Moving away from cash is a great thing. Both consumers and businesses benefit from accepting e-payments. In comes lifestyle payment apps. These lifestyle payment apps provide the ability to make e-payments but at a whole different level. On top of the benefits that these lifestyle payment apps bring, there are also costs to both consumers and businesses. This article will focus on lifestyle payment apps. Are lifestyle payment apps really beneficial for consumers and businesses? We will explore this below.
What Are Lifestyle Payment Apps?
Photo by David Dvořáček on Unsplash
Lifestyle payment apps not only allow for e-payments but also reward users for paying through their app. These apps try to be a one-stop solution for all our lifestyle needs, encouraging us to make all our transactions through their app. We can hire transport, book movie tickets, order groceries or even schedule trips via these lifestyle payment apps.
Rewards include cashback, discounts and earn points. Some of them even provide Buy-Now-Pay-Later (BNPL) services and other financial services to become their own finance company.
The basic business model of these lifestyle payment apps is to charge a processing fee and gain commissions from transactions that go through their platform. As a treasure horde of transactions passes through their system, the data analytics of consumer spending habits might also be worth a lot of money directly (selling data) and indirectly (opening new revenue streams by identifying lucrative segments).
Examples of lifestyle payment apps include
- Singtel Dash
- Shopee Pay
- Shopback Pay
- Grab Pay
- Fave Pay
- Google Pay
- NETSPay
Difference Between Lifestyle Payment Apps Vs Banking Apps
We will also need to differentiate lifestyle payment apps from plain banking payment apps. These banking payment apps focus more on the payment aspect, although they also have some lifestyle options. The three major banks in Singapore all have their own mobile payment solutions.
- DBS Paylah
- OCBC Pay Anyone
- UOB Mighty
The basic business model of banks is providing credit, processing transactions and providing investing options. They work via the PayNow system and there are currently no fees for customers paying or businesses receiving payments. They also see a high volume of transactions passing through them so the data analytics of consumer spending habits are a possible revenue stream.
Different Payment Types Of Lifestyle Payment Apps
Besides the basic direct payment electronically for products and services, lifestyle payment apps also provide different payment types for the consumers’ benefit. For all of these options, the lifestyle payment apps will receive a cut whenever a payment is made through them.
Direct Payment
This payment type is the most straightforward option. We either top-up the mobile wallet in advance or pay via a credit/debit card linked to the app then make payment using the app after the purchase. Additionally, if there are points or cashback earned previously, they can also be used for payment. The purchase can be made both in-app, online and offline.
eCards And Vouchers
Consumers pay upfront for eCards or vouchers for their favourite merchants and they usually get more value for what they pay (S$8 for a S$10 voucher). They come in the form of a cash voucher that can be spent on anything but is exclusive to a specific merchant.
On a side note, think carefully before signing up for huge packages. It is good for the business for upfront cash flow while customers get lower discounts by paying upfront. However, what if the business goes bankrupt? This has happened to gyms and also nail salons.
Deals
This is similar to eCards and vouchers, however, the pre-purchased deal usually applies to specific products and services. These offerings are usually used to promote certain new products or to get potential customers to try out their best products in an attempt to convert them into loyal repeat customers.
Buy-Now-Pay-Later
Buy-Now-Pay-Later (BNPL) is the hottest credit flavour lately. It allows for penalty-free instalment payments. This option allows individuals that don’t qualify for credit cards to have access to some form of credit while also providing additional credit to individuals that already have credit cards.
In comparison, if we don’t clear our credit card bill in full monthly, which we always should, we will get hit by high-interest rates. For BNPL, the company providing the credit will pay the merchant upfront after taking a cut.
Benefits Of Using Lifestyle Payment Apps
For Consumers
Promotions
In order to encourage consumers to spend through their apps, these apps work with other businesses to give promotions that are exclusive to their platform. There can be some insane deals and teaser rates when we use the apps. This will likely continue as they try to gain more market share.
Earn Reward Points And Cashback
By spending through these apps, consumers are able to gain points or cashback, rewarding consumers for spending and taking away some of the pain of spending money. This encourages consumers to spend more as they feel like they are getting a greater bang for their buck, focusing on the amount saved instead of the amount spent.
Stacking Lifestyle Payment Apps
On top of the reward points and cashback, consumers are also able to stack multiple apps with credit cards for additional points. An article from Seedly has covered this topic. An example given is
- Top up GrabPay with miles credit card to earn miles
- Pay using a credit card to earn Grab points
- Use GrabPay to fund FavePay to earn cash back
By paying via this convoluted method, it will allow a consumer to gain rewards from 3 avenues instead of the plain cashback or miles if we just pay using a credit card or a single app.
Additional Credit And Cash Flow
These apps also provide additional credit to consumers via BNPL. This will provide consumers with additional credit and cash flow when they use this service. As BNPL does not charge additional fees on the consumer side, it allows customers to enjoy an item with a lower upfront payment without any direct increase in costs. Consumers will also be able to pay off BNPL payments with credit cards, stacking credit on top of credit.
Cashless, Convenience And Tracking
This point applies to e-payments in general. These apps make it easy to pay. Payments are directly deducted from mobile wallets, cards or bank accounts, allowing consumers not to have to deal with cash and change. When consumers use one app for everything, it allows them to consolidate earning power to potentially earn more points and cash back. Paying electronically also automatically captures all transactions made to allow the consumer to track their expense.
For Businesses
Higher Spending
Consumers spend more when making use of these lifestyle payment apps. Besides feeling less pain from spending, promotions, deals and BNPL services also encourage spending more or even spending at a place we wouldn’t think of spending in the first place.
According to Fave, when using their BNPL service
- Customers spend 180% more
- 45% of new customers visit due to the presence of BNPL service
- Spend 40% more when BNPL is available.
Upfront Payment
Customers make upfront payments to businesses when they purchase vouchers or deals. When consumers purchase vouchers or deals, they are essentially locking their spending in their next few visits in advance. This improves the cash flow of businesses when they are able to receive the money in advance, only providing the product and service in the future or even not at all. These vouchers, deals and balance points have expiry dates and when they expire, they no longer are obligated to provide the product and service. The upfront payments are also merchant exclusive, guaranteeing spending at the specific business, locking in the customer’s dollars to be spent only at their business.
Marketing
Just being on the platform is a form of marketing to reach out to all of the users of the lifestyle payment app. If the business would like to reach more users, they will be able to pay for advertising in the app. Consumers will also visit a business proactively if they offer BNPL services.
Customer Loyalty Programme
Businesses will not need to spend on creating their own customer loyalty programme. They can instead just make use of the platform’s inbuilt functions like giving away store-specific cashback or selling discounted vouchers. This will encourage customers to become repeat customers.
Customer Spending Insights
Businesses will also be able to make use of inbuilt analytics to provide them with customer spending insights. By looking at the spending patterns of consumers, they will be able to see what products are popular and how much consumers are spending. They will then be able to better predict inventory needs and come up with new products or pricing strategies to increase customer spending.
Cashless
The cashless option is not only beneficial to consumers. Businesses will not have to deal with change, long queues for bank deposits, inaccurate collections and theft.
Costs Of Using Lifestyle Payment Apps
For Consumers
Higher Prices
Most of the deals and promotions are already priced in the final price. Additionally, promotions might also be short-term to encourage usage of the platform and will go away once the platform outlasts its competitors. We might think that we are getting a good deal, but we are actually paying more overall for these rewards. Rewards, cashback and giveaways all cost money. They will either come from the consumer, the business or the platform. The apps prey on consumer psychology using pricing strategies.
| Which is more attractive? | |
| Price $5 | Price $6, receive $1 cashback |
| Price $5 | 50% discount of $12 |
Buying on credit using BNPL and paying through the app also cost the business so they will adjust the prices up accordingly. These reward schemes reward the biggest buyers and those who make full use of all the different kinds of promotions. Casual buyers are essentially subsidizing the rewards of serious users of the app as they disproportionately earn most of the rewards. It is even worse for consumers who don’t use any apps at all as they will be charged the mark-up prices without enjoying any of the benefits. This is the same as credit cards where businesses have to increase prices to make up for the credit card commissions.
Higher Spending
Due to e-payments, consumers will feel less pain when spending, making us spend more easily. The more simple the payment method, the lower the pain (a few clicks vs taking out cash or card from our wallet)
The convoluted rewards system is made to be confusing. If we are unable to calculate easily what is the actual price we are paying, we will just remember that we get rewarded for spending instead of the net price we pay.
There are also gamification and constant notifications to encourage us to open the app. Once in the app, there is a chance of us making a purchase. It is a numbers game where a percentage of app users will make a purchase. By bringing up the number of active users on the app, they will directly increase their sales.
Build Bad Habits
Making a transaction on these apps is so easy that it can build unhealthy habits. I have seen people surf these lifestyle payment apps as entertainment, looking for deals that they can buy. We used to treat booking a cab as a premium option when we have to call for one. However, now, booking a cab via an app is the default option.
Once we get used to the attractive promotions and rewards given by these platforms, we will continue to spend on them even after these promotions go away as a habit is already built.
Risk Of Funds
When we pay for vouchers or top up our mobile wallets, we might lose our funds if the platform or the specific business goes out of business.
Hostage To Platform
Earned rewards are stuck on the platform so we are unable to move. Once competitors are priced out of existence, now there is a monopoly/duopoly left, and we will have no choice but to use that platform. They can raise commissions, prices or change the terms and conditions and we cannot do much about it. The alternative is not using any platforms, resulting in paying the higher prices caused by these platforms. If we decide not to use any of these payment apps, we will be paying the marked-up prices without enjoying any of the benefits like cashback and points.
For Businesses
Lower Margins
By being on these lifestyle payment apps, they will have lower margins. The earned rewards and payment processing fees will all cut into the margins of businesses. There is a limit to how much the business can increase prices to make up for lost margins before consumers stop buying from them.
Hostage To Platform
Similar to consumers, businesses are also held hostage to various platforms. They can change T&Cs, increase fees, or even shut down and the business will be stranded. If there are periods of downtime, the businesses will also face some of the heat despite not being at fault.
As the mainstream trend is to be accepting payments from these platforms, businesses can find it hard to compete if they decide not to be on the platforms.
Are Lifestyle Payment Apps Even Viable Business Models?
Photo by Scott Graham on Unsplash
After looking at the consumer and businesses, we will turn our focus to the lifestyle payment apps themselves. Are they even viable business models in their current state? Most if not all of them are bleeding investors’ money in an attempt to become profitable.
In order to become profitable, they will need more market share, even then, they might not be profitable. They will then need to increase commissions and other fees, leading to an increase in overall prices that consumers will have to pay. This is because businesses will have to mark up their prices to cover the increase in fees. The increase in fees will increase the profitability of the app at the cost of businesses and consumers.
These lifestyle payment apps have high fixed costs from their sassy offices in CBD with free massages and food for their high-salaried employees. They also have to spend a lot constantly on their apps to make sure they are running smoothly and to add new features.
When they are flush with investors’ cash, they can have a high number of active users by giving attractive rewards despite being at a loss. All businesses will have to be profitable someday and when the day comes, will their services still be attractive to users and businesses? Or will we be held hostage as there are no other alternatives? We shall see what happens in the future.
Getting The Best Out Of Lifestyle Payment Apps
So how can we get the best out of lifestyle payment apps while avoiding the pitfalls?
Turn Off Notifications/Delete App
Don’t let the app dictate when you open the app. Turn off notifications so that they will not be able to tempt you into opening the app. Even if you just get tempted once out of the hundreds of notifications, they win.
Even better still, delete the app once you are done with your purchases. Only reinstall the app when you need to buy something.
Only Buy What You Need
Don’t surf these apps as entertainment. They are a tool for us to buy things conveniently and not something to do when we are bored. We should also treat the rewards as a bonus and not the reason we buy something in the first place. All purchases should be made mindfully and based on our needs and wants and not because of rewards or having to relieve our shopaholic itch.
Pay Directly
Once we find something that we like via these lifestyle payment apps, we should try to go direct to the company if possible. Check if the businesses have their own website and purchase directly from them to help your favourite businesses avoid the platform fees.
Companies should also set up their own websites and online store so that they will not be held hostage to the platform if suddenly terms change and margins are cut. Companies will be able to transit out of the platforms and rely on their own sites.
TL, DR
Lifestyle payment apps provide convenience and savings for both consumers and businesses. However, there are also bad points in using such apps. These platforms are not profitable at the moment and once they try to turn a profit, it will hurt both consumers and businesses.
Do let me know if you have stories to share or anything to add on how to make full use of lifestyle payment apps.
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