Influence of product perception and discounts on the
preference of online payment
Aparna Mishra Sangeetha Gunasekar
Amrita School of Business Amrita School of Business
Amrita Vishwa Vidyapeetham Amrita Vishwa Vidyapeetham
University University
Coimbatore, India Coimbatore, India
mishra.aparna@outlook.com
Abstract— The increasing mobile penetration and improving
payment infrastructure have propelled the growth of digital
payments in India. But e-tailers are still struggling with declining
growth rates contributed by cash on delivery payments. Despite
the enormous research done on various factors of payment
infrastructure and their influence on the adoption or use of
online payments, the studies have not examined how consumer
perception of products and offered discounts can influence their
preference towards online payment methods. This study aims to
evaluate product perception, discount buying behavior of
consumer and cash back related perceptions as motivators of
online payments. The data collected through an online survey
across India was analyzed using logistic regression. The findings
suggest that product perception influences consumers’ choice of
payment method. It was also found that discount buyers are
more likely to prefer online payments and that the awareness of
cash back offers improves the preference towards online
payments, but additional discounts offered on card payments
seem to work far better than cash backs to influence online
payment for the purchase.
Keywords—online payment; cash on delivery; product
perception; discount buying behaviour; cash backs; online
shopping; India
I. INTRODUCTION
India is a cash based economy. It is estimated that nearly 1
billion transactions happen in India every day, of which, almost
530 million transactions are person to merchant to which
digital transactions contributes only 13 percent [1]. However, it
is expected that by 2020 digital transactions will increase to 26
percent reaching 500 million dollars [1]. This would be partly
made possible through building better infrastructure for online
payments.
India is currently accelerating the development of its
landscape for digitizing payments and transactions. Smart
phones penetration has increased from 21.2% in 2014 to 29.8%
in 2016 [2]. The infrastructure for online payments is bound to
become stronger with the introduction of Unified Payment
Interface (UPI). Internet connectivity across India has become
faster and cheaper with increasing cost competition among
telecom operators after the introduction of Reliance JIO. The
number of bank transactions is bound to increase with constant
stress on financial inclusion. Overall, all these factors will
978-1-5090-0612-0/16/$31.00 ©2016 IEEE
Deepak Gupta
Amrita School of Business
Amrita Vishwa Vidyapeetham
University
Coimbatore, India
together build a stronger infrastructure for online payments and
consequently increase the share of digital transactions in Indian
market. The concern for all merchants, specially e-commerce
merchants, now is to maximize their share of the digital
transactions.
The story of e-commerce in India is built of home grown
brand miracles, small start-ups, intense international
competition and more. But the spice to the story has been cash
on delivery (COD). COD was Flipkart’s magic wand to
penetrate the Indian market and grow its customer base.
However, Flipkart and all other e-tailers today are battling the
drawbacks of COD in the form of cash handling costs, logistics
surcharges, higher return rates, higher working capital
requirements etc. The biggest question that e-tailers face is,
how to motivate the consumers to pay online? The answer to
this question is no more limited to better payment
infrastructure, instead e-tailers need to develop new tools to
impute consumer preference of payment methods.
This research goes beyond the role of payment
infrastructure and evaluates product perception and discounts
as an influencer of online payments on e-tail channel. This
paper uses logistic regression to validate a model with
preferred mode of payment as a dependent of product
perception, discount buying behavior, cash back awareness and
perceptions, offered discount and demographics. The following
section discusses the existing literature in this context.
II. LITERATURE REVIEW
Extant literature has emphasised on the importance of
secure payment infrastructure required for improving business
[3]. Perceived security and perceived trust are validated to be
crucial factors in understanding the use of electronic payment
systems. Trust has also been studied as a dependent of
perceived security [4] and confidentiality of the information in
transit [5]. Extant literature has identified perceived total risk
to be negatively related to trust. This perceived risk has been
classified as system dependent risk and transactional risk.
System dependent risk includes system defects or security
problems and transactional risk includes transaction specific
uncertainty [6]. In this research we have included variables
like data confidentiality, transaction uncertainty and
convenience of online payments, to study the relationship
 2016 IEEE International Conference on Computational Intelligence and Computing Research
between online payment infrastructure and consumers’
payment preference. This research also tries to go beyond
payment infrastructure to understand consumer payment
preferences. In this context we have studied consumers’
discount buying behavior. Existing research support the notion
that higher discounts positively influence purchase intentions
[7]. Existing research have reported influence of product
appearance on perceived risk and purchase intention [8].
Research has also found that product attributes and discounts
can drive impulse buying behavior online [9]. In this study we
will try to evaluate the impact of product perception and
discounts including cashbacks, on online payment preferences.
III. OBJECTIVE AND HYPOTHESES
Online payment infrastructure has been widely studied as a
determinant of online payment adoption. Literature also exists
on the influence of behavioral and product related attributes on
purchase intentions. However, very little attention has been
given to the influence of behavioral and product related
attributes on an individual’s payment preferences when
shopping online. The objective of this study is to understand
the impact of product perception and discount buying behavior
of Indian consumers on their payment preferences while
shopping online.
Hypotheses:
There are three aspects that we want to study in this
research:
1) Product Perception: Past research shows that product
appearance can influence purchase intention and perceived risk
[7]. Research have also established positive relation between
product quality and product purchase intention [10]. Our
intention is to study influence of product perception on an
individual’s online payment preference. Hence, the hypotheses
(alternative) that the present study tests are:
H1A: Consumers will be more willing to pay online if they
perceive the product to be sophisticated.
H1B: Consumers will be more willing to pay online if they
perceive the product to be new.
H1C: Consumers will be more willing to pay online if they
perceive the product to look classy.
H1D: Consumers will be more willing to pay online if they
perceive the product to be of good quality.
2) Discount buying behavior: Research have established
that purchase intention will be higher for higher discounted
products [7]. Hence, our intention is to study if extra discount
when added to a payment medium, will increase the purchase
intention. For this, we will study the influence of discount
buying behavior on preference of payment mode. We will also
study attributes of cash backs as an influencer for choice of
payment method through testing the following hypotheses:
H2A: Discount buying behavior will negatively influence the
preference of payment mode.
H2B: Cash back awareness will positively influence the
preference of payment mode.
H2C: Experience of using Cash back will positively influence
the preference of payment mode.
H2D: Lack of clarity on cash back money transfers will
negatively influence the preference of payment mode.
H2E: Lack of trust on cash back terms and conditions will
negatively influence preference of payment mode.
H2F: Extra discount on online payment will positively
influence the preference of online payment over COD.
H2G: Cash back on online payment will positively influence
the preference of online payment over COD.
3) Demographics: Literature suggests that younger
people are more accepting of newer technology [11]. Studies
also emphasize on the moderating effect of gender on
technology adoption and suggest that males are faster adopters
[12]. Following this, in our study we have considered age,
gender, income level and city of residence as demographic
variables, while income is measured by SEC, for city of
residence a distinction is made between Tier-I and Tier-II
cities. It is believed that there exists a differential infrastructure
development which is expected to influence payment
preference.
H3A: Younger consumers will be more willing to prefer online
payments over COD.
H3B: Male consumers will be more willing to prefer online
payments over COD.
H3C: Consumers belonging to higher SEC will be more willing
to prefer online payments over COD.
H3D: Consumers in Tier I cities will be more willing to prefer
online payments over COD.
Apart, from product perception, discount buying behavior and
demographics we have also included variables from existing
literature like online payment convenience, knowledge,
transaction fee knowledge, data confidentiality and comfort of
sharing card details as control variables.
H4A: Consumers will be more willing to pay online if online
payment is convenient.
H4B: Consumers having higher knowledge about online
transactions will be more willing to pay online.
H4C: Consumers having knowledge of transaction fees will be
more willing to pay online.
H4D: Lack of trust on online shopping website regarding data
confidentiality is negatively related to preference of online
payment.
H4E: Higher comfort level among consumer to share their
bank details is positively related to the preference of online
payment.
In the following sections, a conceptual model will be used
to present the relation of the hypothesis variables with payment
preference, and the proposed model will be evaluated using
logistic regression to report the findings.
 2016 IEEE International Conference on Computational Intelligence and Computing Research

IV. CONCEPTUAL MODEL We were interested to understand the payment preferences

Fig. 1, represents the conceptual model which explains the
relationship between preferred mode of payment and other
independent and control variables for the study. The
conceptual model also summarizes the hypotheses for the
study.
of the Indian e-tail consumers, the dependent variable of the
study, preferred mode of payment, is a binary variable with
values 1 for online payments and 0 for COD. The respondents
were asked questions to measure their perceptions on a five-
point semantic/ Likert scale regarding online payments, cash
backs, and products sold online. Questions were also asked to
understand the consumers discount buying behavior and
demographics. Logistic regression estimation method was used
to estimate the model. Logistic regression model has been
previously used to study payment preferences on Indian
matrimony portals [13]. Equation 1 represents the logistic
regression model.
Equation 1:
Log (qi / (1-qi)) = β0 + β1Xi1 + β2Xi2+ . . . . + βqXiq+ ui
The variables in Equation 1 are as follows:
Xi’ = 20 variables of interest.
ui = the random error component.

VI. RESULTS AND DISCUSSIONS

Stata-13 statistical analysis package is used to run the
logistic regression. Twelve out of the twenty variables tested
are seen to have an impact on the consumers’ choice of
payment method. Table II shows the impact of variables with
their odds ratios.
Fig. 1. Conceptual model for the study
TABLE II. RESULT OF LOGISTIC REGRESSION

V. DATA AND RESEARCH METHODOLOGY Hypotheses Variable/ Construct Odds Coefficient

Ratio
The study seeks to understand the motivations of the Indian H1A Product Sophistication .638 -.448*
consumers to choose online payment over COD on e-tail (Sophisticated -Unsophisticated)
platforms. In attempting this, a self-administered online survey H1B Product Age (New – Old) .573 -.557**
was designed and responses were collected in March 2016 H1C Product Looks (Gaudy – Classy) 1.613 .408*
from the major Tier-I, Tier-II and Tier-III cities of India. The
respondents were asked questions to measure consumer H1D Product Quality (Poor Quality – 1.653 .502
Good Quality)
perceptions regarding: products sold online, discount buying H2A Discount buying behavior .682 -.383**
behavior, online payment perceptions (like convenience, H2B Cash Back Awareness 1. 926 .656*
confidentiality, knowledge, comfort), and demographics of the H2C Experience of using Cash Backs .834 .182
respondent. Except demographic all other questions in the H2D Unclear Cash Back money .865 -.146
survey used a five point semantic/ Likert scale to record the transfer
responses. Over 150 responses were gathered, cleaned and H2E Lack of Trust on Cash Back .636 -.452*
terms and conditions
analyzed for the study. While cleaning the data any duplicate
H2F 5-10% Discount on debit/ credit 6.272 1.836***
responses and any flat-liners were removed. Table I represents card payments
the sample summary. H2G 5-10% CB on debit/ credit card .801 -.222
payments
H3A Age .785 -.241
TABLE I. DESCRIPTION OF SAMPLE ACROSS AGE, GENDER AND
LOCATION H3B Gender 1.145 .135
H3C SEC 1.106 .101
Location Gender Age H3D City Tier 1.500 -.405
18-24 25-34 35 and above Total H4A Online Payment Effort 1.745 .557**
(Convenience)
Tier-I Male 14 3 1 18 H4B Online Payment Knowledge 1.708 .535*
Female 10 1 3 14 H4C Online Payment Transaction Fee .488 -.718**
Knowledge
Tier-II Male 25 10 1 38
H4D Lack of trust regarding data .588 -.531*
Female 23 5 4 32 confidentiality
Tier-III Male 21 4 3 28 H4E Comfort level in sharing card 1.874 .628**
details
Female 5 2 2 9 ***
p<0.01, **p<0.05, *p<0.10
 2016 IEEE International Conference on Computational Intelligence and Computing Research
The questions in the survey measured consumer
perceptions towards online payment, cash back offers and
products sold online. The results of the study shown in Table
II, are congruous to prior research on the impact of data
confidentiality, online payment convenience and online
payment knowledge. The results show that consumers with
better knowledge of online payments are 1.7 times as likely to
choose online payments, and consumers who find online
payment convenient are also 1.7 times as likely to choose
online payments. This relation is in accordance to prior
research on online payments convenience of efforts [14]. But
higher the knowledge of transaction fee deducted by bank it is
more likely for consumers to prefer COD. A lack of trust in
data confidentiality is negatively related to payment mode
preference as expected from prior research. The results also
show that people comfortable in sharing bank account details
on e-tail sites are almost twice as likely to use online payments.
Results related to cash back offers indicate that consumers
aware of cash backs are almost twice as likely to prefer online
payment, however experience of using cash back has no
significant relation with online payments. To further
understand this relation, we asked respondents regarding their
perception on lack of clarity regarding cash back transfer. The
relation of this variable with online payment is negative but
insignificant but the relation of lack of trust on terms and
conditions applied to cash back offers with payment preference
is both negative and significant. This would mean that for cash
backs to influence online payments e-tailers should increase the
awareness of cash back discounts and also try to reduce
negative trust regarding the terms and conditions applied.
The results represented in Table II indicate a relation
between consumer perception of the product and payment
preference and show that for sophisticated, new product with
classy looks, consumers will be more willing to pay online.
Result also indicate that consumers rated high on discount
buying behavior are more likely to choose COD. To further
understand consumers discount motivations, we offered them a
5-10% discount on card or online payment and found that
consumers were 6 times as likely to choose online payment but
offering a 5-10% cash back discount does not yield any
significant result. As shown in results none of demographic
variables are significant.
VII. CONCLUSION
The aim of this study was to evaluate factors beyond
payment infrastructure that may impact consumers’ preference
towards online payment. In this regard, we tested a model
which assesses the impact of product perceptions, discounts,
and cashbacks on consumers’ preference of online payments
over COD. We found that for products perceived as
sophisticated, new, and classy, consumers were more likely to
pay online. The research also establishes a relation between
consumers’ discount buying behavior and payment preferences
and indicates that consumers inclined towards discounted
purchases are more likely to prefer COD. Furthermore, we
found that consumers will be six times as likely to pay online if
they were offered discounts on card payment. Overall, the
results show that beyond payment infrastructure, discounts and
product perception have the ability to drive online payments,
and e-tailers can leverage these aspects to improve their
business.
VIII. LIMITATIONS AND SCOPE FOR IMPROVEMENT
A major limitation of the study is that the sample is
concentrated towards consumers aged between 18-34 hence
results do not fully explore the relationship between payment
mode preferences and age. The study is also limited only to
product appearance and quality perception, and the result
indicates that product perception provides an impetus for
paying online hence attributes like product category, product
variety, usefulness, product aesthetics can be additionally
researched to establish a detailed relationship.
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