Complex Made Simple

Did you know that you are spending 12-18% more than you want to?

How do you pay?

A question no one ever asked until China adopted a cashless payment system.

People first started paying with coins, then paper, and today it’s plastic, a method that is fading in favor of crossing over to payments using our mobile phones.

Ease of payment is always something we strive for, but has it gone too far in its effort to make us increase our purchases from initial intent?

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DOA: Money

It has been long speculated that physical money will no longer be the norm to buy goods. However, has fiat money died?

Not yet, but it has witnessed a significant decrease in use. Euromonitor released a report that said card payments (45%) have surpassed cash payments (31%) in the UAE. By 2020, cash transactions are expected to go down to 28%, according to the report, indicating that the UAE is moving into a cashless future.

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Budget vs ease of payment

 “Cash has long been regarded as the best way for shoppers to budget, as there is a physical action associated with it,” CNBC said.

“In other words, as shoppers take the money out of their wallet and count out the bills, there are multiple reminders that they’re making a payment,” CNBC added.

“If you’re actually handing over physical cash, you can reflect on what it took to get that cash,” Ross Steinman, chairman and associate professor in the psychology department at Widener University, told CNBC.

On the flip side, he told CNBC that it’s easier for shoppers to disassociate from the money they’re spending when they swipe a piece of plastic.

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Are we spending more with plastic?

A study by the Banking University of Hochiminh City said that people are over 1% inclined to pay more when using a credit card compared to cash.

That 1% is significant when you factor that, in 2017, UAE card transactions stood at $59 billion; 1% here is around $600 million of increased spending.

CNBC claims the spending gap is much higher, where credit card use causes consumers to spend 12% to 18% more.

“People spend significantly more when they’re using a credit card,” said Steinman to CNBC. “If we take that idea and extend it to mobile payments, I would expect that to be at least in realm, perhaps a little bit more.”

We calculate this to be between $7 billion and $10.6 billion extra spending when we factor last year’s card and mobile transactions in the UAE.

“When using digital payments, shoppers have yet another step removed,” Steinman said.

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Spend more in less time

Consumers are seeking new ways to pay, and in the UAE, due to the tech-savvy youth and higher smart-phone penetration rates, growth in mobile payments is impressive.

Suvo Sarkar, senior executive vice-president, head of retail banking and wealth management at Emirates NBD, told Gulf News that mobile payments are witnessing significant growth since the launch of Samsung Pay, Emirates NBD Pay and Apple Pay in the UAE.

“Contactless payments now exceed 10% of Emirates NBD’s total payments as compared to 2% three years ago,” said Sarkar.

Currently, he said that only 8% of their transactions are conducted face-to-face.

Digital transactions are going up 30% year on year, he adds.

Right now, Apple Pay, Samsung Pay, Emirates NBD Pay, Mashreq Pay, FAB payit, Etisalat Wallet, Enoc VIP and Beam Wallet are being used in the UAE.

The Emirates Digital Wallet, a project led by the UAE Banks Federation and an association of 49 banks, is expected to launch its service later this year, according to the local daily.

Samsung Pay was launched in March while Mashreq Pay in June and Apple Pay in October.

It is still early to tell, but any time ease of payment gets, well, easier, such as the case with mobile payment, it could potentially lead to consumers consuming faster, so caution is advised.