Economic psychology examines psychological mechanisms that underlie the economic behavior of consumers and households. So far, numerous studies have shown that the payment mode (e.g., cash vs. credit card) influences consumer behavior – in terms of how much people spend and what they buy. Despite the proliferation of new payment technologies, little is known about the nuances of digital payment modes and their characteristics.

ISS researchers Rufina Gafeeva and Erik Hölzl with Holger Roschk of the Alpen-Adria University Klagenfurt investigated in a recent study how the transformation of payment modes affects consumers. Results show that the recall accuracy of the amount spent varies according to the mode of payment: cash, prepaid card or multifunctional card.

Data were gathered at two separate time points in cafeterias at a German university - prior to as well as following the introduction of a multifunctional card which offers not only a payment function but also a public transport ticket, identification and other information functions. Shortly after paying at the cafeteria cashier, a total of 496 students were asked to recall the amount spent and the payment mode used and to answer further control questions. The recall accuracy of the amount spent was lower for both prepaid cards and multifunctional cards than for cash payments. There was no significant difference between the prepaid card and the multifunctional card; rather, the individual usage patterns played a crucial role: Those who often used the non-payment functions of such cards had a less accurate recall.

The results are relevant for the financial wellbeing of consumers because an accurate recall of past spending has an effect on the willingness to spend money in the future. Therefore, designs that separate the payment function from other functions or that visualize the act of spending money (for instance, through immediate payment information or transaction summaries) may increase consumers’ awareness for spending.