The Science Behind How Cashless Transactions Can Grow Your Business
There are a lot of benefits in ensuring your business offers your customers the ability to pay using cashless payment mechanisms. Don’t believe us? Read on.
Something strange is taking place in Malaysia. Our newspapers have started to report the obvious. Take for example this article, reporting that customers can now start paying for cabs using cash.
What’s newsworthy in that? We’ve always paid for everything with cash.
Yes, but, not really.
There’s a fast-growing movement in Malaysia, and across large swathes of the region to enable cashless transactions. Today, it’s become so commonplace to have cashless transactions that using cash is suddenly newsworthy.
There are a number of reasons why cashless transactions are increasingly becoming the norm for businesses.
First, and most importantly to your business: Cashless transactions can increase your share of the customer’s wallet.
There’s a lot of research that points out that the less painful a payment transaction is, the more likely a consumer is to increase the amount they purchase.
A study undertaken by Drazen Prelec and Duncan Simester in 2001, found that students were willing to pay twice as much for the same basketball game tickets—if they used credit cards (which represents a less painful way to pay) than they were with hard cash (which is seen as a painful way to pay).
More recent research by Dun & Bradstreet show that consumers tend to spend 12-18 percent more with credit cards than with cash. And McDonalds reports that the average sale it makes with cards is $2.5 more than those with cash.
All of these studies were done comparing payments made with credit cards versus those made with cash. For a lot of consumers today, paying with credit cards is seen as painful—compared to other, more customer-friendly digital payment mechanisms like mobile wallets. Imagine how much more you could increase your share of your customer’s wallet if you could make payments even easier.
But what’s the correlation between the ease of payments and an increase in customer spends? Why do consumers spend more when they aren’t using hard cash?
First, consumers tend to pay less attention to prices when they pay digitally. When consumers are forced to pay with cash, they need to ensure their purchase value fits the amount of money they have in their wallets at that point.
There’s also the fact that seeing red, green and purple currency notes creates more purchase friction in a customer’s mind than using abstracted forms of cash like cards, digital wallets, and payments using social media mediums like Twitter payments.
One digital payment company in India, Paytm, is currently taking this idea further. It is introducing a way to pay by sound.
Customers at a store will be asked to hit the ‘Sound Pay’ icon on their mobile application, while standing near a merchant’s application. Ultrasonic sound waves will carry payment data to the merchant’s mobile phone and the payment is made!
Cashless transactions are good for your business in a number of other ways. They make it easier to enable EMI payments, where consumers can make a large purchase and pay using monthly installments. This lowers the price barrier that customers encounter and can be useful in growing your average ticket value.
Non-cash based transactions also allow your business to leverage micro-payments. If, for example, your business sells books. You could allow readers to pay for a chapter at a time, using micro-payments. It’s a smart way to grow your market by allowing consumers to have a taste of your products.
Then, cashless transactions facilitate the introduction of loyalty programs and cashback offers. Sure, it is possible to create a loyalty program without digital payments, but you limit the number of touch-points you have with customers, and therefore curtail the success of a loyalty program.
Today more companies than ever are ensuring that they allow consumers to pay digitally. They will let customers pay by knocking phones (NFC payments), use twitter hashtags, transfer money from their mobile contact list, and even play music to pay—in short, anything but pay in cash.
Money, they say, makes the world go round. Cashless transactions? They’ll make your customer’s world revolve around you.
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