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How Mobile Payments Affect Consumer Behaviour

Over the past decade, the use of mobile apps for payments has risen exponentially across the world. The COVID-19 pandemic has also boosted this shift as they are more convenient and safer than cash or credit cards. In India, mobile payment apps like GPay, PhonePe and other UPI linked apps and mobile wallets have started replacing cash as the preferred mode of payment, especially after 2016. While the benefits to consumers are quite obvious, the risks are not. The benefits to merchants are also debatable. A study in China looked at these issues, examining how mobile payments affect consumer behaviour.

The study’s goal was to compare mobile and cash payments and to determine whether the use of mobile payments affected consumers’ willingness to pay (WTP) and willingness to buy (WTB). It also studied how factors like the pain of payment, source of income, and cognitive convenience of payment affected this relationship.

According to the study, WTP is higher when consumers use mobile payment than cash payment because of the lower pain of payment. The pain of payment refers to a sense of loss when paying because of physically parting with something. It is highest in cash and lowest in mobile payments. Participants in the study were willing to pay almost 20% higher when paying via mobile payment than with cash.

However, the “mobile payment effect” does not work when the money is gifted rather than earned. In this case, consumers’ brains tend to code the money as not earned through work (also called the windfall effect), so it is valued less, and the pain of payment is low. Consequently, there is no difference in WTP.

Mobile payments also come with higher cognitive convenience, that is, the convenience of payment from aspects other than physical ones (e.g., not having to physically count and hand over currency and count and check change returned by the merchant). The study found that even when physical differences between cash and mobile payments were removed, mobile payment transactions were faster by about 24%. This happens because consumers don’t have to perform any mental calculations regarding the amount to be paid, and there is no change to take back. This also results in higher WTP and WTB in consumers.

These findings have important implications for merchants, consumers, policymakers, and payment service providers. Merchants can support mobile payments as much as possible to increase sales and revenue. The use of mobile will also be safer as there is no physical contact between individuals.

On the other hand, consumers need to be aware of the insidious effects due to the ease of payments and consequent increases in WTP and WTB. They might indulge in impulse purchases or tend to overspend. However, unlike credit cards, there is no danger of consumers getting into a debt trap as these apps are pre-paid or account-linked.

Policymakers can contribute to the consumers’ cause by mandating certain levels of protection in this regard. And payment service providers can include features in their apps that help customers avoid impulse purchases or overspending. Working together, the various stakeholders can ensure a win-win situation for merchants, consumers, service providers and the economy.

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