implications. Since paying with your phone is so mentally rewarding, you subconsciously want to do it often.

Another psychological factor is your relationship with your device. You probably use your phone, smartwatch, or laptop to check social media, play games, talk to friends, and browse the internet. These behaviors are much more positive than the debt or dirtiness you associate with credit cards or cash.

Frankly, these transactions are convenient — being able to tap your phone instead of entering your PIN, going through multiple confirmation screens, and waiting for the card reader to beep is satisfying. However, since it reduces friction so significantly, it can affect your spending habits. When buying something becomes easier, you’re less likely to give the purchase a second thought.

Does Mobile Payment Use Lead to Overspending?

Digital transactions cause you to buy more things more often, so it’s safe to say you end up spending more than you expected to. Research even shows your overspending risk is significantly higher when you use mobile payment apps because your consumption increases and your money management time decreases.

How much more do you spend when you use mobile payments? According to one study, participants charged their credit cards 9.4% more when shopping online and in brick-and-mortar stores. Depending on your impulse control and obedience to your budget, you could easily pay more or less.

The Broader Economic Impact of Mobile Payment Apps

Mobile payment apps — including the peer-to-peer ones — have broad economic implications because they affect how money changes hands. Considering that 53% of people use digital wallets more than cards or cash, their impact is significant. Many businesses and consumers already see the effects, even if they don’t realize it.

Since you subconsciously perceive these transactions as more beneficial and convenient, you’re more likely to remain loyal to those who accept them. In other words, a company’s decision to allow mobile payment apps influences whether or not you do business with them. Over time, this trend could shape brands’ popularity.

The amount of data these apps generate has huge implications. A business could integrate them into marketing tools or customer relationship platforms, using your spending patterns to predict your buying behavior. This way, they can improve the accuracy of their advertisements and capitalize on your psychological spending triggers.

Digitizing Transactions Comes With Risks

While the convenience and satisfaction of digital transactions are great, it’s also risky. You might end up overspending without realizing it. After all, you’re not handing someone a wad of cash or even swiping your card — you’re just tapping a button or moving your phone near a point-of-sale machine.