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Innovations and Payment Systems

How to use cashless payment systems without overspending

The convenience of mobile wallets and contactless cards can encourage impulse buying, which makes budgeting all the more important

Summary

Mobile wallets and online payment systems allow you to take a set-it-and-forget-it approach to spending. But people tend to spend more when paying with credit cards than they do with cash, and the same likely holds true with cashless payment systems.

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The last time you went shopping, how did you pay for your purchases?

Did you use the tried-and-true method of swiping (or inserting) a credit or debit card? Or did you simply tap your smartphone to a payments terminal and move on with your day?

If the latter, you can expect that habit to grow. Cashless payment systems are becoming more ubiquitous, and tap-and-go checkouts will soon be old hat. Granted, they’re not universally beloved. The city of Philadelphia banned cashless businesses this year, and critics say cashless shops discriminate against low-income consumers who can’t obtain credit cards or bank accounts.

But Visa predicts that by the end of 2019, there will be 100 million contactless Visa cards in circulation in the U.S. Mobile wallets are growing in popularity as well: As of 2016, mobile wallet transactions accounted for nearly 9 percent of all noncash transactions globally.

With Walt Disney World and festivals such as Lollapalooza turning wearables into payment methods as well, it’s not hard to imagine a time when inserting cards or paying with hard bills becomes a thing of the past.

Cashless convenience can encourage impulse spending

The great advantage of cashless transactions is convenience. Once you’ve linked your preferred credit or debit card to a particular account, you no longer need to reach for your wallet and fumble through a bunch of cards until you find the right one. Peer-to-peer payment options are also on the rise thanks to cashless technologies, as evidenced by Facebook Messenger’s and WeChat’s in-app payment features.

Mobile wallets and online payment systems are attractive because they allow you to take a set-it-and-forget-it approach to spending. But that’s not always a good thing. People tend to spend more when paying with credit cards than they do with cash, and the same likely holds true with cashless payment systems.

When your credit card is already linked to an online store account or a mobile wallet, there’s no natural break in the checkout process where you can think about what you’re spending. Purchases occur instantly, so it’s easy to dismiss one-off impulse buys.

If you’ve budgeted plenty of money for impulse spending, you have little to worry about. But if your cashless habit starts cutting into your budget for priority expenses and goals, you’re going to have a problem. Fortunately, there are ways to take advantage of cashless conveniences without derailing your finances.

See related:  Contactless cards get crucial boost as Chase embraces tap-and-pay

Watch your finances like a hawk

Establishing a budget is a good financial habit in general, but it’s especially important if you frequently make cashless purchases. Review your accounts weekly or at least monthly, said Drew Feutz, certified financial planner at Market Street Wealth Management Advisors. That way you’re aware of where your money is going and can ensure you don’t get so carried away that you can’t make your rent or mortgage payment.

Feutz also suggested setting a calendar alert on your phone so you remember to conduct a budget and spending review regularly.

“Hold that meeting with yourself and say, ‘OK, where has my money gone?’ Do I need to be more conscious of my spending in this one area?”

He also recommended automating bill pay the same way you’d automate purchases. Then you don’t run the risk of missing payments and accruing interest on high balances.

Adam Marlowe, principal market development officer for Georgia’s Own Credit Union, also advised regular account reviews.

“I believe it’s just as important to be cognizant of what you’re spending, where you’re spending and how you’re spending it as you would with a plastic card when you’re using a contactless card,” he said.

Marlowe suggested reviewing your account for fraudulent activity as well. The more payment methods you use, and the more accounts you create, the more opportunities fraudsters have for hacking them. Regularly review your transactions so you can take swift action if you see any charges you didn’t authorize.

He also emphasized basic security vigilance. Logging out of financial accounts on your devices and using different passwords (preferably complex, difficult-to-guess ones) for all of your accounts are simple measures that help keep your data and money safe.

See related:  Are contactless ‘tap-and-go’ credit cards about to take over the U.S. market?

Consider using prepaid cards

Cyndie Martini, president and CEO of credit card aggregator Member Access Processing recommended using several prepaid cards that are designated for different purposes. You might use one for weekly gas costs, one entertainment and another groceries and other expenses, for example.

“I talk with many young people who start out thinking they’re going to be very conservative and pay that credit card balance off every month,” only to end up in debt, Martini said. “When you put things on prepaid, it’s almost like cash.”

You can only spend up to the amount you’ve put on a prepaid card, preventing you from getting into debt unwittingly.

Many prepaid debit cards now allow you to monitor your account activity online or in an app, and you can use them at most online and in-store retailers.

“There are so many ways prepaid debit cards act and feel like a credit card,” Martini said.

While you won’t accrue travel rewards or cash back bonuses, you can shop as you always would but without fear of overspending.

See related:  Guide to mobile wallets: Samsung Pay, Apple Pay, Google Pay

Set up spending notifications

Most credit cards allow you to set up spending alerts above a certain amount. If you struggle to stay within your budget, you may want to set alerts for any purchases above $25. Or, you might use a higher threshold to keep yourself in check on big-ticket items.

Receiving a notification every time you spend above a certain amount can be a good bellwether for overspending. When you start getting so many pings that you’re annoyed by them, you’ll know to step back and reflect on your recent activity.

Set limits for yourself

The danger of cashless payments is the disconnect from your tangible cash.

“You almost feel like you’re at a casino with play money,” said Michael Kelley, certified financial planner and founder of Kelley Financial Planning.

If you choose to use a credit card, choose one for your planned, recurring expenses, he recommended. You might choose a card that has great cash back or travel rewards, so you can earn those bonuses while you pay for necessities.

For other expenses, Kelley suggested using a virtual envelope method — creating several savings accounts under your main banking account to set aside money for specific purposes. Then, when that purpose comes up, limit yourself only to what you’ve saved, regardless of what card you use.

Review your subscriptions

Subscription services are among the lowest-hanging fruit for reducing your cashless payments transactions. It’s all too easy to sign up for a free trial and then forget that you’re paying for a service you never use.

“Pretty much every client I’ve come across … we go through their budget and they’re like, ‘I don’t know why I’m still paying for that,’” Kelley said.

Fitness programs and other apps are common culprits for unnecessary cashless spending, because people buy the product and end up deleting the app, never remembering that money is still being withdrawn from their accounts.

Cashless payment systems are paving the way for easier, faster purchase transactions. There’s nothing wrong with taking advantage of those benefits, but do so consciously. Use the technology to serve your interests, not work against your financial goals.

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Published: September 9, 2019

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Credit Card Rate Report Updated: October 16th, 2019
Business
15.18%
Airline
17.11%
Cash Back
17.25%
Reward
17.13%
Student
17.29%

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