Do consumers pay more using debit cards than cash?

Abstract

We conduct an incentivized experiment to test whether the willingness to pay is higher for debit cards compared to cash for three consumer products. Our findings support this conjecture also after controlling for cash availability, spending type, price familiarity and consumption habits of the products. The evidence thus suggests that different representations of money matters for consumer behavior.JEL classification: D03; D010; E42

The Modified Baumol Equation: Theory and Evidence

“…The approach in the present article contrasts with that presented by Kalckreuth et al (2014) and Runnemark et al (2015), which provides a similar explanation of why cash is still used for transactions despite a broad distribution of noncash payment instruments. In particular, they argue that a distinctive feature of cash -a glance into one's pocket -sends a signal reminding one of the remaining budget and past expenses and is helpful to some consumer behavior.…”

“…A different approach suggests that using cash is a simple device for monitoring liquidity and controlling a budget either due to the high costs of overdraft or the need to avoid overspending. Runnemark et al (2015) indicate a similar understanding. When paying with cash, a purchaser can see how much money is deducted from a total amount, but with a credit card payment he cannot see how the money disappears.…”

Effects of Payment Instruments on Unhealthy Purchases

“…In Soman's ordering, cash is the most transparent method. Paying cash elicits thus more pain than other payment instruments, and as a consequence leads to less spending, as can be seen in several studies (for instance Prelec and Simester (2001): cash compared to credit card and Runnemark et al (2015): cash compared to debit cards). According to Runnemark et al cash payments, which are more transparent than debit card transactions, make it easier to control spending, and this effect is not solely due to cash-on-hand constraints.…”

Key Factors Determining the Expected Benefit of Customers When Using Bank Cards: An Analysis on Millennials and Generation Z in Romania

“…At the merchant level, studies by Reference [13] show that using debit cards brings at least two immediate benefits: (1) Customers are tempted to spend more when using the card instead of cash; and (2) the costs of card transactions are much lower than the costs of managing cash.…”

“…Thus, scientific studies [12] have shown that in developed economies, cards are a common payment tool, while in emerging or transition economies, the penetration rate of this technology is lower and depends on many elements of local perception. However, Reference [13] have shown that once the card is adopted as an alternative payment method, individuals tend to make higher payments through the card than if they would spend in cash. Reference [14] shows that the perceived welfare depends on how the payment instruments are substituted; cash is the most common substitute for debit cards in the case of retail sales, while checks are the most significant when it comes to paying bills.Banks actually interact with customers every time they use the bank card, thus, maintaining a strong connection with them [15].…”