The Influence of Payment Method Do Consumers Pay More with Mobile Payment By

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The Influence of Payment Method:

Do Consumers Pay More with Mobile Payment?

Yizhao Jiang

Claremont Graduate University

2022

Abstract

The Influence of Payment Method:

Do Consumers Pay More with Mobile Payment?

Yizhao Jiang

Claremont Graduate University 2022

The introduction of new payment methods has resulted in one of the most significant changes

in the way we consume goods and services. In this paper, I present results of a field and a

laboratory experiment designed to determine the effect of payment method (cash vs. mobile

payment) on spending, and a meta-analysis of previous literature about payment method

effect. In the field experiment, I collected cashier receipts from Chinese supermarkets.

Compared to cash payment, mobile payments significantly increased the amount purchased

and the average amount spent on each item. This effect was found to be particularly large for

high price elasticity goods. In the laboratory experiment, participants were randomly assigned

to one of four groups that varied with respect to the kind of payment and the kind of

incentives, eliminating the potential endogeneity problem from the field experiment. I found

that compared to cash, mobile payments lead to a significantly higher willingness to pay

(WTP) for consumption. In contrast to others, I found that “pain of paying” does not

moderate the payment method effect; however, other psychological factors were found to

work as potential mechanisms for affecting WTP.

This paper has the following innovations: First, previous experimental studies on payment

methods focused on credit cards or debit cards, which are not the primary payment methods

in China. This paper uses both the lab experiment and the field experiment to confirm that the

payment representation form would influence consumption. Second, the previous

experiments failed to test the influence of monetary forms of the incentives due to the cash

in-pocket constraint. This study uses the two-by-two groups design to avoid the problem and

found the different incentives form led to a strong earmarking effect. That is, the WTP would

be significantly higher if the incentives were in the same payment form as paying. Third, this

paper discusses the psychological factors that may mediate the payment method effect,

including the pain of paying, the BIS/BAS system, and the attitude toward mobile payment.

The mechanism discussion poses important implications for both consumers, merchants, and

policymakers.

Keywords: payment methods; mobile payment; consumption; pain of paying; experiment

Table of Contents

Contents

The Influence of Payment Method: ......................................................................................................... i

Do Consumers Pay More with Mobile Payment? .................................................................................... i

Table of Contents .................................................................................................................................... v

1. Introduction ................................................................................................................................. 1

2. Background and Hypothesis ....................................................................................................... 4

2.1. Mobile Payment App .......................................................................................................... 4

2.2. Simulated Trading ............................................................................................................... 5

2.3. Possible Mechanism ............................................................................................................ 5

2.4. Hypothesis ......................................................................................................................... 10

3. Empirical Studies ...................................................................................................................... 11

3.1. Chapter 1: The Field Study of Mobile Payment in Supermarket ..................................... 11

3.2. Chapter 2: The Lab Study of Simulated Good Trade ....................................................... 16

3.3. Chapter 3: A meta-analysis of the payment method effect ............................................... 22

4. Conclusion ................................................................................................................................ 31

4.1. Research contributions ...................................................................................................... 31

4.2. Managerial implications .................................................................................................... 32

4.3. Limitations and future research ......................................................................................... 33

Appendix.1 Tables and Graphs ............................................................................................................. 34

Appendix.2 Receipts and Goods example ............................................................................................ 46

Appendix.3 Questionnaire .................................................................................................................... 47

Bibliography ......................................................................................................................................... 58

1. Introduction

After cash dominate payment for recent centuries, mobile payment is becoming more

popular and starting to take over the dominant. In China, 347.11 trillion yuan (55 trillion

dollars) banking transactions are based on mobile payment in 2019. Moreover, the third-party

mobile transaction (Alipay and WeChat pay) are 249.88 trillion yuan(39 trillion dollars) in

2019. The non-cash situations dominate the most consumption situations, including

convenience stores, supermarkets, restaurants, malls, even stalls, and farmers’ markets. Most

previous related research is focused on the acceptance of mobile payment technology or its

spreading. However, there is little research about how this change would influence the

consumers’ behaviors. Does electronic pay increase consumers’ marginal propensity to

consume? Due to their widespread use in daily life, mobile payments may increase domestic

demand a lot.

While the classical theory concerns the amount of money, regards it as the budget

constraint, the forms of money may also play an important role when consumers buy goods.

Credit cards are widely considered an efficient way to stimulate consumption. According to

the literatures (Thaler 1985, 1999; Prelec and Loewenstein 1998), credit cards would delay

payment, separating the paying and purchasing time. This decoupling effect makes people

more likely to spend. After considering the monetary costs, time costs, and other transaction

costs, it may be rational not to use it (Zinman 2007). On the other hand, despite the time

difference and payment cost of credit card would certainly influence the consumption

behavior, lots of research found the form of the credit card may also contribute to the

spending stimulus. Feinberg (1986) found the credit card would facilitate spending

significantly only with their logo appearing. He concluded that it may come from the

"weapons effect". This concept comes from psychology, which means that the presence of a

weapon would make subjects think more about the violent behavior and elicit subject's more

aggressive responses (Berkowitz & Lepage,1967), even the word or picture of a weapon

would increase aggression-related thoughts (Anderson, Benjamin, & Bartholow, 1998).

Similarly, the presence of credit cards may arouse people consuming-related behavior.

Prelec and Simester (2001) tested the results by asking wiliness to pay for sports

tickets. The cash salience group significantly pays less than the credit card salience group, but

the difference disappears in another experiment with fixed-value goods. Raghubir and

Srivastava (2008) found similar weapon effect results in an experiment that asked subjects fill

out wiliness to pay of a restaurant dinner. They also compared cash and gift cards and found

that subjects would like to buy cheaper goods in cash, and the difference would be influenced

by the transparency of the money. Soman (2003) using field experiments, tests how the

different transparency of payment methods influence consumption. People using cash

significantly pay less than those using cards. They conclude the effect comes from the

different salience of payment methods. Reinstein and Reiner (2009) ran a lab experiment on

charity giving. They found that people donated significantly less when they were paid in cash

than when their allocation was only shown on the computer. Soetevent (2011) also tested the

difference between cash and debit cards in the field experiment. The debit card group has a

lower donation rate but a higher average donation. In empirical, Eschelbach (2017) used

German consumer diary data and found that cash consumption is less likely to be regarded as

unnecessary consumption after purchasing.

Several possible channels may cause the difference performance between the payment

methods. Liquid constraints may prevent people from paying cash from their empty pockets.

Most lab experiments would give people a financial incentive so they could use it in the

experiment. In this case, earmarking effects may be at work; that is, subjects may believe the

experiment incentive is earmarked for purchase in the experiment. Runnermark, Hedman, and

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TheInfluenceofPaymentMethod:DoConsumersPayMorewithMobilePayment?ByYizhaoJiangClaremontGraduateUniversity2022AbstractTheInfluenceofPaymentMethod:DoConsumersPayMorewithMobilePayment?ByYizhaoJiangClaremontGraduateUniversity2022Theintroductionofnewpaymentmethodshasresultedinoneofthemostsignificantchange...

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