As a techie, l like everything that makes life quicker, easier and smarter. That’s why I love my collection of ancient coins. The idea of money – a technology developed in the Bronze Age – was, in its day, a huge innovation that made trading much easier by allowing value to be stored and transferred in the form of convenient tokens. People tried out a wide range of different currencies – silver rings, metal ingots and even, in Micronesia, stone discs 12ft in diameter – but most of the world worked out pretty early on that carrying around small metal discs was a more convenient way of paying for the weekly shop than wheeling huge stone ones into the grocery store.
Now we are heading towards a cashless economy. That hasn’t altered the underlying idea of money: it just makes paying for things a little more convenient. Yet the removal of the physical element seems to change our relationship to money. By reducing what Dan Ariely, a behavioural economist, calls the “pain of paying”, cashless payments encourage us to spend more.
This effect was first pointed out in the 1980s after the introduction of credit cards. A study published in 2001 found that Bostonians were willing to fork out twice as much for a ticket to a basketball game if paying via credit card rather than cash. Tickets may be an unrepresentative class of goods, however; the most widely cited fact, from a study conducted by Dun & Bradstreet, is that credit cards make people spend 12-18% more, on average, than they would using cash.
This is not all that surprising. Having to get out your purse or wallet, and then hand over physical notes or coins, ensures that you feel the cost of a transaction in a way that you do not when swiping a credit card. It’s why we use piggy banks to teach financial responsibility to children. Conversely, it’s also why slot machines in Las Vegas no longer take cash.
This effect seems likely to accelerate as technology removes the friction from payment. Take a cab, for example, and you still have to get out cash or a credit card, register the cost and decide whether to offer a tip; but take an Uber, and the payment slips so imperceptibly out of your bank account that it might never have happened. Contactless cards can be used to make small payments merely by wafting them near a card reader: no need for a signature or a security code. Using a smartphone for contactless payments reduces the friction even further. Cards tend to be kept in a wallet or purse, but your phone is always at hand: it’s like a magic wand you can just wave to pay for stuff.
Economists reckon that the shift towards ever-easier payment systems will further boost consumer spending. Businesses are delighted. But consumers should be warier.
My own experience offers a cautionary tale. Having set up my smartphone for contactless payments in order to pay for train, tube and bus journeys, I also started using it to pay for coffee and lunchtime sandwiches. Those few things account for the vast majority of the in-person payments I make each week, so I have been able to do without cash entirely since the beginning of the year.
I’ve put on a bit of weight. I think coffee is to blame. In the past, I would buy coffee on my way into the office only if I had enough cash; getting out a payment card for such a small purchase seemed too much effort. Using a smartphone doesn’t, so I now buy a coffee every day, rather than once or twice a week. Removing constraints on making payments subtly changes our consumption patterns, and the extra calories from all those vanilla lattes add up.
Technology may be able to help, by reintroducing constraints on our spending. Apps could give us weekly summaries and analyses of our expenditure, for example, and spot changes in our spending habits (“you seem to be buying more coffees lately”). A handful of startup banks in Britain, including Starling, Monzo and Atom, want to do just this kind of “predictive banking”, adding a layer of artificial intelligence over the traditional banking interface. (“Your water bill is higher than usual this month. Perhaps you have a leak. Do you want to call a plumber?”) But I suspect that we may also need to develop greater self-restraint in the era of frictionless payment. As technology makes paying for things easier, it’s worth keeping an eye on our spending habits – and our waistlines.