Independent Banker - December 2018 - 54

Friction
points
What happens to our spending decisions when digital payment platforms
ease the pain of parting with our hard-earned money? And how can community banks
help customers make better spending decisions? This is what behavioral economists
are trying to understand as we move toward a cashless society.
By Kelly Pike
S
tripped down to its basics, spending
is a calculation between pain and
pleasure. A consumer must decide if
the pain of parting with their hardearned
money is worth the pleasure of
the purchase.
And when it comes to spending, nothing hurts
more than ponying up cold, hard cash. Each
bill counted out and handed to the cashier is a
concrete reminder of what we're giving up. As a
result, studies have found that people spend the
least when they are paying with cash.
It's not just physically holding the cash that
makes it painful to spend. It's the action of
counting. In one study, subjects made credit
card payments by dragging and dropping
images of cash. Those using an interface with
$100 bills planned to spend more than those
working with $20 bills.
54 Q ICBA Independent Banker Q December 2018
" If I have to pay $50 and pay it in single dollar
bills, every time I hand over a dollar bill, I see it
as another payment, " says Emory Nelms, senior
behavioral researcher at the Center for Advanced
Hindsight at Duke University. " It exponentially
increases the pain of paying with a $50 bill. "
Credit and debit cards are another story, since
the transaction is quicker and less tangible.
With no counting-or even the hesitation one
feels when writing a large number on a check-
spending increases. Restaurant tips go up.
Consumers make quicker spending decisions.
The credit card premium
Always Leave Home Without It, a 2000 study
from MIT's Sloan School of Management, found
subjects were sometimes willing to spend almost
double for an item when paying by credit card, a
phenomenon the researchers dubbed the " credit
Illustration: Aldo Crusher

Independent Banker - December 2018

Table of Contents for the Digital Edition of Independent Banker - December 2018

Table of Contents
Independent Banker - December 2018 - Intro
Independent Banker - December 2018 - Cover1
Independent Banker - December 2018 - Cover2
Independent Banker - December 2018 - Table of Contents
Independent Banker - December 2018 - 2
Independent Banker - December 2018 - 3
Independent Banker - December 2018 - 4
Independent Banker - December 2018 - 5
Independent Banker - December 2018 - 6
Independent Banker - December 2018 - 7
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Independent Banker - December 2018 - Cover3
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