The impact of payment method on shopping behaviour among low income consumers

Purpose: It is well known that certain payment methods, such as credit and debit cards, can increase consumer spending. For many low income consumers, who cannot typically increase their spend, the relationship between payment method and spending has not been empirically examined. Using grocery store sales data, this research takes advantage of the introduction of a geographically-targeted Cashless Debit Card for welfare recipients in Australia to investigate the impact of payment methods on spending behaviour. Design/methodology/approach: Recipients of government welfare and support payments were automatically enrolled into the Cashless Debit Card program, with 80% of their support payments deposited onto the card. The card prevented the withdrawal of cash money. The sales data from the local grocery store from the region where this program was implemented were obtained, as well as the data from two grocery stores from a control community in a similar region where the program was not implemented. The change in price elasticities of demand was then assessed. Findings: The overall grocery market became more inelastic as a consequence of the introduction of the Cashless Debit Card, while total spend in-store remained stable. Research limitations/implications: Prior research has shown that consumers spend more when using card versus cash payments. We extend that research to show that low income consumers do not spend more, but do become less responsive to price cues when grocery shopping with a card. The advantage of our research was the ability to identify a ‘moment’ when there was a switch from cash to card payments due to the introduction of the Cashless Debit Card program, and compare it with a similar location that was not subject to the program. However, limiting the research to only recipients of support payments may increase the effect size, and the true size of the change may be unique to different research contexts. Practical implications: The findings highlight to businesses that their current sales and promotions strategies may be less effective following the adoption of card payments by consumers. Campaigns will need to be more prominent or discounts deeper to produce the same uplift in sales as previously experienced. Policymakers encouraging the use of card payments will also need to accommodate this change in consumer behaviour, which may slightly reduce the amount of product consumers obtain for their dollar. Originality/value: The impact of payment method on typical consumers has been considered; however, this research focuses on low income consumers whose more limited resources make them more vulnerable to changes in market conditions.