A study led by researchers from the University of Adelaide reveals that individuals tend to spend more when using cashless payment methods than traditional cash. The study, spearheaded by PhD student Lachlan Schomburgk, unearthed evidence of a “cashless effect” where consumers increase their spending, particularly on status-signalling products like jewellery, while this effect does not extend to donations or tips.

Lachlan Schomburgk, alongside Professor Arvid Hoffmann of the University of Adelaide and Dr Alex Belli from the University of Melbourne, found that contrary to their expectations, cashless payments do not lead to higher donations or tips compared to cash. This discovery highlights the continuing effectiveness of traditional cash-based methods for collecting money, such as tipping jars and spiral wishing wells, which perform on par with modern cashless terminals.

Schomburgk advises consumers to be aware of the payment method chosen, especially during the current cost-of-living crisis, to avoid overspending. He recommends using cash to help manage spending better, as the physical act of counting and handing over money makes the transaction more tangible and real, helping to maintain awareness of expenditures.

The research underscores the significant impact of payment methods on consumer behaviour, especially as society moves towards predominantly cashless transactions. Schomburgk stresses the importance of this research in illuminating aspects of this transition that are often overlooked, empowering consumers to make more informed decisions about their spending habits.

The findings, published in the Journal of Retailing, also have implications for businesses and policymakers. Schomburgk points out that companies must adopt cashless methods to avoid inadvertently harming their revenue potential. Moreover, he suggests that policymakers should help those unfamiliar with cashless payments, like unbanked individuals, understand the risks of overspending associated with such methods.

Schomburgk also calls for further research into emerging payment technologies, such as buy-now-pay-later services and cryptocurrencies, due to their unique features and the limited current research on their impact on spending behaviours.

The study involved a comprehensive analysis of 71 published and unpublished papers from 17 countries, involving over 11,000 participants. Through this meta-analysis, the researchers identified factors that either strengthen or weaken the cashless effect, providing new insights that had not been fully understood in previous studies. Schomburgk emphasises the value of this extensive review in uncovering often overlooked dynamics in consumer behaviour, paving the way for future investigations into this evolving field.

More information: Lachlan Schomburgk et al, Less cash, more splash? A meta-analysis on the cashless effect, Journal of Retailing. DOI: 10.1016/j.jretai.2024.05.003

Journal information: Journal of Retailing Provided by The University of Adelaide