Addressing the demons of digital transactions

Addressing the demons of digital transactions

Mrin AgarwalDirector, Finsafe India

India is leading the world in terms of the adoption of digital methods of transacting. Today you can pay online for your shopping, transfer money online, invest and monitor your portfolio online and also take loans online. Gone are the days when one had to carry cash. Nowadays even a pan shop accepts payments digitally.

The government needs to be lauded for the push to digital payments which has made life convenient for everybody. No more does one need to look for an ATM or search for exact change to pay for something.

Digital transactions are also quicker and more secure. It also becomes easy to track transactions as there is a record for everything digital. Keeping cash is not only unsafe but cumbersome as well. For any government, having digital records would mean a lesser opportunity of tax evasion or under-reporting of income by citizens.

However, sometimes the ease of transacting can actually hamper your financial life.

The biggest disadvantage of digital transaction is overspending. One doesn’t give a second thought to the amount being spent when it is being paid by pushing a button. Consumers also do not mind paying more when paying digitally.

When you pay by cash, you have a limited amount available and would be more sensitive to the prices.

Also, psychologically, when you see money going away, you always tend to think of value for money. Further, tools like artificial intelligence which track consumer behaviour will only get individuals to spend more.

These days there are many apps which give loans and EMI option is available for purchases beyond a specific amount. The easy availability of credit causes people to take on loans much beyond what their income capacity, pushing them into a debt trap.  

Investment apps and portfolio tracking sites have become very popular.

However, when investors start tracking daily values of investments, they could end up making the wrong decisions. I am getting a lot of queries from investors on exiting mutual funds because of volatile returns. Essentially, over tracking portfolios can lead investors to be short-sighted with their investments.

Investors also do not read terms and conditions carefully while transacting digitally. For example, while booking airline tickets, some airlines add an insurance cover which needs to be opted out from. But many consumers do not pay attention to these details as the amounts involved are small. Take the case of buying gold online through e-commerce platforms. When you buy gold digitally, you incur making charges twice: first, when you convert the digital gold to physical gold and then when you use the physical gold to make ornaments. Furthur digital gold can only be held for up to 5 years.

Privacy is a big concern with digital transactions. Most apps have access to your contacts, photos, among other things. And many a time, people do not bother to change their privacy settings. All your data is being monitored and stored by companies you transact with and big technology companies who are using your preferences for indirect marketing. Imagine a situation if there is a data breach, not to mention hacking and phishing.

Since digital transactions are a part of our lives, we need to ensure we are not careless. Hence, it has become all the more important to keep a close watch on your accounts and to check all statements diligently. Further, keep a budget for non-discretionary expenses and stick to it. Remove shopping apps or at least stop notifications, so that you are not tempted to spend unnecessarily. Read the terms and conditions and privacy policy carefully before using any app/site for transacting. Finally, do yourself a favour and stop checking your portfolio more than once a quarter.

As Warren Buffet says “successful investing takes time, discipline and patience”.