Cash in wallet. Justin Sullivan via Getty Images
Reporter
Source: www.paymentsdive.com, May 2023

Dive Brief:

  • The payment method consumers reach for might depend on how justifiable they consider the purchase, according to University of Notre Dame research highlighted on the school’s website this month.
  • Through an analysis of 118,042 actual purchases and six experiments, researchers discovered that consumers prefer to pay with cash instead of credit or debit cards for purchases they feel guilty about, the research revealed. That’s because cash doesn’t have a paper trail, allowing them to forget, whereas card purchases are more trackable through electronic or paper statements, said Chris Bechler, one of three study authors and an assistant professor of marketing at the university.
  • This pertains to “hard to justify” purchases, such as cigarettes, donuts or similar expenses that consumers might not want to be reminded of later, Bechler said in a May 24 interview.

Dive Insight:

The research, set to be published in the October issue of the quarterly Journal of the Association for Consumer Research out of the University of Chicago, could have implications for merchants.

Some businesses have opted to go cashless amid the rise of digital payment methods, while other merchants frustrated with rising credit card interchange fees are prizing cash payments.

The research results show that it’s possible that removing a payment method could hurt or help a merchant, depending on what’s being sold, Bechler acknowledged. For instance, it could point to the importance of a donut shop accepting cash, for consumers who feel guilty about such purchases, or a salad restaurant taking card payments, to be reminded of a healthy choice.

“Matching the payment method that your consumers want to use for your product, and making sure that you accept that payment method, could become even more important,” Bechler said.

It stands to reason that the more payment methods merchants offer, the more sales they’ll have, he pointed out.

“People are generally happier when they’re permitted to pay the way that they want to pay,” Bechler said. Researchers didn’t measure consumer satisfaction in this study, but Bechler said the research sets the stage for that component to be examined next.

At the same time, these effects — like many psychological effects — are relatively small, Bechler noted. In many cases, “if you really like a taco place, or you really like some bar that only accepts card or vice versa, those preferences for that restaurant are probably going to outweigh the payment method that they accept,” he said.

Bechler said it will be interesting to see how payments change in industries such as gambling or betting, as broader digitization continues, but cash use could persist due to the reasons the research identified.

Although credit cards were the most used payment method last year, according to the latest findings from the Federal Reserve’s Diary of Consumer Payment Choice, that research also indicates cash demand remains stable, and most consumers don’t expect to stop using it in the future.

Cash use has fallen, though, making up 18% of all payments last year, compared to 26% in 2019. If cash use continues to decline, the behaviors researchers discovered could shift to other payment methods, Bechler speculated.

Consumers with multiple credit cards might use them in different ways, tracking spending closely on one and less so on another, he said. Cryptocurrencies or other burgeoning payment methods might be used for harder to justify purchases, he added.

“All these different payment methods could differ in their trackability — how many alerts they send you after you make a purchase — and that also could affect what sort of purchases you use the payment method for,” Bechler said.

The study’s co-authors were Szu-chi Huang, an associate professor of marketing at Stanford University, and Joshua I. Morris, a data science manager at Nike.