Much has been said about the opportunity for fintech to make transactions easier for users. But research from the US suggests that new technology to make payments faster could open a Pandora’s Box of financial risks for users.
Citing a study of one electronic system that was conducted by Massachussetts Institute of Technology professor Amy Finkelstein, George Washington University’s Annamaria Lusardi she said that people who use the pass are less aware of how much they pay for the toll than are those who use cash.
“Since our financial decisions should be based on prices and cost comparisons, this is a concern—and it prompted our research team at the Global Financial Literacy Excellence Center to take a closer look at mobile-phone payments,” Lusardi wrote in the Wall Street Journal.
Focusing on millennials aged 18 to 34, the mobile-phone payment study found that users tended to be male full-time workers with higher educational attainment than non-users. Generally more financially active, they also had bank accounts, owned homes, and weren’t shy to use debt instruments ranging from credit cards to home-equity lines of credit.
“[T]roublesome findings emerge when we examine how these financial obligations are managed,” Lusardi said. Millennials that used mobile payment options were also more likely to have costly credit-card habits like paying only the minimum due or incurring fees. They were also more likely to overdraw their bank accounts (33% for mobile-payment users vs. 19% of non-users) and withdraw money from their retirement accounts (37% vs. 9%).
The researchers also found that mobile-payment users were prone to spending beyond their income, even when demographic characteristics such as education and income were separated out. This could be chalked up to the fact that those who use mobile payments had much lower levels of financial literacy than non-users.
“Fintech is not a substitute for financial literacy,” Lusardi cautioned. “When employing payment methods that are easy to use and accessible to all, financial literacy becomes even more indispensable.”
On the bright side, the researchers also found indications that mobile-payment services are attracting users who need help managing short-term debt or minimizing fees, which could also be addressed by fintech innovators with the right services.
High-profile robo chief explains KYC approach
Be digitally savvy and appeal to the mass affluents
More market talk: