Digital Dilemma: How Cashless Transactions are Impacting Spending Habits in India

"I've noticed a significant increase in my spending ever since I started using UPI for my purchases,’ says Riya, a 26-year-old software engineer at an IT firm based in Bangalore. The ease of making online payments with just a few taps has changed my shopping behaviour, now I order things that I have no immediate need for," She adds.  Riya's experience is hardly unique. Many Indians today find themselves affected by the nature of seamless cashless transactions, resulting in more spending than they need. “I love UPI! It’s a fantastic way to spend money without dealing with change or carrying cash. You can make payments from just one rupee to Rs 1 lakh in one go. It’s one of the best things in this progressive era,” a person said in a survey conducted by IIIT Delhi.

Unified Payments Interface (UPI) and other digital payment platforms have made transactions more convenient than ever before. However, with this ease of cashless transactions, many individuals still find their pockets ‘empty’ due to ‘overspending’.

In a recent study by Indraprastha Institute of Information Technology Delhi (IIIT Delhi), approximately 74 per cent of people in India are overspending as a result of using UPI and other digital payment methods.

The survey found 91.5 per cent of the respondents were satisfied with their overall UPI experience and 95.2 per cent found UPI ‘convenient’ for making payments. 

The cashless nature of UPI resonated with several people, simplifying the payment process by obviating the requirement to carry tangible currency. 

“Because of UPI Lite, I end up making even the smallest of payments ranging from Rs 5 to Rs 10 digitally. It’s like carrying cash is out of habit now,” Riya mulls conflicted between the feasibility of online transactions and the growing cashlessness it has perpetuated.

As per the survey, around 81 per cent of people use UPI daily. On average, 15.7 per cent mentioned their daily average spending is around Rs 200. Regarding daily spending using UPI, respondents reported a wide range, with amounts varying from Rs 50 to 1 lakh.

As per the survey, a lawyer and a clinic owner said that UPI had remarkably boosted their business operations by increasing payments. The efficiency of quick transactions contributed to a smoother and more streamlined financial process for these businesses, the survey finds.

UPI offers no processing or transaction fees for person-to-person P2P transactions, unlike credit and debit cards. Moreover, processing fees may or may not be applicable, depending upon the transaction amount and other factors. This comes as a benefit for both merchants as well as the customer.

"I encourage my customers to use UPI or cash for payments instead of credit or debit cards to avoid the 2-3 per cent transaction fees, which either come from my earnings or are passed on to

the customer, potentially harming my reputation. UPI offers a real-time, no transaction fees and transparent payment solution," a merchant was quoted as saying in the survey.

‘Merchants charge you extra for cash on delivery (COD) while online transactions come with discounts, offers, and vouchers for future purchases,” says Riya. Businesses offer cashback, discounts, and rewards as an incentive for consumers to make more frequent purchases, further encouraging overspending.

From grocery shopping, cab bookings, and food delivery to all kinds of luxury spending, UPI and other digital transactions have found their way into our lives as digital wallets.

In such a case, overspending is not the only concern associated with cashless transactions. When our intimate identities like transaction habits and behaviours are exposed online other threats like financial security, digital fraud, and identity theft become eminent. However, since the transition to cashless transactions is unavoidable, individuals need to find a harmony between convenience and financial accountability.