What is the Cashless Effect?
The Cashless Effect states that the more tangible payments are, the more psychologically painful it is for customers to spend. The Cashless Effect is related to a concept called “pain of payment.”
It’s why people on a budget find it easier to track their spending when they use cash instead of credit cards. The more painful it feels to pay, the less people will spend.
The Cashless Effect in the real world
The Cashless Effect has been studied in many different scenarios. For example, in one study, researchers found that people spent more when apartment laundry rooms took cards instead of coins.
In another study, researchers at MIT asked people to bid for a pair of tickets to a sporting event. One group was told they’d be paying with a credit card, and the other group was told they’d be paying with cash. The subjects in the credit card group bid up to 72% more for the tickets than those who were told they’d be paying with cash.