Cashless Payments Make You Spend More: Research

This illustration picture shows debit and credit cards arranged on a desk in Arlington, Va. on April 6, 2020. Olivier Douliery/AFP via Getty Images

Consumers tend to spend more money when using cashless payment methods rather than traditional cash, Australian university researchers revealed.

The findings were published in the Journal of Retailing following an analysis of 71 research papers from 17 countries that included data from 11,000 unique individuals.

In the paper, the authors noted that 40 years of research links cashless payment methods, such as credit cards or Apple Pay, to higher consumer spending. This is also referred to as the “cashless effect.”

“I believe this research is crucial because it shines a light on an overlooked aspect of this transition: how payment methods influence our spending behaviour,” said lead author Lachlan Schomburgk, a Ph.D. student at the University of Adelaide.

“This understanding can help empower us to make more informed purchasing decisions.”

Carry Cash for ‘Self-Control’

Mr. Schomburgk recommended carrying cash, as it can help prevent losing count of the amount being spent.

“When using cash, people physically count and hand over notes and coins, making the act of spending more salient. If nothing is physically handed over, it’s easy to lose track of how much is spent,” he said.

“To prevent spending more than planned, we recommend consumers carry cash instead of cards whenever they can, as it acts as a self-control method.”

What Influences The Cashless Effect?

The paper used meta-analysis to identify key factors that make the “cashless effect” stronger or weaker.

It found that people spend more with cashless methods especially when buying products that signal status, like jewellery, and during positive periods of the business cycle, such as an increasing GDP growth rate.

However, researchers found that the cashless effect has “weakened over time” as people are increasingly familiar with non-cash methods.

Researchers also didn’t observe the cashless effect in the case of tipping.

“Against our expectations, we found that cashless payments do not necessarily lead to greater tips or donations, in comparison to cash,” Mr. Schomburgk said, according to an article published on the University of Adelaide website.

“This indicates that traditional cash-based ways of collecting money, such as tipping jars and spiral wishing wells, are just as effective as cashless point-of-sale terminals to collect tips or donations.”

The professor also noted that buy-now-pay-later services and cryptocurrency payments are likely to influence payment behaviour in the future.

“Given their novelty, there is currently limited academic research on both, which is where I believe future research is needed.”

Cashless Society ‘Almost Inevitable’

At the same time, Mr. Schomburgk said the transition to a cashless society is “almost inevitable” in the future.

If businesses “fail to embrace the cashless revolution,” they might be unintentionally impacting revenue potential, he argued.

“And policymakers should communicate to individuals unfamiliar with cashless transactions, such as people who don’t have bank accounts, about the potential of cashless methods to lead to overspending.”

Keeping Cash Bill Introduced Into Parliament

Australia is currently among the frontrunners of digital payments globally, but some have expressed concerns about the move to a cashless society.

By the end of 2022, cash was used in just 13 percent of payments, compared to the 69 percent in 2007. In the same period of time, card payments have surged from 26 percent to 76 percent.

On June 3, Independent Member for Calare Andrew Gee (pdf) introduced the “Keeping Cash Transactions in Australia Bill 2024” that will “preserve the use of cash” in Australia’s national economy.

He said the bill will legislate that businesses operating in face-to-face settings must accept cash payments for transactions under $10,000 (US$6,667).

“The bill provides for maximum civil penalties of $5,000 for individuals and $25,000 for companies. It should be noted that they are civil penalties as opposed to criminal penalties,”  he said.

Mr. Gee noted many senior Australians “simply do not want to use cards for their transactions.”

“Not everyone is able to use online banking services. Many find managing accounts and cards online to be stressful, and confusing,” he said.

Katter Australia Party Member for Kennedy Bob Katter seconded the bill, noting the main point of the bill is, “do you want your bank manager to decide whether or not you can buy a loaf of bread?”

“There is no doubt that we’re running pell-mell into some sort of dystopian society in which a handful of people control every aspect of our lives,” he said.

“And [the bank manager] might think it’s good not to cash your cheques or allow you to use your card,” Mr. Katter added.