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The Cashless Effect
I can’t believe the end of the year is already here. This year has been nothing less than a rollercoaster ride for the entire human race.
Every new year comes with some changes, but the last two years have had the world adjust to an entirely new lifestyle. From wearing masks, continuous sanitisation, social distancing to working from home and attending schools online we all have been trying our best to adjust to the virtual world.
One such significant change I want to focus on today is cashless transactions. Although various modes of payments were always an option for us, we witnessed a significant rise in cashless transactions in the last two years. But did you know that there is something called as Cashless Effect?
The cashless effect describes our tendency to be more willing to pay when there is no physical money involved in a transaction. We are more likely to purchase something on a credit card or any other virtual mode than if we have to pay for it with cash. This effect occurs in any scenario where we use digital forms of payment instead of cash, which these days makes up most of our transactions. Unfortunately, whether it’s a big or small purchase, we are likely to spend more money when we don’t physically have to give it up. For example, you are at the apple store to buy a phone. Can you imagine paying using cash? Paying 1000 dollars in cash or using a card to pay the same amount, what would you choose? What do you think would be easier?
We are much looser with our money when it only exists in an evasive digital form, and often spend money that we wouldn’t if we had to make the same transaction with physical cash. The digitization of transactions has caused us to change our spending habits.
When transactions are digital, it also means that there is a digital trace of all of our activity. Platforms use our spending habits to hit us with targeted ads, causing us to spend even more money, demonstrating how the cashless effect can quickly bring us into a vicious spending cycle. The loss of anonymity through financial surveillance can also give a lot of control to the government and reduce our freedom.
The cashless effect occurs because parting with money is not that difficult when it isn’t tangible. It is considered painful for us to give up physical money, as we feel the loss of it, known as the “pain of payment”. This may be because physical money has more obvious value than digital payments, meaning we more readily understand what we are giving up. When money is exchanged digitally, it is harder to quantify what we are parting with. Giving someone our credit card feels like a far smaller commitment than handing over cash. After all, giving someone our credit card is just handing them a piece of plastic, which in itself, isn’t worth much.
There are both positive and negative consequences to cashless transactions. More positives, if you are on the business side of the transaction. In recent years, numerous businesses have made headlines for refusing to accept cash as a form of payment. These businesses span a variety of industries, including airlines, eateries, sports stadiums, and general merchandise stores.
Here are a few reasons why various businesses are jumping on to the cashless transaction wagon -
Transactions are faster - Counting cash can take time, both for the customer and the employee. Several businesses that have gone cashless have cited benefits like faster transactions and increased store throughput. By going cashless, businesses can decrease costs, reduce opportunities for theft, and offer customers a faster, more streamlined transaction experience.
Encouraging impulse buys - Going cashless encourages impulse buying. Being able to buy on the fly without reaching for a wallet fits into today’s hustle-and-bustle lifestyle. The more alternate payment options you have, the more are the chances of the consumers mindlessly buying your product.
(c) No cash handling costs - Small- and medium-sized businesses are reported to pay tens of billions of dollars annually on cash handling expenses. Eliminating cash payments eliminates the costs associated with handling and transporting cash. Cashless businesses no longer need to pay banks fees to deposit and process cash and coin. Additionally, these businesses no longer need to pay for employees to count and manage register balances throughout the day, enabling employees to spend more time helping customers instead. Given the fixed costs associated with accepting cash, it may be simpler and even more cost-effective for some businesses to not accept cash at all.
Convincing enough? Maybe, going cashless as a business can be the new thing you try this year!