It’s not only in Hollywood movies that people get a huge rush from shopping; remember the young woman from “Confessions of a Shopaholic?” Have you seen it? She loved using her credit cards to buy glamorous things because it made her feel good. It is actually true that for some people endorphins and dopamine get activated while shopping. It is also true that doing that while relying on credit card processing is less painful than paying by cash. There are studies that looked deeper into the issue which proved that we are not only experiencing a “delayed pain of paying” when we use plastic but that we also end up spending more. Double the amount more than if we were to use cash. Yes, you read that correctly – 100% more!
Of course, businesses have hugely benefited from this psychology; there is no doubt that we can confidently say that we now live in a cashless world. Canada is, in fact, leading the way ranking #1 for the world’s most cashless societies. Canadians average more than two credit cards per person, and we collectively process 5,700 credit card transactions per minute! If your small business still operates with cash, it’s time to switch to a reliable credit card processing system and relieve your customers of some of that pain of paying with cash and bring them a bit of joy. Also, a 100% increase in spending sounds pretty tempting as a business owner too, doesn’t it?
The Power of the Mind
It’s always intriguing to discover how our minds are wired; in every aspect of our lives, this is the power that continually challenges the status quo. It changes the way we understand things, the way we do things, and it transforms the world. Change is good. Even change in our purchasing behaviour. As long as people are responsible about taking care of the balances on their credit cards, there is a lot to embrace from these payment processing trends, whether observing it from the perspective of a consumer, a business owner, or a member of society as a whole.
A well-publicized study carried out by experts in behavioral economics, Drazen Prelec and George Loewenstein, came up with the phenomena they named coupling . It’s a concept which describes the link in a person’s mind between the consumption experience and the payment for that experience. When we make purchases, we immediately feel the pain for having to pay for it, and that can take some pleasure away from enjoying the purchase. But depending on the payment method we choose to go with, our perception changes and so does the level of pain. Paying for something via credit card processing machines imposes the welcomed extra time between the purchase itself and having to settle the bill once the credit card statement arrives. That creates de-coupling between the two, which increases our pleasure when shopping. Contrary to that, paying with plain old cash creates a very tight coupling that makes the consumer highly aware of the cost being paid right away which registers as painful.
I’ll Just Put it on My Credit Card!
Prelec took his research further with another colleague from MIT (Massachusetts Institute of Technology), Duncan Simester, and tested our likelihood to purchase and tendency to spend more when there is an option to use a credit card ; they recorded some stunning results. In one of their studies, they offered participants the opportunity to buy basketball tickets to a game they knew they would like. The group that was told they could use credit card processing as a form of payment were ready to pay double the amount than those that were told they could only pay with cash. This phenomenon is called the credit card premium. Other studies also came across similar findings recognizing the trend of increased spend amounts with the use of credit cards. ValuePenguin showcased how customers in restaurants would leave tips that are 13% larger when paying by credit card , such as with a wireless credit card processing machine that is brought to their table, versus what patrons who paid with cash would leave. We at MONEXgroup have seen this firsthand. Among our clients within the car wash industry, we identified increases in average transaction sizes by up to 20% * when our unattended Tap & Wash self service terminals were introduced as either a replacement or addition to their existing coin option. Enabling these businesses with credit card processing capabilities, including the ability to accept debit and mobile app payments, makes a huge difference.
To add to this analysis, another pair of researchers – Priya Raghubir and Joydeep Srivastava, identified that the separation of time between credit card purchases and the moment it is time to pay your credit card statement dulls the ‘pain of paying’ for those purchases. Additionally, when we see all those different purchases mixed together, it is harder to connect the payment to a particular purchase. And isn’t that true? Yet, when we hand over cash, oh, we feel that connection immediately and very intensely so. Those are all logical reasons why we subconsciously enjoy making credit card purchases more than cash, and can also conclude that the method of payment, we as consumers choose to pay with, dictates how much money we will actually spend.
Credit Cards Create Opportunities and Give a Lot Back
It’s in our human nature to do things that make us feel better; who would ever say “no” to a little bit of instant happiness?! And it seems that our payment preferences have managed to influence the world around us and create new opportunities. As consumers, we have many good reasons to carry and use our credit cards. For one, here in Canada, if we aspire to get any sort of loan or mortgage, credit cards are a great starting point to build solid credit scores that lenders will need to review during their approval process. When used responsibly – paying off your credit balance in time and avoiding interest fees – the opportunities created from paying with credit cards over cash can be quite substantial. Additionally, one can really get a lot back from many of the popular rewards programs, which just amplifies that good feeling. Loyalty programs and rewards associated with credit cards rank high among Canadian shoppers. In fact, 48% of Canadian credit card holders who switched their primary card during the previous year did so in search of a better rewards system, according to a J.D. Power 2018 Canada Credit Card Satisfaction Study. Given that 87% of credit card holders in Canada are signed up for a rewards program, the picture is pretty clear why Canadians prefer using their credit cards over cash, and why any small business must have a credit card processing system to accommodate such sophisticated customers; especially Millennials.
Convenience, Security, and Ease of Use Matter
Obviously, people also love using credits cards because it is just so easy. The convenience of shopping that comes with many credit card processing options out there is very appealing. Also, security scores high – an important aspect when dealing with money. If cash gets lost or stolen, it’s pretty much gone forever; however, if a credit card disappears, a quick tap on a mobile banking app or a call to a bank will solve the problem very quickly. Banks nowadays also have hi-tech systems in place to recognize fraudulent transactions, further reducing security risks. And as long as clients adhere to their credit card company’s security policy, there is minimal to no liability for the client. And who wants to carry cash anymore anyway?
Another appealing factor for consumers is the trust and relationships that financial institutions and credit card payment processing companies have built with them. This relationship alone will influence people to spend more with their credit cards! ValuePenguin finds that shoppers are willing to pay on average 10% more when credit card logos are present than when those logos are missing.
With the use of credit cards, consumers value ease of use of the credit card processing terminal, and are focused more on the overall experience and benefits of the product or service they are looking to purchase. In the same research, those who used a credit card to buy a product were 28% better at remembering the product’s benefits than those who used cash. On the other hand, cash users were 82% better at capturing everything related to the cost of the product than credit card users did.
Contactless Payments Make Spending Money Even More Painless for Shoppers
Observing the changes and trends of how we pay for things today, cash seems more like something rolling on its own slow-paced beat, not being able to follow the new rhythm of our active everyday lives. Cash is becoming more and more some underground currency; soon enough it will only be used for obscure purchases. The new cashless world is after a lot more convenience and a lot less of that purchasing pain, galloping fiercely toward the contactless payments and digital space. Who knows, maybe some future scientists will call spending money a “pain-free zone” because everything indicates that we are heading in this direction.
The latest data identifies credit card holders in Canada as having a love for everything mobile. More than half of them used mobile apps during the period of three consecutive months to manage their credit card accounts, redeem rewards, and access other benefits. This mobile adoption is led by the youngest group of Canadian consumers Gen Z (24 years of age and younger). However, Millennials are right next to them – a group of consumers worth your every attention. They are keen adopters of mobile shopping, credit card rewards, an efficient payment processing system, and, they are loyal to small businesses. With an estimated income of $237 billion, the Millennial generation already holds enormous purchasing power and will make up 75% of the Canadian workforce in the next 15 years!
Digital Payments Grow Businesses and Economies
Going cashless and relying on digital payment systems is good news all around; for consumers, businesses, governments, and our economies! Roubini ThoughtLab studied 100 cities across the globe to conclude exactly that and even put a number to it! According to the study, the average economic net benefit would amount to $470 billion US between now and 2032, just by deepening and expanding digital payments use. Businesses, in particular, would save 3.1 billion hours of time processing payments, and benefit from increased sales revenue coming from extended customer bases; both online and in-store. The study provided some pretty clear math calculating the cost of payment transactions for every dollar received; it costs on average 7.1 cents to accept cash, whereas it only costs 5 cents to accept payments via credit card processing machines and other digital sources.
Consumers Prefer it this Way – Don’t Miss Out!
It’s a no-brainer for any business to jump on board and be part of this economic growth. By going digital and implementing the latest in credit card processing, you are providing your customers what they want; it’s what makes them feel better. Your enterprise is missing out if it’s not updating and branching out to already widely used, modern, and leading edge preferred ways of accepting payments. Go ahead, expand your business and add an online revenue stream; let a simple credit card tap or an “Add to Cart” button be the way to your customers’ hearts. Ease their pain of paying by adding faster checkouts in your place of business and upgrade to reliable in-store or wireless credit card processing machines – remember tips will be higher too! Provide necessary security for both your customers and your company. Eliminate cash-handling and install Tap to Pay, Contactless Only, self-service unattended kiosk terminal for your unattended business. Payment processing technologies have come really far, including customized digital payment solutions tailored for individual industries.
One thing is clear: consumers are willing to part with more money when using their credit cards and it makes them happier; and since you are in business, you want to capitalize on these facts and be ready to serve them by providing the most current payment processing options, and ultimately contribute to their happiness!
*Based on portfolio data. Results will vary depending on individual performance and requirements.