“Cash or credit?” is a phrase uttered by thousands every day. And most individuals happily interchange between the two choices. Plus, every day it seems there’s yet another announcement for a new way to pay: Starbucks and Square; Google Wallet; the Merchant Customer Exchange. Even MasterCard is no longer a “toll collector,” “merely a financial services company” or “an extension of the bank,” says MasterCard’s Jennifer Stalzer, but “a company that uses technology to help consumers have better control of their finances.”
As the concept of the financial transaction undergoes a radical transformation, MasterCard and Tufts University decided to conduct similar experiments with their summer interns and students, respectively. These Millennial-aged participants were separated into two groups — one team could only use cash, while another team could only use plastic — and documented their experiences using social media.
“People have spending habits that are deeply ingrained, but as we become more mobile and online, are Millennials the next generation that will think it’s normal to keep a wallet? Will they say, ‘I can’t believe we used to carry around metal cards with chips?’” says The Fletcher School at Tufts University's Ben Mazzotta, who helped design the challenge.
While Tufts University’s contest directly inspired MasterCard’s experiment, the two set slightly different parameters. Tufts forbid ATM cash withdrawals, whereas MasterCard allowed ATM cash disbursem*nts. The Tufts contest ran for one week, whereas MasterCard’s challenge lasted three months. Both, however, used social media engagement, including total views for blog posts and total number of retweets, to determine their winning teams.
The collective result illustrates that there is no clear winner between cash versus cashless spending, though there’s a near universal belief among Millennials that “cash is dirty.” But more importantly, these experiments underscore how powerfully money influences our behaviors.
As soon as the experiment began, Tufts’s cash-only team members developed a fear of living without money, and as a result, they started stockpiling large sums of cash. “There was definitely anxiety on the cash side,” says Mazzotta. “They would get halfway through the week and if they needed more [cash], they would have to drag themselves during business hours to the bank, [and] wait 10 minutes in line to have a face-to-face transaction. Or they would try to save their money by buying small lunches and skipping snacks.”
Cashless participants had a clear advantage in convenience. “It was frustrating to have to walk unnecessarily to an ATM to get money to buy something,” says MasterCard’s participant Denver Lobo. Cash-only Millennials also encountered difficulties while traveling outside of the U.S. MasterCard’s Lobo said he had to pay “exorbitant conversion rates” while traveling in Nepal, and during subsequent travel in Kuwait, no foreign exchange would exchange his Nepal-issued currency.
All participants say their experiences gave them a heightened awareness of money. Some, however, found themselves obsessing over the end transaction and unable to enjoy the activity.
At the same time, all participants were more aware of their spending behaviors than usual, thus enabling them to cut back on unnecessary purchases. Tufts and MasterCard participants would also frequently form a “buddy system” with their payment opposite in order to avoid any embarrassing financial situations, such as a cashless member visiting a cash-only restaurant. This buddy system also alleviated another payment quandary with group activities: multiple orders. “We would all bring cards and have to have them separate [the receipt instead of pooling together cash]. We are not friends with waitresses,” jokes MasterCard’s cashless team member Shelby Ladenheim, adding her team was unable to eat at New York City food carts since vendors are cash-only.
Cash-only participants had an advantage with physical sales, such as selling used electronics. “When you conduct small value exchanges at an arms length transactions, like at a used bookstore or through Craiglist, cash is still king,” says Mazzotta. Cash also remains the favorite currency among small-time gamblers. The Tufts cashless team felt alienated by their inability to compete in cash-only office betting pools.
Yet, cash is not king at MasterCard corporate headquarters. The cash-only team was unable to purchase anything — from newspapers to lunch in the cafeteria — since the company bans cash transactions inside its building. Cash participants were unable to purchase anything online during the experiment, and MasterCard participants had to pay their landlords in cash. One Tufts University cash team member calculated he lost $135 worth of Groupon discounts, credit card rewards, and Starbucks loyalty points during his weeklong cashless experience.
These experiments also found that Millennials aren’t overly concerned about their privacy when making online or mobile transactions. “When you are making the payment choice in line at the grocery store, it comes down whether cash or [cashless] is right for that moment. Now, when you are making decisions about your payment adoptions, or how many credit cards you will carry, or whether you will have a PayPal account — [these are] the time[s] when you have privacy concerns and think about identity theft,” says Mazzotta.
One of more challenging lessons from these experiments is simply determining what constitutes a cash or cashless payment. “If I download a $30-off coupon off the Internet to use at a restaurant, is that considered a cashless transaction?” asks Mazzotta. “When is something a discount and when it is a payment?” Another grey area was determining the payment category when someone adds money to debit cards, such as monthly subway passes. When that card subtracts a fee upon each individual use, does each swipe count as a cash transaction?,” asks Mazzotta.
“It’s kind of like a zero-dollar payment since once you’ve bought it, there really aren’t any further transactions other than to validate the account.” As such, subway passes were banned for the cardless group, says Mazzotta. But, he adds, “We didn’t give people a hard time about that. They were doing their best. The key principle is that the cards are using electronic networks to make payments.”
Nonetheless, these matters are further complicated by the expansion of companies involved in the payment process. Square’s new deal with Starbucks, for instance, enables people to pay for coffee with their smartphones. Now, Square, Starbucks, and the smartphone carrier are involved in the payment relationship. Who does a consumer blame when something goes wrong?
Both MasterCard and Tufts University are planning to relaunch their respective experiments. Tufts, for its part, plans to make its contest more challenging for cash competitors. “When students want to travel home for Thanksgiving, they will be hit with the issue of buying tickets. How do you buy plane tickets in cash?” asks Mazzotta.
