Behavioural Drivers of Intentions to Use Cash

  • Professor Darren Duxbury
  • 21 September 2023
  • Blog | Fintech and Innovation in Banking | Blog

Motivation and aims

In the face of changing consumer payment trends driven by technological innovation, the use of cash as a payment method is declining dramatically in many countries, including the UK. Such a decline represents a challenge to the cash processing industry, with implications for the banking sector. Against this backdrop, to understand what might influence the projected rate of decline of cash as a payment method, an academic-industry collaboration between Newcastle University and National Westminster Bank, led by Professor Darren Duxbury, set out to examine the importance of behavioural factors.

The research aims to provide better understanding of the behavioural drivers (e.g., mental accounting/budgeting, fungibility, loss aversion, habit, financial literacy, emotions) of intentions to use cash relative to other forms of payment and examines the impact of exogenous shocks (unexpected events which occur outside an industry or sector but have a dramatic effect on its performance, e.g., natural disasters) on such intentions.

  • Mental accounting is where individuals forming distinct mental “pots” of money in their minds for spending in different categories (e.g., food, travel, entertainment); in this sense it can be viewed as a form of mental budgeting.
  • Mental budgeting is at odds with money being perfectly fungible (or interchangeable), irrespective of how it is obtained (e.g., wages/salary, gift) or stored (e.g., cash, bank account, investment fund).
  • Under loss aversion, individuals feel the disutility of a given loss more keenly than the utility experienced from a comparable gain, thus paying with cash might be perceived as more painful.
  • Habitual behaviour is the tendency to succumb to routine/automaticity in day-to-day life, with the potential for payment habits to form. 
  • Financial literacy measures an individual’s financial knowledge or acumen and as such might impact payment method intention. 
  • Emotions or feelings towards particular payment methods might feature in payment method intention.

The research surveys 2,801 UK adults using a stratified sampling approach with interlocked quotas with respect to age, gender and income to ensure a balanced sample across important socio-demographics.  Thus, the behavioural results and insights are proportionally obtained across a range of socio-demographics (i.e., not driven by select subsets of society). 


Payment intention and behavioural drivers

We find clear evidence of the importance of behavioural factors in shaping intentions to favour cash vs non-cash payment, above and beyond the influence of socio-demographic background.

  • Individuals with a higher propensity to use mental accounts/budgeting and a propensity to consider money as non-fungible have a higher intention to use cash.
  • High-levels of loss aversion are associated with a lower intention to use cash, than low-levels of loss aversion, as such individuals would feel the pain more when spending in cash.
  • A higher propensity to pay electronically is more the result of a cognitive and deliberative process than automaticity or habit.
  • Financially literate individuals intend to make a greater proportion of electronic payments than individuals with low financial literacy.

Payment intention and behavioural drivers: conditional on transaction size

We find strong evidence of a shift in how the behavioural factors explain intentions to pay as transaction sizes increase. Importantly, the effect of loss attitude on payment intention is positive at an increasing rate across transaction sizes over £5, with loss aversion associated with lower intention to use cash. Turning to trait habit, we find that individuals intend to make more cash payments under £5 as a matter of routine, but more electronic payments under £5 as a reflection of an unconscious action (automaticity). 

For lower-level transactions, increased financial literacy is associated with higher intentions to use cash, while generally and for all other transaction values it is associated with a lower intention to use cash. The influence of emotions on payment intention diminishes as transaction size increases. Hence, as transaction values increase, affective feelings towards a particular payment method matter less, while financial acumen plays a growing role.   

Exogenous shocks and changes in payment intentions

Exogenous shocks to economic circumstances and security breaches lead to changes in payment method intention. We find a negative relation between loss attitude score and payment intention, with higher loss aversion associated with a stronger switch towards cash following an exogenous shock, both economic and security. In the event of a security breach, individuals high in financial literacy, and therefore more likely to use electronic payments, have a higher tendency to switch towards cash. Relatedly, we report intended shifts away from contactless payments in the face of a security breach, thus evidencing an increased security risk associated with electronic payment methods.

Contributions and implications

First, we provide strong evidence of the importance of behavioural factors, financial literacy, the tendency to form habits and the role of emotions on the intention to use cash, thus deepening our understanding of the nexus between consumer finance and consumer behaviour, with important implications for the cash industry and banking sector more widely. 

Second, we present strong evidence of a shift in how the behavioural factors explain intentions to pay as transaction sizes increase. In doing so, we deepen understanding not only of how, but also importantly why, payment method is a function of transaction size.  Such behavioural insight has implications for the cash industry and organisations therein, not just in terms of the use of cash per se, but also with respect to currency denomination categories.

Third, we demonstrate that while payment intention habits might form, evidence of shifts in response to exogenous shocks (economic and security) demonstrate that such habits are not immune to change.  Our findings have important policy and industry implications relating to the forecasting of cash use decline. Specifically, assumptions concerning payment trends need to allow for heightened volatility, while the models themselves need to be adaptable enough to allow for structural breaks associated with exogenous shocks.


For further information please contact Professor Darren Duxbury ([email protected]).

Professor Darren Duxbury, Chair in Finance at Newcastle University, is an internationally renowned expert in the areas of experimental and behavioural finance, with over 30 years’ teaching experience across the accounting and finance disciplines.