Professor Raghubir highlights such modes of payment as debit and credit cards, reward points and branded mobile payment apps—which are growing increasingly popular. Research shows that driving consumers toward one type of payment versus another has its benefits and costs. Findings include:

• Consumers will likely spend more when using credit cards, gift certificates or mobile wallets where the pain of paying is lower, leading to a higher likelihood of spending and higher spending amounts.
• Cashless payment methods encourage consumers to focus on product benefits, which ultimately makes them willing to pay more. This is known as the “Monopoly Money” effect.
• Preliminary evidence suggests such effects continue as “monopoly money” is converted. For instance, consumers tend to spend more when using a gift card they received with airline miles than one received using credit card points or with cash.
• Gift cards are profitable for a company to issue for two reasons: they are either never used, or when used, the consumer is likely to spend more than is allotted on the gift card.

These are managerially relevant questions not only for those companies that decide which modes of payment they will accept, but also for traditional issuers such as Visa or Mastercard, technology companies such as eBay or Apple, and retailers such as Starbucks or Macy’s that offer price promotions for store credit. Companies with loyalty programs may also be interested in innovative forms of payment.” -Priya Raghubir, Professor of Marketing, New York University

Discover more insights on how payment mode influences consumer behavior here.