Micropayments are bad for you

You probably think of micropayments as a huge convenience. You walk into the coffee shop, order a coffee and then with nothing more than your phone and your thumbprint, the coffee is paid for.

It’s so easy. The phone was in your hand anyway! And there’s that satisfying “ping” and the little tremor in your phone as it signals its acceptance of the payment. So cool. The future is here!

Everything about the experience is satisfying. It’s frictionless, didn’t involve handling cash, or calculating change, it only took six seconds and with a smart watch, you didn’t even need to reach into your pocket.

Contactless micropayments are so easy!

Micropayments make it difficult to control your spending

Contactless payments now represent a larger proportion of total spending than cash. But this comes at a cost:

A London Business School professor, Niro Sivanathan, recently claimed that parting with cash is “psychologically painful”, but that paying for items with a contactless card “anaesthetises the psychological pain that accompanies payment, seducing us into splashing out”. And the Bank of England last month suggested that the popularity of contactless cards was helping to fuel the rapid growth in consumer debt.

The message is clear: Micropayments, especially when associated with contactless technology, are kryptonite to your impulse-control.

Contactless payment with a mobile phone
One wave of the phone and you’re that much poorer

Quite often, you won’t even remember buying something, because it’s a small amount, required no thought, was paid entirely with muscle memory and your conscious brain was barely involved.

Our habits are formed around the constraints and challenges of normal life. When paying for something requires even a little effort, we stop and think before we make the purchase. This makes us cluster our purchases into bigger transactions, which means we think more about them.

Micropayments dramatically lower the difficulty threshold for spending small amounts of money. This has two main effects:

  1. We more enter into small transactions more easily, buying more things in lower price ranges because it’s so effortless and our brain rounds everything small down to zero
  2. We split large shopping runs into lots of small shopping events. Need a pint of milk? Grab it at the store on the way home. Forgot to buy the tomatoes for dinner? Pop out to the local grocers! This means lots of our spending is unplanned because we can always get what’s missing later.

This is a problem. Small transactions add up, and failing to plan your grocery shopping properly leads to lots of impulse purchases. It also means we buy more things in small quantities, in expensive shops.

Micropayments mess up your bank statements

The online bank statement is your primary source of information about where your money is going. Each transaction on there needs to be categorized and measured.

That’s easy when you have only a few transactions, but with a few dozen micropayments cluttering the list each month it becomes trickier to keep up. The additional work means your budget tracking takes more time and becomes more of a burden.

It also increases the chances of missing or placing transactions in the wrong categories.

Should you stop using micropayments?

I believe you should try to limit micropayments as much as you can.

Here are a few things to consider:

Micropayments make you buy things you don’t need

Micropayments are often for items you don’t really need, which should probably be categorized as luxuries. You don’t need the skinny latte from Starbucks, nor do you need the breakfast sandwich from the deli. Micropayments are typically for things that are avoidable, which you buy precisely because the micropayments make it so easy.

Think about it this way: would you be so quick to buy the skinny latte if you needed to go to the cash machine first, then handle the change that came with the transaction? You might actually think about it long enough to realize that you don’t actually need, and perhaps don’t even want that drink. In fact, there’s probably a coffee machine at work, and you could have made the same drink at home for a fraction of the price. What are you thinking?!

Micropayments add up to macro losses

Breaking bad habits is a cornerstone of taking control of your finances. Micropayments encourage bad habits in the form of unmeasured and unconsidered spending.

That skinny latte soon becomes a daily guilty pleasure on your way to work. A small number multiplied by five is not quite so small anymore. A latte every day on your way to work represents a big chunk of your disposable income. On coffee!

Your brain subconsciously rounds small numbers down to zero – this is helpful if you’re moving small amounts into a savings account because you won’t notice them, but when it’s money you’re paying out, it quickly adds up to a great deal of losses.

We should avoid the traps and pitfalls of our own minds by not using tools that encourage bad habits.

Micropayments mess up your budget tracking

The fewer transactions you have, the easier it will be to control your spending.

A blizzard of £2 or £5 transactions will make it harder to track your spending. They clutter your spreadsheets, distract you from the important items and trick you into thinking they’re less significant than they actually are.

If you really need to buy lots of small items, take out the appropriate amount in cash at the beginning of the week and spend that out of your wallet. At least when you run out because you’ve overspent you’ll actually notice that it’s happened.

So how do I stop using micropayments?

Simple – deactivate contactless functionality on your debit and credit cards.

Ideally we want to make it as hard to spend small amounts as it is to spend large sums – every purchase should require a minimum effort.

You should also remove ApplePay or its equivalent from your phone. If you have the discipline, you can simply forbid yourself from using contactless payments.

If they’re so convenient they’re hard to give up, then you should open a new bank account with a fixed budget per month and only use that account for micropayments.

In London, contactless debit cards are how most residents pay for public transport, but then that should be the only thing they’re used for.

As a general rule, every time you spend money, that should be a deliberate and conscious decision that takes into account you budget and your financial plan.

Contactless payments and micropayments in general work against this by lowering the decision threshold for purchases, which encourages lots of small and unconsidered spending.