Cashless in Canada: Managing invisible money

Paying by card or smartphone is simple, convenient and time-efficient. But if you don't keep up with how much you're spending, the convenience may come at a cost.

Many Canadians will happily opt for a card swipe or phone tap over the hassle of dealing with bills and coins. A 2012 PayPal Canada poll found that 71 per cent of consumers would be content with never having to handle cash during a purchase. invisible-money

That dream is well on its way. Ninety per cent of Canadian consumer payments by value (almost 60 per cent by number of transactions) were already cashless in 2011, according to a MasterCard study.

But studies dating back to 1979 show people spend more when they use credit cards because they don't feel the pain of spending the way they do with cash. Other distractions, such as talking on the phone, dull the sting as well because you're not focused on the money you're spending.

"The less attention you focus on a payment, the less it hurts -- more so when transactions last mere seconds," explains David Hardisty, a University of British Columbia assistant professor who specializes in marketing and behavioural science.

Charles Hooper, an MBA student at York University, admits to overspending via his mobile phone partly because the transactions seem intangible with no real money exchanged. "When I use the current form of electronic payments, I don't know the balances in my accounts, so I'm running blind," he says.

On his wish list: built-in software that instantly displays account balances before and after every purchase. He feels that would help counterbalance his urge to overspend.

Like many Canadians, Hooper admits his prowess with tap-and-go technology sometimes trumps his money management skills. "We're not taught how to budget in school, so I think an educational component on budgeting for cashless payments would also be very valuable," he says.

While those solutions might be nice, there are other things you can do immediately to put the brakes on easy money.

Plan and monitor cashless spending
Mobile payments expert Carlisle Adams suggests making disciplined spending decisions before you arrive at an automated payment terminal. You should have a monthly budget that determines how much you can spend on certain things. Instead of mindlessly swiping or tapping at the checkout, pause, look at your total and determine if it's within your budget.

Executive director of Credit Counselling Canada, Patricia White, recommends not only developing an overall budget, but carefully considering the precise purpose of the cash in your accounts. "You can do so by asking questions like: Is that money designated for rent that is due next week or is it for bills that need to be paid at the end of the month?" she says.

"Consumers should monitor their bank and credit card accounts often -- at least every few days -- to ensure they are within their spending limits [regardless of preferred payment method]," says Laurie Campbell, CEO of Credit Canada Debt Solutions.

Make cashless payments with care
Unlike anonymous cash payments, cashless purchases require personal data so the charges can be authenticated. Every time you hand over that data, you're putting its privacy and security at risk from threats such as data breaches orchestrated by increasingly sophisticated hackers. Those risks are small but real.

American Express, Visa and MasterCard insulate cardholders with a zero liability policy, with possible exceptions for PIN transactions, cash advances taken at ABMs and convenience cheques. Consumers are liable for most debit card losses until they report a lost or stolen card or a compromised PIN.

Current protections for mobile device payments are fuzzier, as highlighted in the Financial Consumer Agency of Canada (FCAC) research paper Mobile Payments and Consumer Protection in Canada (December 2013).

For example, it's unclear whether a card issuer will necessarily assume liability for losses when a mobile device is lost, stolen or otherwise compromised. Clarification is also needed on whether consumers are liable for contactless payments made without a PIN or on an unlocked mobile device.

Adams encourages users to become familiar with complaint-handling policies and procedures, which vary by financial institution, mobile network operator and merchant. Consumers who encounter problems with a federally regulated financial institution can contact the FCAC for guidance on who is responsible for resolving their particular non-cash transaction dispute.

See related: 5 myths about contactless payments; Are paperless statements in the cards for you? 
Published February 21, 2014

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