A new research paperSee Banknote paper. More titled “Less CashMoney in physical form such as banknotes and coins. More, More Splash? A Meta-Analysis on the Cashless Effect” by Lachlan Schomburgk (University of Adelaide), Alex Bellib (University of Melbourne), Arvid O.I. Hoffmann (University of Adelaide) explores how non-cash paymentA transfer of funds which discharges an obligation on the part of a payer vis-à-vis a payee. More methods, like credit cards and digital payments, influence consumer spending compared to cash.
The “cashless effect” refers to a phenomenon where consumers tend to spend more when using non-cash payment methods instead of cash. This has been a consistent finding over the past 40 years of research. The reason behind this effect is often linked to the “pain of paying” – the psychological discomfort experienced when spending moneyFrom the Latin word moneta, nickname that was given by Romans to the goddess Juno because there was a minting workshop next to her temple. Money is any item that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular region, country or socio-economic context. Its onset dates back to the origins of humanity and its physical representation has taken on very varied forms until the appearance of metal coins. The banknote, a typical representati... More. When paying with cash, the pain of paying is stronger because the money is physically handed over, making the loss more tangible. In contrast, cashless methods like credit cards or mobile payments reduce this pain, making it easier for consumers to spend more.
With the growing popularity of digital payments, researchers have questioned whether the cashless effect still holds. Consumers are more familiar with digital payments now, which could reduce the psychological impact of using such methods. Additionally, some studies have challenged the robustness of the cashless effect, suggesting that it might be influenced by different factors and vary across different situations.
This study synthesizes data from 71 papers and 392 individual studies to better understand the cashless effect. The meta-analysis reveals several important insights:
The primary theory explaining the cashless effect is the “pain of paying.” Cash payments create a higher sense of loss because the money is physically handed over, leading to more careful spending. In contrast, digital payments reduce the pain of paying, allowing for more spontaneous and higher spending. Other theories suggest that digital payments may also make previous purchases less memorable, leading to more spending, or that the convenience of non-cash payments facilitates greater expenditures.
The findings have important practical implications:
The paper suggests several areas for future study:
The research confirms that digital payments still influence spending behavior, although the effect is smaller than in the past. It is shaped by various factors such as consumption situations, economic conditions, and the passage of time. These insights can help stakeholders make informed decisions about payment options in a rapidly digitizing world.