How Payment Options Affect Consumer Spending
Using credit cards and gift cards encourages consumers to spend more than they would if using cash.
Monopoly Money: The Effect of Payment Coupling and Form on Spending Behavior
Priya Raghubir and Joydeep Srivastava
Journal of Experimental Psychology: Applied, Vol. 14, No. 3
Will consumers spend more if they aren’t using cash? According to the results of this study, the answer is a resounding yes. Using a series of experiments involving a sample of undergraduate students, the authors examined how consumers choose payment options and how those options influence purchasing behavior. They found that the more transparent the form of payment, the more frugal the consumer tends to be. In other words, cash is hard to part with, but using a credit card, which is less transparent because there is no physical transfer of money, removes the “pain” of making the purchase. In one experiment, the authors found that the mere presence of a credit card logo at the point of sale increased the price consumers were willing to pay. And when subjects were given either $50 in cash or a $50 gift certificate, those given the gift certificate spent more than those given cash.
Payment options have a clear effect on consumer spending practices, with forms of payment such as credit cards and gift cards encouraging users to spend more than they do when using cash.