For years, a weekend market stall selling handmade candles and soaps accepted cash only. The owner reasoned that card machines were expensive and most of her regulars carried notes anyway. Then a friend persuaded her to try a small tap-to-pay device for one season.
The change surprised her. Fewer people walked away saying they’d “come back after the ATM”. More customers added a second or third item. Her average sale went up noticeably, even though her prices and products hadn’t changed at all.
She’d stumbled on one of the more robust findings in consumer psychology. How people pay affects how much they spend, sometimes dramatically. Understanding why can help a small business remove needless barriers for customers. It also comes with a responsibility not to exploit the same effect.
One Like insight: The less it feels like paying, the more people tend to spend, which is exactly why fairness matters.
The pain of paying
In 2001, Drazen Prelec and Duncan Simester of MIT published a study with a memorable title: “Always Leave Home Without It.” They ran a real auction among MBA students for tickets to sold-out Boston Celtics and Red Sox games. Bidders were randomly told that, if they won, they would have to pay either by credit card or in cash.
The tickets, the auction and the people were otherwise identical. Yet those told they would pay by card bid roughly twice as much on average as those told to pay cash. Simester later remarked that it’s unusual for such experiments to show effects anywhere near that size.
Prelec, working with the economist George Loewenstein, had earlier described the idea behind this as the “pain of paying”. Handing over cash is vivid. You see the notes leave your hand and your wallet get lighter. Card and contactless payments are more abstract, and the cost is felt later, if at all. The more distant and invisible the payment, the less it seems to hurt, and the more people are willing to spend.
The original study was small and involved a particular group of people and a highly desirable product, so the “double” figure shouldn’t be applied too literally. But later research has broadly supported the direction of the effect, and anyone who has seen how quickly a subscription or a tap-to-pay habit adds up will recognise it.
Removing friction without exploiting it
For a small business, there’s a legitimate and a less legitimate way to use this insight.
The legitimate one is removing unnecessary friction. A customer who wants to buy but can’t, because you don’t take cards, your payment link is clumsy or the checkout asks for too much, is a sale lost for no good reason. Accepting the ways people actually prefer to pay, from cards and tap-to-pay to instant EFTs and payment links on WhatsApp, simply lets customers do what they already intended.
The less legitimate one is deliberately hiding costs so customers spend more than they realise: subscriptions that are hard to cancel, prices presented without totals, or automatic add-ons buried in small print. These tactics may lift short-term revenue, but they erode trust, attract complaints and, in many countries, increasingly attract regulators’ attention. In South Africa, the Consumer Protection Act already gives consumers rights around clear pricing and cancelling certain fixed-term agreements.
A useful test is whether the customer would be pleased or annoyed if they saw exactly what was happening. Making it easier to pay for something they want passes that test. Making it harder to notice what they’re paying does not.
[Infographic placement] Friction versus fairness. A two-column chart. Good friction removal: accept cards and tap-to-pay, offer payment links, show the total clearly, make subscriptions easy to cancel. Harmful concealment: hidden fees, hard-to-cancel subscriptions, unclear totals, pre-ticked add-ons. Caption: Prelec and Simester (2001): bidders expecting to pay by card offered roughly twice as much as those paying cash.
Making it easy to say yes
Start by walking through your own payment process as a customer would, in person and online. Count the steps from “I’ll take it” to “paid”. Notice where someone might give up: a cash-only sign, a slow card machine, a payment link that asks for an account, a website that only accepts one method. Each of those is a point where willing customers can drop out.
Then look at the other side. Are your prices and totals clear before people commit? If you sell subscriptions or contracts, is cancelling as easy as signing up? If a customer reviewed their bank statement next month, would anything surprise them?
A few questions can help:
- Which payment methods do our customers prefer, and do we accept them all?
- Where in our payment process do people hesitate or drop out?
- Is the full cost visible before the customer commits?
- Would our customers be pleased or annoyed if they saw exactly how our pricing works?
Which brings us back to the candle stall and its new card machine. The owner didn’t trick anyone into spending more. She simply stopped sending willing customers away to find an ATM. That’s the version of the pain-of-paying insight worth adopting: make it easy for people to buy what they want, and never make it hard for them to see what they’re paying.
Sources
- Drazen Prelec and Duncan Simester, “Always Leave Home Without It: A Further Investigation of the Credit-Card Effect on Willingness to Pay”, Marketing Letters 12(1), 2001. Summarised in Psychology Today.
- Drazen Prelec and George Loewenstein, “The Red and the Black: Mental Accounting of Savings and Debt”, Marketing Science 17(1), 1998.
- Consumer Protection Act 68 of 2008 (South Africa).
