Imagine this...

You're at a high-end restaurant with friends.

After enjoying a delicious meal, the waiter presents you with the bill, which amounts to $200.

In this situation, you're faced with a decision about how to pay.

If you were required to pay in cash, you might feel a stronger aversion to parting with two crisp $100 bills. The physical act of counting out the money and handing it over might trigger a sense of reluctance and loss.

However, since the restaurant accepts credit cards, you choose to use your card to settle the bill.

The act of swiping your card or inserting it into the payment terminal feels far less emotionally charged than handing over physical cash. The immediate pain of seeing the money physically leave your hand is avoided.

Moreover, credit card payments allow for a sense of detachment from the actual cost because you know the bill will be due later, giving you time to manage your finances.

In this week’s edition of Mindful Marketing, we’re diving into the Cashless Effect - How paying without physical cash increases the likelihood that we purchase something.

🧠 The Psychology of the Cashless Effect

Simply expressed:

The cashless effect was first studied in 1979 by Elizabeth Hirschman, a prominent marketing and economics theorist, investigated the cashless effect.

She believed that credit card usage led to higher spending compared to cash.

In order to verify her suspicions, Hirschman surveyed customers at different branches of a department store chain about which products they’d bought and what payment method they’d used.

The analysis revealed that those with a store or credit card made larger purchases than cash payers and that individuals who had both store cards and credit cards were the biggest spenders.

This led Hirschman to conclude that cashless payments correlated with increased spending, especially when multiple payment methods were accessible.

Example

Let's consider an illustrative scenario involving a visit to an electronics store.

Imagine you're eyeing a TV priced at $899. If the only option were to pay in cash, the likelihood of making the purchase significantly drops. Why?

Firstly, carrying a substantial amount of cash raises safety concerns.

Additionally, the act of physically handing over a stack of bills can trigger a stronger psychological aversion to spending compared to the relatively frictionless action of swiping a credit card.

Moreover, there's the financial aspect: you might not have $899 readily available in cash.

However, the availability of a credit card changes the dynamics. It allows you to defer immediate payment, making the transaction seem more manageable.

The psychological and practical barriers diminish, encouraging you to proceed with the purchase.

This example underscores how the absence of tangible money and the flexibility of credit cards can influence our spending behavior.

Money makes the eye go round 👀

There’s a famous English proverb that goes:

The TV example mentioned above sheds light on a fascinating psychological phenomenon.

When we can't physically "see" the money being exchanged, as is the case with credit card transactions, we often find ourselves more willing to spend larger amounts.

The absence of tangible currency creates a perceptual disconnect between the value being spent and the payment itself.

As a result, we tend to loosen our purse strings more readily, making larger purchases that we might hesitate to make with physical cash.

This intriguing interplay between perception, psychology, and payment methods underscores how the form of payment can subtly but significantly impact our spending habits.

💡How it works inside your Buyer’s mind

There are several theories that attempt to explain the presence and workings of the Cashless Effect inside the buyer's mind. Two of the most famous ones are as follows:

• Classical Conditioning

• The Pain of Paying

Classical Conditioning (Pavlov’s Dogs) 🐶🔔

Most of us are familiar with Pavlov's experiment of Classical Conditioning, wherein a dog begins salivating upon hearing a bell after that bell has repeatedly been rung when food is served.

While humans might not react with drooling to visual cues like food, we, too, can be influenced by stimulus associations, potentially playing a role in the emergence of the cashless effect.

This was suggested by Richard Feinberg, an eminent figure in global economics. In 1986, he conducted four experiments.

Feinberg tested 60 students, splitting them into two groups.

They were led to believe they'd evaluate products from their images.

One group simply saw the product images while the other group was shown a Mastercard Logo with the same product images.

After viewing the products, both groups were asked how much money they would be willing to spend on each product.

Results: Logo-exposed volunteers were more willing to buy, pay more, decide faster.

Feinberg concluded credit cards prompt spending due to the associated link. We connect credit cards with spending, priming us to spend more easily when using them, shedding light on the cashless effect.

The Pain of Paying 😖

The Cashless Effect says that the more tangible payments are, the more psychologically painful it is to spend money.

When we spend cash, we physically have to give it up, and since we have to count out our cash, the payment amount is more memorable. The pain of payment is reinforced every time a transaction takes place.

So, it’s much easier to part with money when it isn’t tangible.

Credit cards mitigate the "pain of paying," disconnecting spending from the tangible sting of cash. This detachment shields us momentarily from costs, reserving discomfort for later when bills surface.

Even debit cards manifest the cashless effect, despite instant account deductions. It's not just delay, but the card's emotional neutrality that shapes behavior.

Unlike tangible cash, plastic lacks materiality, muting pain. Physical currency embeds itself in memory; each transaction stokes the sting. Intangibility smooths spending.

Recent fMRI research supports both theories. Credit card purchases trigger our brain's reward centers, regardless of price tags.

Cash, on the flip side, activates these regions only for less expensive items.

The study's authors suggest that our brain's reward system remains persistently attuned due to prior credit card usage.

Exposure to credit cards and their logos potentially heightens our brain's reward pathways activating the pursuit of rewarding products by prioritizing pleasures over prices.

Also, Cards divert our focus, softening the psychological pain linked with payments, effectively downplaying the perceived significance of prices.

🤑 How to Apply the Cashless Effect

Alright, so how can you apply the Cashless Effect right now to boost your sales?

1. Less pain = more sales 💸

Make paying less painful by designing a payment process that's effortless, with fewer steps and less time needed for both customers and staff.

Instead of having customers go to the billing counter, go to them where they are, as soon as they make their decision.

Apple & Amazon have been capitalizing on the pain of paying by introducing new technologies.

Apple has transformed payments through innovations like Apple Pay, allowing users to effortlessly make purchases by waving their devices at payment terminals.

Amazon has streamlined e-commerce with its patented "1-click ordering," minimizing the hassle of online purchases by condensing the process into a single click for seamless transactions.

2. The All-in-one Magic Band 📿

Disneyland's Magic Band epitomizes the application of the cashless effect in a theme park setting.

The Magic Band is a wrist-worn device that combines various functions like park admission, hotel key, and payment method all into a single wearable device.

This technology capitalizes on the principle that people tend to spend more when the physical exchange of money is abstracted. With the Magic Band, visitors are less likely to associate their purchases with actual money changing hands.

Additionally, the Magic Band simplifies the transaction process. Visitors can effortlessly pay for meals, souvenirs, and attractions without the need to fumble for cash or credit cards.

This frictionless experience further encourages spending, as the absence of physical payment methods removes any potential hesitations tied to the act of parting with money.

Moreover, the Magic Band is linked to an online account, allowing visitors to conveniently track their spending and manage their budget digitally. This visibility softens the perceived impact of expenses, contributing to higher overall spending.

In essence, Disneyland's Magic Band demonstrates how the cashless effect can be harnessed through innovative technologies, making spending almost intangible and thereby encouraging visitors to embrace a more carefree approach to enjoying the park's offerings.

3. The Gamification of Money 🎲

Ever wondered why casinos use chips instead of real cash?

It’s all about gamifying the money, one of the classic applications of the Cashless Effect.

Consider ways to infuse gamification into your customers' spending experience by integrating gamified elements.

One of the best examples of this is: Robinhood — a trading and investing app which rose to fame with its hyper-gamified user interface

They gamified the app so much (and so strongly) that the Massachusetts Securities Division even launched legal action.

By incorporating gamification tactics like:

• celebrating small wins with immersive visuals

• effective use of color psychology

• decluttering the app experience

• leveraging the power of personalization

• And many more…

They turned investing money into the easiest game you've ever played!

4. The Tip Trick💲

If your business (or employees) would benefit from tips, prioritize credit cards as the preferred payment method – even better if you include a credit card logo in the payment tray.

Research from the Journal of Applied Psychology reveals that people tip an average of 4.29% more in the presence of credit cues.

Restaurants are now using the Cashless Effect to get people to tip more.

With credit card payments, many systems present various tip options.

Opting for a higher tip might not feel as hefty when paying with a card as compared to paying in cash, therefore nudging card payers to tip more.

Some restaurants even show a default tip amount on-screen, possibly rounding it up to a whole number, for an even smoother payment experience.

5. Simplicity Pays off 🌟

If your services or products have a smartphone app, aim to integrate the complete payment experience within your app.

Simplify it as much as possible, achievable with just a few clicks.

Ribot, a design agency in Brighton, have just won a Payments Award for their frictionless digital payment experience for UK coffee chain Harris+Hoole.

Their app allows users to order their daily cup of coffee or add funds to their account in just a few short taps.

In a Nutshell 🥜

The Cashless Effect nudges customers to spend more when using digital payment methods.

This phenomenon stems from the detachment of spending with tangible money, making transactions feel less significant.

Businesses can tap into this by optimizing their payment experiences for simplicity and convenience.

Streamlined processes encourage more frequent and impulsive spending, benefiting online and offline sales alike.

Marketers can harness the Cashless Effect by emphasizing the frictionless nature of transactions in their messaging.

Promoting the ease of payment without physical currency reinforces the appeal of swift, hassle-free purchases.

By capitalizing on the allure of effortless transactions, brands can drive purchasing decisions and bolster revenue.

So, be more Mindful of the Cashless Effect and use it to elevate your conversion rates and increase your sales. 🚀

See you next Thursday,

Razy Shah

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