Population Statistic: Read. React. Repeat.
Tuesday, July 03, 2021

Is the increased use of electronic forms of payment — credit/debit cards, wireless transfers, etc. — resulting in a steady rise in pricing? Some compelling evidence points to this dynamic at the roadway tollbooth:

After an electronic system is put in place, tolls start rising sharply. Take two tollbooths that charge the same fee and are in a similar setting — both on highways leading into a big city, for instance. A decade after one of them gets electronic tolls, it will be about 30 percent more expensive on average than a similar tollbooth without it. There are no shortage of examples: the Golden Gate Bridge, the George Washington Bridge and the Tappan Zee Bridge, among them.

“You may be less aware you’re paying the toll,” said [economist Amy] Finkelstein, now an associate professor at M.I.T., “but you’re paying a higher toll than you used to.”

And you’re less aware because the money you’re spending is, in a sense, not “real”:

The implications of this go well beyond highways. We increasingly live in an E-ZPass economy, in which bills are paid online, corporate cafeterias are going cashless and people take along their debit card, instead of cash, when they leave the house. Last year, 55 percent of consumer spending was done electronically, mainly with credit and debit cards, while checks accounted for less than 25 percent and cash only 20 percent, according to Visa. As recently as 2003, only 45 percent of spending was done electronically.

The E-ZPass economy is indisputably more convenient. It saves time and frustration. But the old frustrations that came with cash also brought a hidden benefit: they forced you to notice that you were spending money. With electronic money, it’s much easier to be carefree.

Marketers understand this dynamic well, which is a big reason they promote refillable gift cards and other forms of money that don’t feel like money. Part of what’s so intriguing about Ms. Finkelstein’s work is that it suggests that government officials may be coming to understand the dynamic, too.

I’ve been doing extensive marketing work in the electronic payments field; a cornerstone assumption is that the consumer will spend more money using plastic than when using cash. It’s a mindset borne of the relatively recent ubiquity of card-based payments. Presumably, another couple of decades of steady non-cash transactions will erase this behavior.

But in the meantime, commercial interests can take advantage of the disconnect between point-of-sale transactions and the subsequent billing. This seems to be leading to a concurrent inflationary trend, distinct from supply-and-demand pressures and more than a mere mark-up for the privilege of convenient payment. What will this mean in macro-economic terms, in the long run?

by Costa Tsiokos, Tue 07/03/2021 10:52:25 PM
Category: Business, Society, Tech
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