This article first appeared in Wealth, The Edge Malaysia Weekly on June 23, 2025 - June 29, 2025

Frictionless payments are booming, from e-wallets and Buy Now, Pay Later (BNPL) schemes to the rise of digital banks. The question is whether such a trend is pushing consumers deeper into debt.

The ubiquity of frictionless payments is reflected partly in the value of goods and services transacted online in 2024, with the Department of Statistics Malaysia showing that total e-commerce spending amounted to RM707.9 billion last year, equivalent to 36.7% of the country’s GDP, versus 16.6% in 2015.

Friction refers to the small barriers or moments of effort during payment. This can be the act of exchanging cash, withdrawing from the ATM or logging into your bank account.

Yuqian Xu, associate professor of operations management at the Kenan-Flagler Business School of the University of North Carolina at Chapel Hill, adds that lower friction often leads to higher spending.

“From a behavioural finance perspective, reducing friction [through acts such as] one-click or mobile payments diminishes the ‘pain of paying’, potentially making consumers spend more overall,” she says.

Xu, along with Anindya Ghose and Binqing Xiao, published a study  titled “Mobile Payment Adoption: An Empirical Investigation on Alipay”.

“Based on rigorous casual analysis, our paper shows that the adoption of mobile payment can increase the total credit card transaction amount and frequency of the [collaborating bank in the study] by 9.4% and 10.7% respectively,” she says.

She explains that this paper demonstrates that the adoption of mobile payments increases both the total amount and frequency of credit card transactions.

“We [found] that the younger generation exhibits a particularly pronounced increase in spending. A potential reason is their higher adaptability to new technologies, which accelerates their uptake and use of mobile payments, potentially amplifying behavioural responses such as reduced awareness of spending,” says Xu.

This increase in the likelihood of impulse spending is caused by the lack of friction in the overall process. Without these small barriers or frictions, the pain of payment is not felt.

Kevin Neoh, head of financial planning at VKA Wealth Planners, says: “While these small steps [of friction] may seem inconvenient or insignificant in our eyes, psychologically, they play an influential function for us. These ‘frictions’ create a pause [that acts] like the ‘speed bumps’ that slow us down, which can benefit us, as it ‘protects’ us from making automatic, emotionally driven decisions.”

In its publication titled The Proposed Features of Malaysia’s Second National Strategy of Financial Literacy 2026-2030, Bank Negara Malaysia also mentions the potential harm that frictionless payments could inflict on consumers. Without the frictions of traditional cash payments, digital payment methods offer a “painless” experience that makes it easier for consumers to spend impulsively without immediate consequences.

As a financial planner, Neoh has witnessed firsthand how digital payments are driving increased spending among Malaysians — a trend consistently supported by both research and his conversations with peers.

“We tend to feel the pain of losing something much more acutely than the joy of gaining something of equal value. So, when we pay with cash, the physical act of handing over money, seeing it leave your hand and having to go to the ATM again collectively make the ‘loss’ tangible and easily felt,” says Neoh.

“In my coaching practice, I often hear clients say, ‘I don’t even realise I’ve spent so much.’ That’s a symptom of low-friction spending environments, where the emotional connection to money is weak or missing.

“Subscriptions — now the model for nearly everything we use — make spending even more frictionless as we often no longer remember or consciously decide to make these payments.”

Some say, however, that frictionless payment itself is not the problem. GX Bank CEO Kaushik Chowdhury says: “The issue is how consumers understand and use frictionless payments. That’s where digital financial literacy plays a critical role.”

He emphasises that the key to preventing overspending driven by convenience lies in promoting financial literacy and encouraging healthier money habits — whether through media collaborations or original content shared on its platforms.

While younger users, being more tech-savvy, are quicker to embrace these options and, consequently, more exposed to the psychological ease of spending digitally, Kaushik   has observed that this group of users is also showing rising interest in investment tools such as MooMoo, signalling an appetite for financial growth.

“The gap lies not in access but in understanding how to use these tools wisely. We’re constantly exploring how digital banks can support better money habits,” he says.

Instead of collecting receipts, digital transactions are automatically recorded and listed on the platform on which the transaction was made. In theory, this method would make online transactions easier for a consumer to track and plan their finances.

Neoh observes, however, that this is not happenig yet in Malaysia. A key challenge with platforms such as e-wallets, online banking and BNPL services is that each tracks spending only within its own ecosystem. Most consumers have accounts spread across multiple platforms and few take the time to regularly consolidate this information to monitor their overall spending.

“Even though the data is there, we don’t always pull it together in a way that gives us clarity. It’s like trying to understand your health by checking five different reports but never looking at the whole picture,” says Neoh.

He notes that this can be especially dangerous among younger people, who are more vulnerable, not just because they are more digitally fluent but also because they are still inculcating financial habits such as setting up proper budgets while managing student debt and navigating peer or social pressures.

Neoh adds that there is also a psychological aspect: “When consumers know they have overspent, they often avoid checking their transaction records out of guilt or shame.

“In theory, digital payments can enhance financial awareness by making it easier to track spending through apps and transaction histories. This may help some individuals manage their finances more effectively. In other cases, however, the convenience and reduced friction of digital payments may lead to more impulsive spending, overshadowing potential benefits from easier tracking.” 

Additional tools that reduce friction — such as BNPL schemes — can further complicate a consumer’s monthly spending. By spreading the cost of a single transaction over three or more months, BNPL can create the illusion of spending less than one actually is.

“The ease and deferred nature of BNPL payments could lead some users, particularly younger or less financially experienced ones, to take on more debt than they can manage,” says Xu.

BNPL schemes have raised concerns about proper budgeting among Malaysians, especially as adoption continues to rise. According to Finance Minister II Datuk Seri Amir Hamzah Azizan, there were 5.1 million active BNPL users as at December 2024 — primarily individuals aged 21 to 45, earning up to RM5,000 a month.

“In my coaching work, I’ve had clients who were shocked to discover just how much of their monthly income was already tied up in repayments,” says Neoh. “Obviously, the amounts looked manageable when we looked at them in isolation. But when we combine all these purchases, the monthly payment becomes overwhelming.”

Neoh recalls a client who gradually began treating BNPL like an extra credit card. What initially seemed like a convenient option eventually became a recurring financial burden, leaving her in a worse financial position than before she started using BNPL.

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