Cash better than a card, it makes a purchase more meaningful: researcher

Paying with cash is painful — and that’s a good thing, according to new research.

When people pay for items using cold, hard cash rather than by card or online, they feel more of a sting and therefore assign more value to the purchase, according to Avni M. Shah, an assistant marketing professor at the University of Toronto Scarborough.

Her findings were born of personal experience: One day she forgot her debit card, so she paid for a latte with physical dollars — and felt her drink tasted better that day. Could her method of payment have been the reason?

She tested her theory two years ago, when she was a doctoral student at Duke University in Durham, N.C. She decided to sell discounted mugs with the Duke University logo on them to school staff and faculty in their offices. She asked one group to pay $2 for the mugs with cash. The other group had to pay with a card.

Then Shah returned to each purchaser two hours later and said she needed to buy the mug back. To soften the blow, she asked the buyers to name their price. The people who had paid for the mug with a card asked for an average of $3.83 back, while those who had paid with cash asked, on average, for $6.71.

“Some of the cash folks literally blocked their hand over the mug and said, ‘You can’t take this back,’” Shah said.

Shah, who also teaches at the Rotman School of Management at the University of Toronto, published her study in The Journal of Consumer Research. Her co-authors are Noah Eisenkraft, James R. Bettman and Tanya L. Chartrand.

In another study, Shah gave $5 to her research participants to donate to one of three causes. One group received the amount in cash, and the other in the form of a voucher. Then she gave the participants a ribbon they could wear on their lapels to show that they had made a donation.

Later, about half the people who had made the donation with cash reported wearing the ribbon, whereas only 14 per cent of the voucher group had done so. It suggested that the cash group — and it hadn’t even been their cash — felt more of an emotional connection to the cause.

Of all the payment methods, “Cash feels the most painful,” Shah said. “Even a cheque feels quite painful.” Therefore the purchase is more meaningful. In a separate study involving charitable donations, she found that people who donated by cheque were more likely to make a repeat donation the next year compared with those who had donated by card.

Card and digital payments seem less real than cash, she said. It’s true that the unreality of these methods can cause people to make more purchases in the first place. But those same people tend to be less loyal to particular brands, Shah said.

“It’s an ‘out with the old, in with the new’ mentality.”

“I’m not saying we should revert to cash,” she added. But there are ways to make the fact that people are parting with their money more vivid, she said — for example by introducing a buzzing noise into the process or sending an email reminder of the transaction.

If companies and organizations want to encourage repeat business, they may want to return a little more pain to the payment process, she said.