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Academic: Digital payments changing customer behaviour

Research has shown that it's easier for people to part with digital currency than hard cash.

Luottokortin skannaus Apple Pay -järjestelmään.
Digital, virtual and contactless payment methods are making money easier to handle, but harder to keep track of, experts say. Image: Oleksiy Maksymenko / AOP

Consumer behaviour is being changed by the movement of money in the virtual world, where transactions are designed to be as inconspicuous as possible, said sociology professor Terhi-Anna Wilska from the University of Jyväskylä.

The sharp climb in online purchases and mobile payments can also be leading to more financial problems. Financial data provider Suomen Asiakastieto reported that at the end of 2019 there were more than 386,000 people in Finland (up 1.3 percent from a year previously) with strikes on their personal record for defaulting on payments.

Wilska said the high interest rates charged by instant payday loan companies have a big role to play in changing the financial landscape.

"It is far too quick and easy to impulsively access money in digital environments. It is also far easier to spend said money online than in the physical world," she said.

Wilska also said that digital services have shifted Finnish financial behavior in other ways, too: many of the fees customers now accrue are monthly payments for platform services such as Netflix and Spotify – which are automatically charged from a user's account.

"These kinds of automatic payments are easy to forget, and they add up. They become fixed costs instead of individual consumer choices, like rent," Wilska said.

Constant consumption, parenting tips

She said that consumption has become a non-stop activity for many people. Clear lines between consumption and the rest of life have disappeared, as they often have between work and leisure.

"If we want our children to be conscientious consumers and independent financial agents, we cannot raise them to act in a clearly defined world with definite consequences," Wilska said.

Instead of enforcing hard-set rules, Wilska said parents should teach children about the impulses that drive people to make decisions, explain why people feel the need to consume products in the first place and the many reasons why they so often act irrationally.

She added that the same digital tools, which include features such as purchase-tracking, could help curb impulsive consumption. However, children are better off learning about money with real currency they can hold in their hands, Wilska said.

Only one in ten still using cash

Only about 10 percent of people in Finland still use cash to pay for goods and services in their daily lives, according to the Bank of Finland and financial lobby Finance Finland. The figure has fallen from 25 percent in just five years.

The high frequency of seamless digital transactions is leading to a change in the way that consumers conceptualise and use their money, said Bank of Finland principal adviser Jenni Hellström.

"Customers don't necessarily take the same kind of care online as they do when they take out a bill and hand it to a teller," she said.

Bank of Finland figures show that the only places where cash is still common are supermarkets and cafés, and even there debit/credit cards and mobile payment applications are overwhelmingly more popular.

Cash more valuable psychologically

Researchers have conducted studies on the declining use of cash money for some time. Assistant professor in marketing Avni M. Shah from the University of Toronto published research in 2015, showing that paying for something with cash made the purchased item more valuable to the buyer.

Shah used numerous tests to prove the higher value of cash over digital methods. In one experiment she sold two different groups of people coffee mugs for two dollars apiece; one group paid by cash, the other by card. After a few hours Shah told the participants she would buy back the mugs at any price they chose.

Those participants who paid by card asked for an average buyback price of 3.83 dollars, while those who paid by cash asked for an average of 6.71 dollars in return. That means that the people who paid for their mugs using cash considered their purchase to be more valuable than did the digital buyers, who did not experience the same "pain of payment", as Shah herself described.

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