Will ‘smartpayment’ technology lead to smarter consumers? Changing how we pay is changing how we spend.

The sophistication of modern smartphone technology and apps has seen nascent developments that harbour the beginnings of a shift in how we spend, borrow and manage our money.

Global investment in financial technology (so-called “fintech”) more than tripled to $2.97bn from 2008-2013. While the pace of growth has tapered off more recently, figures indicate that in 2016 fintech had received £16bn in funding globally by August 2016, and $19bn in 2015, with the UK in particular seen as a hotbed of fintech innovation.

At the forefront is “smartpayment” technology, which sees internet-connected devices such as smartphones (and even smartwatches) capable of conducting transactions in place of cash or cards. Such devices can now “simulate” modern contactless card technology, meaning with just a simple wave of your phone near a standard bank card payment terminal and *ping*, money has been exchanged.

The rapid proliferation of smartpayment technology is plain to see, with US retailers’ adoption of Apple Pay growing from 4% - 35% in 2014-16, and payments via smartphone apps totalling £347m in the UK for 2015, growing by 54% on 2014. Global market research firm Novonous project that smartpayment technology will hit an annual growth rate of 37% by 2020.

Clearly, such fintech offers new opportunities to facilitate people to better-engage with their finances. HSBC recently began trialling its new Smart Save app, for instance, designed to automatically deduct “microsavings” from your balance whenever you’ve indulged in some retail therapy.

While an app that automates saving might be seen as welcome, might the convenience offered by such technology in-fact foster dis­engagement? Will we, in fact, become mere passengers if our banking is being taken care of for us?

Tesco’s recently-deployed Payqwiq app allows customers to pay via an app at checkouts, and the name alone connotes the aim: reduce the time and effort it takes to pay. What implications might that have for how we spend, or rather, how engaged we are with our spending? Well, consider the following recent market research findings:

• Advertising Apple Pay (i.e. iPhone’s smartpayment tech) at point-of-sale increased sales by 36% in a 4-month US study
• Use of smartpayment apps has increased tipping at restaurants by as much as 15%

One CEO is quoted in the above article as saying “The great thing about digital payments is that it doesn’t feel as real as the cold, hard cash in your pocket”. With that in mind, what do we know about how different modes of payment affect our mindsets with respect to money?

Rationally, the mode of payment should not affect which products we buy and how much we spend. Yet, we know that when paying by card consumers lose self-control and make impulsive decisions. Furthermore, people are willing to pay more for a product via card than by cash, and as a result spend more overall. Products purchased by card are also perceived as less valuable. For instance, participants in an experiment resold a mug they had bought via card for lower amounts than people who bought the mug with cash.

One explanation for such differences is that payment modes vary in their degree of “payment transparency”. i.e. the salience of money being exchanged. Researchers predict an additional decrease in payment transparency with the increase in digital payments, which may account for why people are seemingly willing to tip more if using a smart device.

Despite the increasing proliferation of smart payments, academic research is rather limited, and little is yet known about how smart payments may influence consumers’ financial decisions. We are currently working on a joint project (which forms part of Rufina’s doctoral thesis) at the University of Leeds, examining consumers’ awareness of their spending on-campus in the last month contingent upon three payment modes: card, a manual top-up payment app, or a mobile payment app that links directly to people’s bank account. We compared people’s estimated spending with their actual spending as indicated by their online purchase history.

We find that whether people use a card or a mobile phone has a rather minor influence on their spending estimate accuracy, however, notable differences were observed between the type of payment apps studied. Manual top-up apps require users to manually deposit funds into the app, possibly increasing payment transparency as the “pain of paying” is more salient. Payment apps that debit transactions directly from bank accounts, in contrast, may make the act of paying more seamless, reducing the salience and decreasing consumers’ accuracy in recalling their spending. We tentatively propose that the underlying payment settings on smartpayment apps may be a vital factor regarding payment transparency and, accordingly, spending behaviour.

In related and currently on-going research we assess people’s ability to recall item prices contingent upon preferred payment mode. We welcome online participation from people who work or study at the University of Leeds (further details can be found at http://bit.do/priceknowledge).

Ostensibly, smartpayment tech is about convenience: expediting the process of transacting by capitalising on the smart devices that are so ubiquitous today. With Mastercard introducing biometric payment that uses finger scanning and selfies for payment authorisation, payment becomes “as easy as a TAP, TOUCH or a BLINK”.

Perhaps another way of framing it, however, is that the aim is to reduce the act of paying to an afterthought. This is an inherently psychological aim, and it’s not hard to see the attraction; it’s likely worth an unfathomable amount to disconnect “paying” from “shopping”. If we as consumers are not aware of paying, then we won’t “feel” like we’ve paid, therefore mitigating any “pain” there might be.

One only needs to look at Amazon’s recently-opened brick-and-mortar store in Seattle to get a sense of how smartpayment tech will continue to proliferate. Called Amazon Go, the grocery store has no cashiers – you merely walk in, pick up what you want, and leave. Sensors throughout the store detect the products you leave the store with, and the associated Amazon app debits your account. At no point is the customer directly confronted with any form of transaction.

In contrast, many apps are designed specifically to help individuals to track, organise and control their spending. With instant smartphone notifications, these spending trackers might indeed increase people’s financial awareness.

We still have much to learn about how smartpayment tech psychologically engages (or disengages) people, and the implications therein for how people spend, and track their spending. With both benefits and threats of smartpayment tech apparent, what remains to be seen is the extent to which such tech either exploits increased spending, or facilitates better saving.