Impact Of Digital Payment Systems On Consumer Spending Habits

Abstract

Digital payment systems (UPI, mobile wallets, contactless cards) have rapidly reshaped how consumers transact, potentially altering spending frequency, ticket size, budgeting discipline, and impulse purchases. This study investigates how adoption of digital payments affects consumer spending habits in urban and semi-urban India. Using a structured questionnaire (N = 840) and a difference-in-differences design comparing self-reported monthly discretionary spending before and after adoption with non-adopters as a comparison group we examine mechanisms including convenience, perceived security, rewards/cashback, and financial tracking features. Results indicate a statistically significant increase in spending frequency and average monthly discretionary spend (+9–15% across age cohorts), partially mediated by convenience and rewards, and moderated negatively by high financial literacy. While digital payments improve record-keeping and budget visibility, this does not fully offset convenience-driven overspending for younger users. The paper concludes with policy and managerial implications for responsible product design (soft limits, default budgeting nudges), consumer education, and more nuanced loyalty programs.