Impact of Digital Payments on Spending Habits: A Behavioral Economics Perspective
DOI:
https://doi.org/10.64137/31079423/IJEBMR-V2I3P108Keywords:
Digital Payments, Spending Habits, Behavioural Economics, Pain of Paying, Impulse Buying, Financial Literacy, UPIAbstract
Digital payment systems have rapidly transformed how Indians transact, yet the behavioural consequences of this shift remain poorly understood. A behavioural economics approach is being taken and this paper attempts to study the impact of digital payments on consumers' spending behaviour using a combination of theory and primary data from 72 surveys. The research demonstrates that cashless payment options lessen the mental strain involved in parting with money, which economists refer to as "pain of paying," resulting in identifiable alterations to spending behavior. Survey results indicate that 58% of respondents reported spending more after switching to digital payments, and students as well as younger consumers were particularly weak¹. It also finds that promotional offers and cash-back schemes, which consistently promote spending behaviours, contribute to more expenditures, as well as that financial literacy helps shield from them. Using quantitative data and a beefy trove of qualitative information from respondents, the paper claims that speed, ease and abstraction the three virtues granted by digital payments are also psychologically perilous to financial health. The implications of the findings concern consumers, financial institutions and policymakers emphasizing the need for knowledge, as well as carefully designed payment systems able to promote mindful expenditure.
References
[1] Drazen Prelec, and George Loewenste, “The Red and the Black: Mental Accounting of Savings and Debt,” Marketing Science, 17(1), pp. 4-28, 1998.
[2] Richard H. Thaler, “Mental Accounting Matters,” Journal of Behavioural Decision Making, vol. 12, no. 3, pp. 183-206, 1999.
[3] Riya Rose Paymmel Rappai, “The Impact of Digital Payments on Consumer Spending Habits: A Case Study of Young Adults Aged 18-25 in Kerala, India,” Master Thesis, Griffith College Thesis, 2024. [Online]. Available: https://go.griffith.ie/items/67151b57-3769-4ae2-b064-e168718af9c4
[4] U. Din, I. U. Khan, M. U. Hassan, Q. Zhang, and S. U. Khan, “Digital Payments and Overspending: A Study of Payment Biases and Spending Behaviour Using Mental Accounting Perspective,” International Journal of Finance & Economics, Sept. 2025, doi: 10.1002/ijfe.70053.
[5] Basha, M. (2023). c, 2(3), 993-1004.
[6] M. B. Shaik, M. Kethan, T. Jaggaiah, and Mohammed Khizerulla, “Financial Literacy and Investment Behaviour of IT Professional in India,” East Asian Journal of Multidisciplinary Research, vol. 1, no. 5, pp. 777–788, June 2022, doi: 10.55927/eajmr.v1i5.514.
[7] S. Mahabub Basha and M. S. Ramaratnam, “Construction of an Optimal Portfolio Using Sharpe’s Single Index Model : A Study on Nifty Midcap 150 Scrips,” Indian Journal of Research in Capital Markets, vol. 4, no. 4, p. 25, Dec. 2017, doi: 10.17010/ijrcm/2017/v4/i4/120919.
[8] Dr. N. Krishnamoorthy and M. B. S, “An empirical study on construction portfolio with reference to BSE,” International Journal of Financial Management and Economics, vol. 5, no. 1, pp. 110–114, Jan. 2022, doi: 10.33545/26179210.2022.v5.i1.130.
[9] A. Yahiya, Sukhavasi Santha Kumari, MahabubBasha S, Shouvik Kumar Guha, A. Gehlot, and B. Pant, “Blockchain Implementation in Financial Sector and Cyber Security System,” Jan. 2023, doi: 10.1109/aisc56616.2023.10085045.
[10] M. B. Shaik, M. Kethan, and T. Jaggaiah, “Financial Literacy and Investment Behaviour of IT Professional With Reference To Bangalore City,” Ilomata International Journal of Management, vol. 3, no. 3, pp. 353–362, July 2022, doi: 10.52728/ijjm.v3i3.487.
[11] S. Janani et al., “Machine learning analysis on predicting credit card forgery,” In International Conference On Innovative Computing And Communication, Singapore: Springer Nature Singapore, pp. 137-148, Feb 2023.
[12] S. M. Basha, M. Kethan, and M. A. Aisha, "A study on digital marketing tools amongst the marketing professionals in Bangalore City," JAC: A Journal of Composition Theory, vol. 14, no. 9, pp. 17-23, 2021.
[13] Kafila, N. B. Kalyan, K. Ahmad, F. Rahi, C. Shelke, and S. Mahabub Basha, "Application of Internet of Things and Machine learning in improving supply chain financial risk management System," 2023 IEEE 2nd International Conference on Industrial Electronics: Developments & Applications (ICIDeA), pp. 211–216, Sept. 2023, doi: 10.1109/icidea59866.2023.10295182.
[14] A. Dawra et al., “12 Enhancing Business Development, Ethics, and Governance with the Adoption of Distributed Systems,” Meta Heuristic Algorithms for Advanced Distributed Systems, pp. 193-209, 2024.
[15] S. Rana, Thejasvi Sheshadri, N. Malhotra, and S. M. Basha, “Creating Digital Learning Environments,” Advances in educational technologies and instructional design book series, pp. 1–21, Aug. 2024, doi: 10.4018/979-8-3693-8217-2.ch001.
[16] P. Sarkar, M. F. Hasan, A. Kumar, S. Agrawal, M. Basha S, and B. Viyyapu, “Neural Networks for Portfolio Management Optimization,” 2024 Second International Conference Computational and Characterization Techniques in Engineering & Sciences (IC3TES), pp. 1–5, Nov. 2024, doi: 10.1109/ic3tes62412.2024.10877590.
[17] V. S. Manjunath et al., “Strategic marketing transformation through AI and digital innovation,” Academy of Marketing Studies Journal, vol. 29, no. 2, pp. 1-12, 2025.
[18] M. B. Shaik, “Investor perception on mutual fund with special reference to Ananthapuramu, Andhra Pradesh,” International Journal of Science and Research (IJSR), vol. 4, no. 1, pp. 1768-1772, 2015.
[19] V. Karumuri et al., “Optimizing Financial Outcomes: An Analysis of Individual Investment Decision Factors,” Indian Journal of Information Sources and Services, vol. 15, no. 1, pp. 83-90, 2025.
[20] N. Raji , V. George, R. S. Iyer, S. Sharma, and B. S. Mahabub , “REVOLUTIONIZING RECRUITMENT: THE ROLE OF ARTIFICIAL INTELLIGENCE IN TALENT ACQUISITION,” ShodhKosh Journal of Visual and Performing Arts, vol. 5, no. 1, Jan. 2024, doi: 10.29121/shodhkosh.v5.i1.2024.2141.
[21] Dr.V. Jalaja et al., “Maximizing Marketing Value: An Empirical Study on the Framework for Assessing AI and ML Integration in Marketing Management,” Indian Journal of Information Sources and Services, vol. 14, no. 3, pp. 64–70, Sept. 2024, doi: 10.51983/ijiss-2024.14.3.09.
[22] D. R. Bhattacharya, “The Impact of Widespread Use of Digital Payment System on the Management of Personal Savings and Spending,” African Journal of Biomedical Research, vol. 27, no. 4S, pp. 14874–14877, Dec. 2024, doi: 10.53555/AJBR.v27i4S.7461.
[23] H. Muteru, F. H. Gatobu, and H. N. Munene, “Digital Payment Convenience and Student Personal Financial Management: The Tap-To-Pay Trap,” Journal of African Interdisciplinary Studies, vol. 9, no. 6, pp. 52-60, 2025.
