Cashless payments and consumer spending

Martin Brown, Yves Nacht, Dr. Thomas Nellen and Helmut Stix



JEL classification
E41, G20, O33, D14

Digital payments, Cash management, Payment choice, Present bias, Intertemporal choice, Preanalysis plan


We examine how payment choice affects discretionary spending for a representative sample of consumers. Our analysis is motivated by a model of intertemporal choice in which intramonth liquidity constraints are endogenously determined by payment choice and cash management. In the model, present-biased consumers overspend if they choose to pay by card, as their spending is not limited by the amount of cash at hand. Our empirical analysis is based on matched payment diary, payment methods and behavioral survey data. We find that present-biased consumers spend more, the more often they use cashless payment instruments. The effect of cashless payments on spending is strong both for low- and high-income consumers but not among young consumers. We find no robust evidence that consumers choose cash payments to self-constrain their spending.