Impact of Online Payments on Household Financial Management

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Nov 24, 2024

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1 The Online Payment (Consumption, Payment) on Household Financial Decisions Student’s First Name, Middle Initial(s), Last Name Institutional Affiliation Course Number and Name Instructor’s Name and Title Assignment Due Date

2 The Online Payment (Consumption, Payment) on Household Financial Decisions By leveraging technology to deliver new and improved financial services, FinTech is entitled to improve people’s day-to-day lives by allowing them more direct access to their money in real-time. New payment methods and loan and investment management services are just a few examples of how these cutting-edge innovations might affect a family’s overall financial picture (Agarwal & Chua, 2020). There has been a surge in financial technology FinTech in the last several years; it is time to discover if common people have reaped any benefits from this. Through the viewpoint of personal financial management, this study reviews the available empirical data from the academic literature that greatly contributes to the online payment technology. It is expected that the expansion of FinTech will expedite the use of online payments and mobile money. Examining the costs and advantages of phasing out paper money, Luo et al. (2022) noted that expanding online payments will reduce the domestic demand for cash over time. The cash portion of retail sales is anticipated to decrease by 2.54 % annually in the United States (Luo et al., 2022). The adoption of the central bank digital currency in the future has the potential to change the whole monetary system. In our analysis, we utilize natural experiments to examine the consequences of the digitization of payments in various nations. These include demonetizing Indian currency, adopting debit cards in Mexico through the Prosper conditional cash transfer scheme. Payments are related to many methods of transferring funds. Advances in payment technology might alter the payment methods used by households. Therefore, it is essential to investigate how changes of payment forms affect the well-being of households. This section focuses on two significant improvements in the payments system that impact households: mobile money and online payments.

3 Online payments are payment systems that allow people to pay digitally instead of using traditional methods such as cash or check. These include usage of credit debit cards, e-wallets, and mobile phones. It is intended to shed light on the effects of online payments on households that transition from cash-on-demand to online payments (Agarwal & Chua, 2020). For instance, in Mainland China residents can pay their home bills online in a few different methods. In most cases, customers will utilize a third-party payment platform like Alipay or WeChat Pay (Kow et al., 2017). Users may link their bank or credit card accounts to these sites and make payments from their mobile devices. A second option for making online purchases is to use the online banking service provided by a domestic financial institution. The user must have a bank account in China, and there may be costs involved. Last but not least, some businesses provide international wire transfer services that may be used to send money to China over the Internet. In Hong Kong, you may use a variety of online payment systems including PayMe, Octopus, and Alipay. Each platform has its own set of benefits and drawbacks. When it comes to sending money to family members, PayMe is a great option, while Octopus is widely accepted at stores all throughout Hong Kong. One of the most used payment methods for internet purchases is Alipay. In China, Alipay is a widely used online payment system for sending and receiving money. It's quite similar to PayPal in that it facilitates the secure and easy transfer of funds over the internet. Through the use of Alipay in both Mainland and Hong Kong greatly create trust not only to the businesses but also to the individuals as it is the safest way of transacting money without carrying it in bulk. The research also examines the spending habits and financial management aspect in relation to how it is impacted by online payment. On the expenditure side, internet payments have an effect as a result of streamlining the purchasing process. Because of this, consumers may

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4 either increase their spending or begin making more purchases via digital mediums which involves the transaction cost based on the purchases they make. Online transactions have the potential to affect how people pay by simplifying the usage of credit and debit cards and introducing new payment options like Alipay which as turned out to be the most common means of online payment. Alipay's innovative derivatives financing strategy and online storage strategy is beneficial to the growth of electronic payments. This is due to the fact that Alipay-supported credit goods and services are now available to users. As a result, buying things and paying for services over the internet is now both simpler and cheaper for consumers. The new model has also made it possible for customers to utilize their Alipay accounts for money management and shopping at their convenience. Mobile money in turn allows users of mobile phones to make deposits, transfers, and withdrawals without a bank account (Agarwal & Chua, 2020). This differs from online mobile banking, which enables customers to perform online banking chores with the help of mobile phones. Mobile banking is offered by telecommunications firms and allows families to pay directly using their SIM cards. Simply registering with a mobile money agency is sufficient to open an account. There has been a rise in the use of mobile money, especially in developing nations with limited bank branches but widespread mobile phone usage, thus rise in unbanked individuals into the financial system, thus promoting financial inclusion. However, at some point, it has been noted that most American citizens suffer due to the weight of their debt decisions and evidence of social/psychological determinants of excessive consumption. Hikida and Perry (2020) imply that consequences may, at one point, vary among families. Some households may expect higher debt-to-income ratios, making them more vulnerable to shocks and future debt traps; nevertheless, it is challenging to distinguish scenarios

5 where credit decisions may have been logical ex-ante, but chance conditions led to a debt cycle. Despite the significance of credit in the household lifecycle model and its empirical prevalence and size, there are still many unsolved research problems that concern consumer debt. One topic pertains to the influence of higher credit availability and credit alternatives on household financial sustainability. Theoretically, if families are rational credit users — weighing risks and economic advantages throughout their life cycle — then, by definition, greater access and choice increase societal welfare. The relationship between FinTech and home finance showed that FinTech has impacted all facets of household finance. As economic uncertainty and family income volatility grow in the new economy, FinTech’s more efficient online payment systems can stabilize consumption. This is especially significant for households with less structured employment arrangements in the gig economy.

6 References Agarwal, S., & Chua, Y. H. (2020). FinTech and household finance: A review of the empirical literature. China Finance Review International, 10 (4), 361–376. Hikida, R., & Perry, J. (2020). FinTech trends in the United States: Implications for household finance. Public Policy Review, 16 (4), 1–32. Kow, Y. M., Gui, X., & Cheng, W. (2017, September). Special digital monies: The design of alipay and wechat wallet for mobile payment practices in china. In IFIP Conference on Human-Computer Interaction (pp. 136-155). Springer, Cham. Luo, S., Sun, Y., & Zhou, R. (2022). Can FinTech innovation promote household consumption? Evidence from China family panel studies. International Review of Financial Analysis , 82 , 102137.

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