Transaction Trends

It’s not just time that people spend on their smartphones. It’s their money, too. And according to a new study, it’s having an impact on how they spend their dollars.

A recent study from researchers at the University of Illinois at Urbana-Champaign found in an analysis of transaction data from one of the largest banks in China that total transaction amount among increased by 2.4 after the adoption of a mobile payment channel.

The study analyzed a data set of over 2 million credit card issuances between 1989 and 2013 in China, a data set of consumer demographic information, and a set of transaction-level information from September 2010 to February 2013 in China, according to the study. The study compared the utilization of multiple payment channels, including physical cards, offline purchases and Alipay, a mobile payment channel.

The study found that frequency increased substantially too. The total number of retail transactions increased over 23 percent, driven by consumers purchasing low-cost items with Alipay. Across the physical card channel, spending decreased by nearly 4 percent as consumers in China replaced their cards with their smartphones.

“Once consumers adopt mobile payment and integrate it into their daily lives, it effectively replaces the credit cards in their wallets,” said Yuqian Xu, an author of the study and a  professor of business administration at the University of Illinois, in a release from the university. “It’s the future of how consumers will pay for small-ticket items, which means you will see fewer and fewer people carrying actual, physical credit cards in the coming years. They’ll just carry their phones, so they may not even need their wallet. It’s more convenient and it merges payment channels.”

The mobile wallet channel made consumers more likely to spend on things like entertainment, travel and dining-out, the study found.

“Switching to the mobile channel leads to more shopping overall, and it particularly affects more hedonistic shopping such as food, entertainment and travel,” Xu said. “Most of the retailers that produce low-cost items that are sold with great frequency – those retailers are really embracing mobile payment channel and are at the vanguard of the movement,” Xu said.

The study analyzed the Chinese market, which has a more advanced mobile payment channel than the United States. However, as the study notes, mobile payments in the United States are growing rapidly. As mobile payments adoption in the United States grows and so too does its impact on consumer spending, Xu says that retailers should offer customers multiple channels to pay for their goods.

“If you’re in an industry with a high number of transactions or transaction frequency, it’s really in your best interest to get ahead of the curve and embrace the mobile channel,” she said.

The co-authors of the study are Anindya Ghose of the Stern Business School of New York University and Binqing Xiao of Nanjing University. Click here to read more.