Why does paying without physical cash increase the likelihood that we purchase something?

The Cashless Effect

, explained.
Bias

What is the Cashless Effect?

The cashless effect describes our tendency to be more willing to pay when there is no physical money involved in a transaction. It means that we are more likely to go through with a purchase if we are using a credit card or some other cash-free payment method.1

doodle of cashless effect

Where this bias occurs

Imagine you’re standing in the electronics section at Best Buy, eyeing a sleek new TV. It’s exactly what you’ve been looking for, but the price tag feels hefty—it’s a big financial commitment. Thinking about the actual amount of cash you’re about to fork over may dissuade you from going through with the purchase altogether. That visceral connection to parting with your money creates a moment of hesitation.

But here’s where the cashless effect comes into play. With a simple tap of your credit card or e-payment app, the transaction suddenly feels less painful. In this situation, the classic phrase “out of sight, out of mind” is all too real—you’re not seeing or holding the money, so the emotional weight of spending is significantly reduced. It feels easier, smoother, and far less stressful. This phenomenon has also been referred to as the  ‘credit card’ effect. Studies have shown that when we’re making transactions for high value items, our ‘willingness-to-pay’ (the maximum amount a person is happy to pay for an item or service) often increases when we’re instructed to pay by credit card rather than cash.22

There’s more to this phenomenon. First, the rise of e-payment and credit cards has made cash transactions less common—and many believe that carrying physical money around is somewhat of a safety hazard. Paying electronically feels more abstract, even when we are spending money that we don’t exactly have in the bank. Second, physically parting with cash triggers a psychological response—where we feel the pain of spending significantly more. The absence of physical notes and coins disrupts the mental connection between money spent and the value of that money. Credit card payments and digital payments are also much faster, reducing the amount of time we have to reconsider a purchase that might be over our budget. Without that immediate friction, you’re far more likely to say yes to the purchase—and worry about the consequences later.

Sources

  1. Clinehens, J. (2020, May 3). The Cashless Effect: How eliminating the “pain of payment” can improve your experience. Medium. https://medium.com/choice-hacking/the-cashless-effect-how-eliminating-the-pain-of-payment-can-improve-your-experience
  2. (2020, September 1). Cashless effect. Retrieved September 17, 2020, from https://www.coglode.com/gem/cashless-effect
  3. Melford, G. (2019, January 11). Solving the Consumer Debt Crisis. The Aspen Institute. https://www.aspeninstitute.org/blog-posts/solving-the-consumer-debt-crisis/
  4. Bond, C. (2020, August 3). Why The Idea Of A 'Cashless Society' Is So Dangerous. Huffington Post. https://www.huffingtonpost.ca/entry/cashless-society-dangers-racist_l_5f234e95c5b68fbfc880de22
  5. Kale, S. (2020, June 24). ‘You can’t pay cash here’: how our newly cashless society harms the most vulnerable. The Guardian. https://www.theguardian.com/money/2020/jun/24/you-cant-pay-cash-here-how-cashless-society-harms-most-vulnerable
  6. org. (2019, November 7). Key Figures Behind America’s Consumer Debt. https://www.debt.org/faqs/americans-in-debt/
  7. Soman, D. (2003). The Effect of Payment Transparency on Consumption: Quasi-Experiments from the Field. Marketing Letters, 14(3), 173-183. https://www-2.rotman.utoronto.ca/facbios/file/transparency.pdf
  8. Irby, L. (2020, January 31). How to Avoid Credit Card Overspending. The Balance. https://www.thebalance.com/7-tips-to-avoid-credit-card-overspending-4088405
  9. Hirschman, E. C. (1979). Differences in Consumer Purchase Behavior by Credit Card Payment System. Journal of Consumer Research, 6(1), 58-66.
  10. Feinberg, R. (n.d.). Credit Cards as Spending Facilitating Stimuli: A conditioning interpretation. Journal of Consumer Research, 13(1), 348-356.
  11. Peng, C. (2022, November 22). Peng ‘26: Think twice before embracing a cashless economy. The Brown Daily Herald, https://www.browndailyherald.com/article/2022/11/peng-26-going-cashless-is-not-free-someone-always-pays-the-price
  12. Bennett, R, & Beers, B. (2023, August 17). 9 AI-powered apps that help you save money. Bankrate. https://www.bankrate.com/banking/savings/ai-apps-to-help-you-save-money/
  13. Zendesk. (2024, November 26). Younger customers’ new holiday shopping hack? AI assistants. Zendesk. https://www.zendesk.com.mx/blog/younger-consumers-new-holiday-shopping-hack-ai-assistants/
  14. Adobe. (n.d.). What is digital art? Adobe. https://www.adobe.com/uk/creativecloud/illustration/discover/digital-art.html
  15. University of Adelaide. (2024). We spend more with cashless payments. Science Daily. https://www.sciencedaily.com/releases/2024/06/240611130332.htm
  16. Peachley, K. (2024, December 5). One in Five Shop Purchases Now Made in Cash. BBC. https://www.bbc.com/news/articles/c1el81lenq1o
  17. Little Loans. (n.d.). Report reveals changing attitudes towards cash, with Gen Z viewing cash payments as ‘free money’. Little Loans. https://www.little-loans.com/gen-z-view-cash-as-free-money
  18. Zhu, H., Gupta, A., Majumder, B., & Steinbach, S. (2018). Short-term effects of India’s demonetization on the rural poor. Economics Letters, 170, 117-121. 
  19. Vodafone. (n.d.). M-PESA. Vodafone. https://www.vodafone.com/about-vodafone/what-we-do/m-pesa
  20. Sandberg, E. (2024, June 21). Are Budget Apps Safe? U.S. News. https://money.usnews.com/money/personal-finance/articles/how-safe-are-budget-tracking-apps
  21. Schomburgk, L., Belli, A., Hoffmann, A. O. I. (2024). Less cash, more splash? A meta-analysis on the cashless effect. Journal of Retailing, 100(3), 382-403. 
  22. Prelec, D., & Simester, D. (2001). Always Leave Home Without It: A Further Investigation of the Credit-Card Effect on Willingness to Pay. Marketing Letters, 12(1), 5-12. 
  23. Faverio, M. (2022, October 5). More Americans are joining the ‘cashless’ economy. Pew Research Center. https://www.pewresearch.org/short-reads/2022/10/05/more-americans-are-joining-the-cashless-economy/#:~:text=In%20less%20than%20a%20decade,new%20Pew%20Research%20Center%20survey
  24. Maza, N. (2016). Pain of Paying? - A Metaphor Gone Literal: Evidence from Neural and Behavioral Science. Rotman School of Management Working Paper No. 291808. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2901808
  25. Rehncrona, C. (2024, December 18). Mobile payments used to be less ‘painful’ than using cash. That might change. The Conversation. https://theconversation.com/mobile-payments-used-to-be-less-painful-than-using-cash-that-might-be-changing-246178
  26. Gu, Y., & Chen, R. (2023). Effects of payment notifications on consumer purchase decisions: The role of pain of payment. Journal of Consumer Behaviour, 22(4), 818-832. 
  27. Massi, M., Sullivan, G., Strauss, M., & Khan, M. (2019, May 28). How Cashless Payments Help Economies Grow. Boston Consulting Group. https://www.bcg.com/publications/2019/cashless-payments-help-economies-grow
  28. Rodríguez, H. E. D., Castro, M. S., & Rosales, A. C. (2020). Determinants of debt in Mexican households: a neutral network analysis. Problemas del desarollo, 50(199).

About the Authors

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Dan Pilat

Dan is a Co-Founder and Managing Director at The Decision Lab. He is a bestselling author of Intention - a book he wrote with Wiley on the mindful application of behavioral science in organizations. Dan has a background in organizational decision making, with a BComm in Decision & Information Systems from McGill University. He has worked on enterprise-level behavioral architecture at TD Securities and BMO Capital Markets, where he advised management on the implementation of systems processing billions of dollars per week. Driven by an appetite for the latest in technology, Dan created a course on business intelligence and lectured at McGill University, and has applied behavioral science to topics such as augmented and virtual reality.

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Dr. Sekoul Krastev

Sekoul is a Co-Founder and Managing Director at The Decision Lab. He is a bestselling author of Intention - a book he wrote with Wiley on the mindful application of behavioral science in organizations. A decision scientist with a PhD in Decision Neuroscience from McGill University, Sekoul's work has been featured in peer-reviewed journals and has been presented at conferences around the world. Sekoul previously advised management on innovation and engagement strategy at The Boston Consulting Group as well as on online media strategy at Google. He has a deep interest in the applications of behavioral science to new technology and has published on these topics in places such as the Huffington Post and Strategy & Business.

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