Retailers encouraged to embrace cashless revolution

As cash payments continue to be phased out worldwide, consumers have ever-increasing ways of electronic payment options at their fingertips. But new research shows these cashless payment methods are causing shoppers to spend more than they would if they used physical money.

Researchers from the University of Melbourne and the University of Adelaide have conducted a large-scale analysis on the ‘cashless effect’, which argues consumers spend more using cashless payment methods such as credit cards, as the ‘pain of paying’ is higher when shoppers are required to part with physical money.

The study, which involved 11,257 participants and spanned 338,513 transactions across 17 different countries, was conducted by analysing 71 papers written between 1978 and 2022.

The findings indicate while consumers typically spend more using cashless payment methods, the cashless effect has waned over time.

Dr Alex Belli from the University of Melbourne said, “Recent data shows only 13 percent of Australians now use cash payments to make all of their purchases. Consumers are becoming so used to cashless transactions that their memory of the psychological pain associated with using physical cash could be fading, thus weakening the cashless effect.”

The study also revealed consumers tend to outlay more money on goods and services when they use tangible cards that delay the payment such as credit cards or certain types of Buy Now Pay Later schemes. Researchers believe this is because those methods are considered more comfortable payments than cash transactions.

The study also showed that the cashless effect is stronger when consumers make purchases that provide psychological value such as perfume, as opposed to more practical purchases like buying a dishwasher. This is because justifying emotional purchases is considered harder to do, and therefore the psychological pain of paying in cash in these situations is higher than using cashless payment methods. However, the analysis rejects this hypothesis, with the findings indicating the cashless effect isn’t influenced by these types of purchases.

“We did find the cashless effect is stronger for purchases made primarily for the purpose of displaying wealth or attaining social status. Our research also suggests the cashless effect is weaker for pro-social purchases such as donations. This could be because the overall pain of payment for charitable purchases is lower, thus weakening the cashless effect,” Dr Belli said.

These findings provide valuable insights into consumer spending and there are learnings for retailers.

“If retailers don’t embrace the ‘cashless revolution’ then they’re jeopardising their revenue potential. However, public policymakers should offer targeted support to consumers to ensure they’re aware that cashless payment methods can cause people to spend more than they intend or can afford. Additionally, retailers are urged not to exploit the cashless effect by encouraging customers to use debit cards rather than credit cards, as this could help dissuade shoppers from living beyond their means,” Dr Belli said.

Media enquiries: FBE-media@unimelb.edu.au