Chicken Tikka Masala and The Perils of Frictionless Spending

“The easier it is to spend, the more likely you are to do it.” These were the wise words of my fiancé as he bypassed the credit card payment section on the online food ordering site EAT 24, and instead clicked the “Pay with Paypal” button.

The difference, of course, is that a credit card would have enabled us to pay later while Paypal made an instant deduction from our bank account.

Half an hour or so later, as I collected our Chicken Tikka Masala from the delivery man — tip was factored into the total so I didn’t have to fumble with dollar bills as I juggled my takeout — I pondered how plastic cards and electronic payment options have changed our spending habits, both online and at physical points of purchase.

For starters, we’re all using cash less and other payment methods more. That being said, cash is still king…sort of. Cash ranks first in the absolute number of transactions at 40%, followed by debit cards at 25%, and credit cards at 17%. Electronic methods (online bill pay and bank account number payments) and paper checks account for 7% each. All other payments represent less than 5%, with text and mobile at less than one half of one percent.

But cash accounts for a lower percentage of the absolute value of transactions than other methods, at 14%. Checks account for 19%, credit cards for 16%, debit cards 18%, electronic payments at 27% (heavily influenced by online bill pay), and all others, 5%. For example, the average value of a cash transaction is $21, compared with $168 for checks and $44 for debit cards.

These numbers support my belief that “frictionless” forms of payment lead to more spending. In fact, it turns out that credit card users spend an average of 12 to 18% more than cash-only users, in part because of the psychological disconnect between hard currency and the more abstract concept of “credit.”

Credit cards aren’t all bad news, though. Their advent started the trend toward streamlining the process of paying. The pay-with-bank-account model (with Paypal as a prime example) followed. And the easiest of all, mobile pay, which relatively uncommon today, is growing in use.

Electronic payments make paying for things more convenient, but they also increase temptation for people who use systems such as Square that are linked to credit as opposed to a bank account. Setting up electronic payment systems that link to credit, and then succumbing to the temptation to use them too much, can lead to broken budgets and mountains of credit card debt.

It used to be that pulling that last dollar out of a billfold served as a strong reminder that we shouldn’t spend more than we have or more than we can pay back. Those days are increasingly rare, and so we’ll have to find other ways to rein in our spending.

My fiancé and I have each other. How about you?