The growth of digital payments has led to more consumers using card tap-to-pay, mobile wallets, QR code payments, bank transfers from their phones or computers, and app-based payment links. They are popular for their ease and rapid processing of transactions, as well as for the convenience of being able to purchase items online or at physical retail locations. The rise of digital payments, however, affects how consumers spend, track, and protect their money. As opposed to the traditional method of using cash for purchases, payments are now made with a cell phone, smartwatch, or previously stored card number.
While there are obvious advantages to using digital payments, including increased convenience and reduced risk of loss or theft of funds, there are also potential new risks such as scams, unauthorized sharing of sensitive financial data, and overspending. Understanding what digital payments represent will allow consumers to use them securely and make better decisions regarding their finances each day.
1. Convenience Increases, But Visibility of Spending Decreases
Digital payments increase convenience. Quick taps, saved credit cards, or one-touch checkouts eliminate the “friction” associated with using a traditional wallet and physically handing a cashier cash or a card to complete a transaction. Increased convenience, however, can lead to decreased visibility of spending.
As long as cash does not leave a consumer’s wallet, the “pain of paying” often decreases significantly. The lack of pain of paying can contribute to consumers overspending without realizing it.
Ways to monitor spending:
Immediately notify yourself after each payment
View your spending total daily and weekly in addition to your monthly total
Set category limits for common categories such as groceries, retail and transportation
Only save credit cards on websites where you intend to shop repeatedly
Increased convenience will work best when spending remains visible.
2. Security Increases, But So Does the Frequency and Sophistication of Scams and Frauds
Most digital payment platforms utilize robust security measures including encryption, tokenization and advanced fraud detection and prevention systems. Utilizing these types of security systems, digital payments are generally more secure than carrying large amounts of cash or swiping a magnetic stripe card. However, fraudulent activity and scammers quickly evolve and often focus on targeting the end-users, rather than the underlying technology.
Fraudulent activity includes phishing, fake payment links and social engineering tactics designed to trick consumers into authorizing a payment or providing unauthorized access to their account or financial information.
Ways to protect yourself:
Utilize device locks and/or biometric login methods to restrict unauthorized access to your financial accounts
Do not authorize unknown payment requests
Verify the identity of merchants prior to completing a payment and verify the authenticity of links provided to you by the merchant
Utilize two-factor authentication on all banking applications
Security depends on both the security measures implemented by the platform as well as the individual behaviors of its users.
3. Financial Management Becomes More Efficient With Automatic Tracking and Automated Savings
All digital payments create a permanent record of the transaction. This allows consumers to track their spending and develop a budget to manage their income. Additionally, many banks and financial institutions offer a variety of tools to assist consumers in developing a budget and managing their financial obligations, including categorizing expenses and displaying spending trends.
Automating bill payments can greatly reduce missed payments and improve the reliability and predictability of a consumer’s financial obligation. It can also support a consumer’s goal of saving money by allowing consumers to set up automatic transfers to their savings account.
Tools and features that can assist consumers with financial management:
Automatically categorized spending reports
Tracking subscriptions and setting reminders for recurring payments
Setting automated payments and sending reminders for upcoming due dates
Automatic savings based on round-ups from debit/credit transactions or scheduled transfers
Used properly, digital payments can promote improved financial practices.
4. Accessibility Increases, But Privacy and Equity Concerns Remain
Digital payments make remote transactions and accessing services possible without requiring the use of cash. This makes it possible to easily shop online, travel, and transfer funds directly to another person. At the same time, however, it creates concerns about privacy since digital payment data can be used to reveal patterns of consumption, location, and preferences.
Not all consumers benefit equally from digital payments. Some consumers do not have stable internet, smartphones, or bank accounts which can limit their ability to participate in the digital economy when cash-based alternatives are eliminated.
Considerations for consumers:
Understand what type of data your application is collecting and sharing about you
Limit the amount of personal information your application can access and collect
Maintain a backup payment option when traveling
Advocate for digital payment options that are available to all consumers, particularly those who require cash-based alternatives
Digital innovation is strongest when it continues to maintain accessibility and respect for consumers’ right to maintain their privacy.
Conclusion
The widespread adoption of digital payments is changing the way consumers interact with their money. Digital payments enable faster, more convenient and more traceable transactions. While digital payments simplify everyday transactions and facilitate remote purchases, they can also make it more difficult for consumers to see how much they are spending.
While digital payments employ a wide array of security mechanisms to protect against fraud and unauthorized transactions, the sophistication and frequency of scams and fraudulent activities increases each year through user-targeted tactics.
Digital payments also provide consumers with a means to track their spending, automate financial tasks and manage their money. However, digital payments raise concerns related to consumer privacy and equity. Consumers will derive the greatest benefits from digital payments if they use them with established spending habits, strong security protocols, and with full knowledge of how their financial data is utilized.