15. November 2018

“Mobile payment” favours indebtedness

Innovative payment methods with smartphones such as Twint, Apple Pay or Google Pay simplify making payments. The probability of overspending increases and so does the risk of indebtedness or over-indebtedness. Based on theoretical and empirical relationships it is shown which means of payment are particularly debt enhancing.

On the basis of behavioural economic research in connection with payment methods at a stationary and virtual point of sale, the most common means of payment can be ranked and evaluated according to their debt incidence. The degree of incurring debts with means of payment is mainly based on the theoretical concepts of transparency, the “pain of paying” and the link between payment and consumption. The following relationship applies: the higher the transparency of the payment, the higher the “pain of paying” and the more obvious the link between payment and consumption, the lower the expenditure and the lower the probability of indebtedness and over-indebtedness. There is also some empirical evidence of these relationships. The most common payment methods at the point of sale are ranked based on the debt incidence – starting at the highest level – as follows: 1) mobile payment, 2) credit card, 3) debit card, 4) prepaid card, 5) gift card/voucher and 6) cash.

At this point, mobile payment includes both distance and proximity payments, whereby this type of payment is often based on conventional means of payment such as debit and credit cards, but also on credit transfers as payment options. The mobile phone serves primarily as an interface for authorization, initiation and confirmation of the transaction. In most cases, it offers a new access channel to traditional payment methods rather than an innovative payment instrument. The three evaluation criteria mentioned above – transparency of payment, pain of paying and coupling payments with consumption – are the lowest regarding mobile payment methods. In particular, remote mobile payment is specifically considered to be debt enhancing because, unlike other means of payment, it most strongly separates payment and the product from each other, in addition to the low transparency of payment and the low “pain of paying”. Especially, if the underlying payment procedure is credit-based, i.e. if payments are made by credit card or invoice, for example.

The credit card ranks second in the debt incidence ranking, with contactless cards more likely to getting into debts than those without a contactless function. This also applies to contactless debit cards, which rank third according to debt incidence. The link between payment and consumption is more pronounced with debit cards than with credit cards, since the amount is debited directly from the account, provided that sufficient financial resources are available at all. This further reduces or prevents getting into debts.

In general, the degree of transparency of a payment is similar for all payment cards, while the “pain of paying” can vary. For example, prepaid and gift cards finance consumer spending in advance, which reduces the probability of indebtedness and over-indebtedness. The gift card or voucher has greater payment transparency than the prepaid card, because the product to be purchased and the amount on the gift card are often defined in advance. This creates a strong link between purchase and payment, which places the gift card or voucher after the prepaid card in the debt incidence ranking. According to the three evaluation criteria, cash ranks at the bottom of the ranking because it enables ideal expenditure and budget control.


The full article was published in German as Trütsch T. (2019) Schuldenprävention in einer bargeldlosen Gesellschaft. In: Mattes C., Knöpfel C. (eds) Armutsbekämpfung durch Schuldenprävention. Springer VS, Wiesbaden.


Picture by Jonas Leupe on Unsplash


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About the author
Dr. Tobias Trütsch Tobias Trütsch is responsible for the programme area Economics at the Executive School. His research interest lies with payment and monetary economy, focusing especially on innovative payment methods and individual payment behaviour.