I’m never quite sure when I’m paying a retailer these days whether they prefer cash or card. I often wonder if the cashier might find having to deal with notes and coins too fiddly. Would they prefer the simplicity of a cashless transaction? One café I frequent leaves me in no doubt of their preference.
“Cash is king,” the owner replies when I offer him the option. For him there’s no doubt. But what about others? And what are the disadvantages of switching to a fully cashless operation?
According to at least one marketing analyst, there’s a good reason to stay with cash – if you are the buyer. The analyst in question is University of Melbourne senior lecturer Alex Belli. Dr Belli is the co-author of newly published research that has analysed what is known as the ‘cashless effect’. Is this long-known phenomenon still prevalent in today’s increasingly electronic world?
What is the cashless effect?
The phenomenon is very simply explained by Dr Belli. “The cashless effect is the phenomenon of spending more money but also buying more products when paying by cashless methods.” The effect holds regardless of the method of cashless payment, he said. “It could be credit cards or BNPL (buy now, pay later) schemes.”
The psychology behind the cashless effect is also simple. Not being able to see funds disappearing your eyes removes – or at least lessens – the feeling of money being spent. And previous research has shown such pain to be physically real, not merely metaphorical.
Now that society has become increasingly more cashless, has this effect worn off, or is it as strong as ever? According to Dr Belli and his colleagues, the truth lies somewhere in between.
In an article titled Less cash, more splash? A meta-analysis on the cashless effect, the researchers found the phenomenon has generally weakened over time. It remains significant, nonetheless.
The research found that “the cashless effect is stronger for conspicuous (versus non-conspicuous) consumption situations”. In short, that means it is stronger when comparing one’s wealth with others – the ‘keeping up with the Joneses’ effect.
Dr Belli and his team also found the effect to be stronger in ‘pro-social’ consumption situations. Examples of this include giving tips and making donations.
The advantages and future of cash
I was surprised to learn recently that one of my sons employs cash as a method of budgeting. He uses different envelopes for different items or events for which he is saving. As it turns out, this remains a popular and effective budgetary method, Dr Belli said.
As effective as it may be, the indications are that using cash will not be possible for much longer. Some believe the use of cash will effectively be at an end in Australia by 2030. RMIT associate professor of finance Dr Angel Zhong predicts our country will become “functionally cashless” by the end of this decade.
According to Dr Belli, as we approach this seemingly inevitable life without cash, the cashless effect is likely to diminish. “In that case, the pain of paying will maybe die out and people won’t feel this anymore. They will treat cashless methods as cash,” he said.
Like it or not, it seems the days of declaring “cash is king” are almost certainly numbered.
Also read: The Aussies being left behind in switch to cashless society
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