Mobile money and moderation

    Mobile payments are increasing in popularity, but what effect will this have on spending behavior?

    The use of mobile payments is rising slowly but steadily. According to an annual survey on mobile financial services by the US Federal Reserve, the percentage of mobile phone users who have made a mobile payment in the previous 12 months has grown an average of 2% a year, from 12% in 2011 up to 24% in 2016. This shift from cash and card will likely yield increased convenience for consumers, allowing instantaneous and effortless transactions (for example Amazon Go’s automatic grocery payment). But research on consumer behavior suggests that this change might also be accompanied by unintended consequences, and in particular might affect how people make financial decisions.

    As payment methods assume different forms (i.e. gift and credit cards, certificates), they begin to lose what consumer psychologists call ‘payment transparency’ (Soman, 2003), or the perceptual similarity to cash. For instance, a gift certificate shows some similarity to cash (in terms of shape, feel, and how you use it), a credit card even less similarity, and it has been suggested that mobile transactions are even more dissimilar (Shah, Eisenkraft, Bettman, & Chartrand, 2015). But payment transparency is more than simply a description of the financial medium: it also predicts behavior. As a host of findings show, as payment transparency decreases, consumer spending increases.

    Until recently, many of these findings are based upon differences between pre-digital variants of currency (i.e. gift certificates and credit cards) and cash. For example, researchers have found that when given a gift certificate (versus cash), participants spent more money in a hypothetical shopping trip, even when they were informed that the money they didn’t spend would be refunded in cash (Raghubir & Srivastava, 2008). Similarly, shoppers using credit cards (versus cash) were shown to spend more money on non-essential items (such as chocolate, gum, or magazines; Soman, 2003). Researchers have even demonstrated that payment transparency can affect risk-taking behavior. In a set of studies by Shah, Bettman, and Payne (2014), it was found that when people used prepaid cards (versus cash) in a gambling game, they gambled more, took riskier gambles, underestimated how much they gambled, and overestimated how much they won. Taken in combination, these findings suggest that using alternatives to cash such as gift certificates and credit cards leads consumers to act more frivolously with their money, underestimating their spending and purchasing items they otherwise might have ignored.

    Now, there is new evidence to indicate that mobile payments function much the same way, desensitizing consumers to the pain of payment and encouraging spending behavior. In an experiment recently featured in the Journal of Business Research (Falk, Kunz, Schepers, & Mrozek, 2016), the researchers found that not only did mobile payments increase willingness-to-pay versus cash, but even versus a credit card. Additionally, mobile payments (versus cash and credit card) also lead the users to think of the store as cheaper than competitors, lowering overall price impressions. Thus, the researchers were able to confirm that mobile payments desensitize consumers to prices in much the same way as other forms of non-cash payments (i.e. certificates, cards), but to an even greater degree.

    Although anecdotal, there seems to be evidence of this effect in action outside of controlled experiments and academic papers. A recent article featured on CNBC (Kharpal, 2015) described how the rise of mobile payments in restaurants seem to be driving tip percentages. They cite an Argentinan restaurant in London, La Patagonia, as a specific example. La Patagonia claims that since implementing a mobile payment system, they have seen tips rise 4%. Flypay, a restaurant payment app, was quoted as observing similar gains in tipping generosity. Overall, these reports are consistent with what would be predicted by the experiments cited above: as people use less transparent forms of payment, they act less frugally, and are more willing to distribute their wealth.

    With these insights in mind, what does the future hold for consumers with respect to mobile payments? As this form of exchange rises in popularity, will consumers become increasingly frivolous and carefree with their money? Will mobile payments eventually become so common that they will be psychologically equivalent to cash, and thus reintroduce payment sensitivity? These are important questions, but some firms are focusing upon immediate solutions. New Deal Design, a design studio in San Francisco, has developed Scrip, a copper-colored device that resembles an elongated penny. The aim of Scrip is to make the mobile payment experience tactile and reminiscent of using cash. To pay, the device requires users to swipe with their thumb, thereby simulating the experience of shelling out coins or paper notes. Although such interventions are unlikely to be a silver bullet for the potentially negative effects of using non-cash payments, devices like Scrip can at the very least serve to attenuate them.


    Shah, A., Bettman, J., & Payne, J. (2014), “Psychological Tangibility of Money Influences Loss Aversion and Propensity for Gambling”, in NA – Advances in Consumer Research Volume 42, eds. June Cotte and Stacy Wood, Duluth, MN: Association for Consumer Research, Pages: 184-188.
    Board of Governors of the Federal Reserve System. (2014). Consumers and Mobile Financial Services 2014. Retrieved from -and-mobile-financial-services-report-201403.pdf

    Board of Governors of the Federal Reserve System. (2015). Consumers and Mobile Financial Services 2015. Retrieved from -and-mobile-financial-services-report-201503.pdf

    Board of Governors of the Federal Reserve System. (2016). Consumers and Mobile Financial Services 2016. Retrieved from consumers-and-mobile-financial-services -report-201603.pdf

    Falk, T., Kunz, W. H., Schepers, J. J., & Mrozek, A. J. (2016). How mobile payment influences the overall store price image. Journal of Business Research, 69(7), 2417-2423.

    Kharpal, A. (2015, June 25). Mobile payments are making people tip more at meals. CNBC. Retrieved from

    Raghubir, P., & Srivastava, J. (2008). Monopoly money: the effect of payment coupling and form on spending behavior. Journal of Experimental Psychology: Applied, 14(3), 213.

    Scrip: The Tangible Future of Digital Cash. Retrieved from

    Shah, A. M., Eisenkraft, N., Bettman, J. R., & Chartrand, T. L. (2015). ‘Paper or Plastic?’: How We Pay Influences Post-Transaction Connection. Journal of Consumer Research.

    Soman, D. (2003). The effect of payment transparency on consumption: Quasi-experiments from the field. Marketing Letters, 14(3), 173-183.

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