Cashless Effect

We pay more when we can't actually see the money.

In a study on two major apartment complexes in the US, researchers found that people spent less on laundry when their machine accepted coins than when using a prepaid card system. In a nutshell, paying by card influenced the apartment residents to spend more on their laundry!

Soman (2003) The Effect of Payment Transparency on Consumption: Quasi-Experiments from the Field. Marketing Letters

The fact that paying hurts seems rather obvious, doesn’t it? If, given the option, we’d never part with our money! Yet in the real world, we’re unfortunately required to do so almost every single day of our lives.

But what’s fascinating about this bias is the fact that it’s all about how observable or transparent the payment actually is. The lower the payment transparency or the less tangible a payment is, the more we consume. Cash is the most transparent form of payment; when we hand over those notes and coins, we can see, feel and smell them.

This serves as a solid explanation as to why many of us run into credit card debt - paying using a piece of plastic makes the payment far less transparent than when we use money, influencing us to spend more, proving that credit cards can be a dangerous thing. What you can’t see won’t immediately hurt you…

In another, similar experiment, it was found that when asked to bid for a pair of tickets to a sports event, those who were told they would be paying by credit card bid a significantly larger amount than those who were told they’d be paying by cash (Prelec and Simester, 2001). Crazy hey?

And when considering credit cards and cheques, cheques are the lesser of the two evils. Soman (2001) has found that consumers who paid for a product by credit card rather than cheque experienced less psychological pain and were more willing to incur a given expense. Cheques appear to take that middle road between cash and card; physical, yet nevertheless abstract in principle.

Key takeaways for Decision-Makers

  1. Less pain = more sales Make it effortless. Reduce the pain of paying by making your payment mechanism really easy, requiring less conscious effort, sequential steps and time, both for the consumer and the staff member. Apple & Amazon have been capitalizing on the pain of paying by introducing new technologies such as Apple Pay, which involves Apple users simply waving their gadgets in order to pay for purchases and Amazon’s patented “1 click ordering” technology. As we speak, both companies are doing very very well…
  2. Simplicity pays off ribot, a design agency in Brighton, have just won a Payments Award for their frictionless digital payment experience for UK coffee chain Harris+Hoole. Check the payments experience and case study.
  3. The Tip Trick Restaurants are now using the Cashless Effect to get people to tip more. When making a credit card payment, many programs provide customers with a range of tip options. Tipping at the higher rate (i.e. choosing the higher tip options) may not feel as painful as tipping at the same rate when parting with cash, therefore influencing customers paying by card to tip more. Restaurants particularly confident in their service could go further and offer a suggested default tip amount on-screen, perhaps rounded up to a whole number. See Round Pricing Preference for the reasons why.
  4. Increase your pain to financially gain As a shopper, at the beginning of each week, go to the cashpoint and withdraw the cash you need for the week, perhaps for food spending. Use this cash instead of your card for all relevant purchases. This simple technique of making your weekly budget both limited and tangible has been shown to be incredibly successful for financial control and the prevention of over-spending or dangerous short term impulse-buying. Read more about the system here.
© Coglode Ltd

Further Reading

Related articles

Coglode Behavioral Insights Training with


A tool to quickly understand, share and apply behavioral insights
Find out more
Stay ahead with the latest behavioral insights
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form

NEW Online Training

Understand & apply Behavioural Insights with our Nuggets toolkit

26-27 October 2020

Check availability

Ends today

Free lifetime shipping on Nuggets

Find out more

Get notified when we release new behavioral insights:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form