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1007/s10603-011-9172-7 ORIGINAL PAPER
Time to Cut Up Those Debit Cards? Effect of Payment Mode on Willingness to Spend
Amy Moore & Michael Taylor
Received: 17 May 2011 / Accepted: 22 August 2011 / Published online: 13 September 2011 # Springer Science+Business Media, LLC. 2011
Abstract Financial industry data indicate that consumers increasingly prefer debit cards over credit cards, especially as a means of enforcing financial self-discipline. Given prior research suggesting that credit cards act as spending facilitating stimuli, this move toward reduced credit card use would appear to be in the right direction. Ironically, however, the same logos that were implicated in facilitating spending with credit cards are the logos that appear on debit cards. In what should serve as an eye-opener to consumers, it is found that exposure to debit card logos does result in an increased willingness to spend, similar to credit cards. Keywords Debit cards . Credit cards . Willingness to spend . Consumer behavior . Consumer policy
For consumers reeling from a series of economic body blows, debit cards are increasingly becoming the plastic of choice. Some use the cards, which pull money directly from a bank or other account, as a budgeting tool to limit spending. —Palmeri (2008). Consumers are turning from one form of plastic to another....Credit cards are falling out of favor as cardholders become more cautious and look for more conservative payment methods. —James Van Dyke, President, Javelin financial services research firm, quoted in Leondis (2010). As the above quotes indicate, debit cards are increasingly preferred by consumers over credit cards as a way to enforce financial self-discipline. In sheer number, debit
A. Moore (*) Southern Utah University, BU321, Cedar City, UT 84720, USA e-mail: firstname.lastname@example.org M. Taylor University of Notre Dame, Notre Dame, IN, USA
We present a brief review of related literature in the next section followed by a description of the experimental setup. compared with subjects who were not exposed to credit card stimuli.3 billion debit transactions against 21.. Feinberg (1986) demonstrated this effect in a restaurant tipping study where a random sample of patrons who paid with credit cards left larger tips compared with patrons who paid with cash. In fact. with 25. 2010). We conclude with the findings and a discussion of the results. debit cards elicited no difference in spending compared to cash. Bill Sheedy. The mere presence of credit card paraphernalia on the study table resulted in subjects being willing to spend more in the experiments of Feinberg (1986). Taylor card transactions in the USA surpassed credit card transactions in 2006. . suggesting that debit cards with logos may actually work to hinder a consumer's goal of financial self-discipline. The credit card effect (Feinberg 1986) refers to the finding that credit cards act as “spending facilitating stimuli” and people spend more when they are exposed to credit card logos.7 billion credit transactions (US Census Bureau 2009).” this move toward reduced credit card use would seem to be in the right direction. M.'s President for North America. more consumers had debit cards than credit cards (Foster et al. Prelec and Duncan (2001) found that willingness to pay was increased in high-value buying transactions when customers were instructed to pay with a credit card rather than cash. Moore. In our experiment.” In light of prior academic research demonstrating the “credit card effect.416 A. In the absence of a logo. Further. consumers looking to enforce financial self-control with debit cards are exposed to the very same logos when they use their debit cards. budgeting and control.” The use of debit cards for financial control is emphasized by other financial industry experts. Subjects who were exposed to credit card stimuli indicated that they would spend more for each of the consumer products included in the experiment. research has revealed that merely being exposed to credit card insignia results in a greater willingness to spend. Visa Inc.debit is an ideal way for consumers to…focus on smarter spending.. It is thus interesting to study whether a similar increase in willingness to spend occurs in response to debit cards.. The Survey of Consumer Payment Choice conducted by the Boston Federal Reserve reported that in 2008. we found that debit cards with logos did indeed elicit an increased willingness to spend compared to cash. Ironically. highlighted in the announcement that “. Related Research Prior research has documented the tendency of consumers to spend more with credit cards compared to cash. Consistent with this overall increase in debit card usage was the announcement by Visa that spending on Visa debit cards had surpassed credit spending in 2008 for the first time in the company's history (Visa Inc 2009). logoed debit cards elicited a willingness to spend comparable to credit cards. In his experiments. Feinberg (1986) demonstrated that exposure to credit card logos increased participants' willingness to spend. Edgar Dunn & Company (2004) described consumers' preference to pay with debit cards as “a fundamental shift…toward…greater fiscal discipline” and added that the increased use of debit cards compared to credit cards is “tied to consumers’ increasing commitment to greater personal financial discipline. however.
species. There is a dearth of research on the influence of debit card logos. Method To study the effect of payment mode on willingness to spend. we used two distinct debit card conditions. Raghubir and Srivastava (2008) replicated this effect of credit card logos when they found that participants were willing to pay more for menu items in a hypothetical restaurant when a credit card logo was present versus absent. Cash and credit card are self-explanatory and were included to facilitate comparison with prior research. and subjects were not exposed to logos. Prior research thus suggests that merely being exposed to credit card logos1 increases consumers' propensity to spend. In addition. Debit cards carry the same logos as credit cards and at cursory glance are almost indistinguishable from credit cards. if the mere exposure explanation is viable. debit cards may well defeat consumers' intended goals of financial self-control. we used a paper-and-pen survey in which participants indicated the price they would be willing to pay for six 1 Feinberg (1986) suggested two theoretical explanations for the findings: classical conditioning and a weapons effect. McCall and Belmont (1996) found a similar effect in two different restaurants when diners receiving tip trays with credit card logos left higher tips compared to diners who received blank tip trays. we used four modes of payment: cash. in order to assess the mere exposure effect of logos. one with logos and one without. The mere exposure effect (Zajonc 1968) refers to the finding that frequent exposure to a stimulus results in increased liking and a positive attitude toward the stimulus. .g. in the presence of credit card logos. Both these expectations were borne out by our experimental results. merely employed a statement describing the debit mode of payment. on the other hand.Time to Cut Up Those Debit Cards? 417 Additionally. The debit-logo condition exposed subjects to credit card logos in the debit payment mode. the more positive are their attitudes toward the stimulus. The effect has been demonstrated to be robust across cultures. Our expectation based on prior research was that debit cards with logos would elicit an increased willingness to pay. in different stimulus domains. credit. Soman 2001 includes debit cards as one method of payment in studying the influence of past payments on future expenditure).. Further. and even prenatally (Zajonc 2001). as described more fully in the following sections. We therefore hypothesize that the mere exposure to logos on debit cards will result in an increased willingness to spend. see Bornstein 1989). it was included to serve as a control so that the mere exposure effect could be explored. and debit-statement. comparable to credit cards. we expected that the debit-without-logo condition would not elicit a similar effect. However. we are not aware of any research that compares debit cards with other modes of payment in terms of consumers' willingness to spend. similar to credit cards. debit-logo. Shimp and Moody (2000) attempted to test these theoretical accounts and found that neither was suitable as a theoretical explanation. there is a large body of research on the “mere exposure effect” that we can draw on. Over 200 experiments investigating the mere exposure effect have been published (for a review. The debit-statement condition. As in the original studies (Zajonc 1968). To assess this effect experimentally. Although debit cards have received some attention in academic studies (e. If the logos on debit cards facilitate a similar willingness to spend as credit card logos. subjects estimated that they would donate more to charity. actual donations were also higher in the presence of credit card insignia. subsequent studies have found that the more often people are exposed to a stimulus.
27) and gender (χ2(3)=3. Chi-square tests on the demographic variables confirmed that the distribution of subjects' age (χ2(12)= 14. and 20% older than 29. The pre-test consisted of an unaided recall task in which each of the 15 individuals made a list of as many gift items as he/she could remember that they had purchased recently along with the price (or price range) they had paid. p=.2 The four payment modes we used were cash. Moore. 3 did not specify gender). In each treatment condition. the dependent variable. Taylor common gift items.34) was not different across the four payment 2 The six items were selected on the basis of a pre-test. credit card. Analysis and Findings We first checked that participants in the four experimental conditions did not vary systematically in terms of their demographic or attitudinal characteristics. Participants wrote in their occupation in response to an open-ended question. to serve as a reminder.55. I find myself spending too much money. and debit card statement. Subjects were asked to imagine that they were shopping for holiday gifts and that the items pictured were on their list of things to buy.33. subjects were told that there was an adequate budget set aside to buy all the gifts. 3 The following statements with a 7-point strongly agree–strongly disagree scale were used: I would describe myself as being aware of prices in general. students constituted the largest occupation category (40%). They were asked to indicate the amount of money they would be willing to pay for the pictured item. was measured as the willingness to pay for the different items. with each participant being randomly assigned to one of the four payment conditions. After subjects had indicated their willingness to pay for the different items. the instructions specified that there was a store that sold all the gift items they wanted to buy. Based on the responses from the pretest. Young adults 18 to 23 years of age made up 54% of the sample. p=. the payment mode was included prominently near each photo such that the respondent saw it every time they filled in the amount they were willing to pay for an item. The photos of the items were picked from a Google image search and had a caption such as “Leather gloves: willing to pay $___” with space for the respondent to enter the amount. For the credit card condition. participants were told that the store only accepted that particular mode of payment. and for the debit card statement condition the reminder consisted of just “debit only” in uppercase letters. The reminder for the debit card logo condition was uppercase letters “debit cards only” along with Visa and MasterCard logos. we selected six items that were most frequently mentioned and whose price range overlapped the most across respondents. For the cash condition. In addition. they completed four Likert-type statements to capture attitudes toward spending and price awareness3 and demographic questions. with the rest belonging to a range of occupations from accountant to venture analyst. We thus used a 4 (payment) × 6 (items) mixed-model experimental design where payment was the between-subjects factor and the six items served as the within-subjects factor. One hundred and ten individuals from the general population of a mid-sized university town in Western USA participated in the study (61 males. this reminder was in the form of “cash only” in uppercase letters. debit card with logo. Mode of payment was between-subjects. . To ensure that responses were not influenced by any imagined budget constraints. the reminder used “credit cards only” in uppercase letters along with Visa. I would describe myself as being careful with spending money. To manipulate method of payment. M. I feel that most things are over-priced. The photographs of the items along with the reminder text/logos were presented in the same order in all four treatment conditions. 24% indicated they were between 24 and 28 years of age. Level of spending. 46 females.418 A. MasterCard and Discover logos.
the planned contrast to test the mere exposure effect of logos showed that willingness to spend in the debit-logo condition was higher than in the debit-statement 4 For the contrasts. bicycle. the credit card condition (all p>. we tested the hypothesis of equality of variances using the Levene test. p=. respectively. 28. we report the results of the contrast tests corresponding to the unequal-variance t test. p=.95.0001).0001). we used contrast analysis.4.92. all p>.29. for the items) was higher than in the cash condition.84.25. perfume.001). and silverware. the level of spending in the debit-logo condition was no different than. necklace.001). t (28. t (41. analysis of variance with the scores on the Likert-type attitudinal statements as the dependent variable and payment as the independent variable confirmed that subjects' attitudes toward spending did not vary systematically across the treatment conditions (all p>. 16. 188.8.131.52)=−4.36. We could therefore be confident that our subsequent analysis revealed effects directly related to our experimental manipulation. elicited a lower level of spending.73. which indicates unequal variances. Planned contrasts4 showed that subjects were willing to spend significantly more in the debit-logo condition compared to cash. Similarly. as expected (all p<. Figure 1 shows willingness to pay for the different items under the four payment conditions. 20.96.001). To further study the difference in willingness to pay across the four payment conditions.104)=19. Mcash =14.05). 51.04.18. perfume (Mdebit logo =62. 1 Mean willingness to pay for items 419 conditions. Mcash =15.Time to Cut Up Those Debit Cards? Fig.28. p<. p <. 37. Mcash =18.73.03). t(42. handbag.85.07. The repeated-measures ANOVA showed a significant effect of method of payment on participants' willingness to pay (F(3.13.14)=−3. and silverware set (Mdebit logo =33.29. kids' bicycle (Mdebit logo =87.19).3). and as high as the spending in. As hypothesized. t(32. Additionally. 79.58.38. . The dependent variable in the ANOVA was the item price each respondent was willing to pay. Since the Levene statistic was significant for all items (all p<.96. Mcash =26. Contrast analysis further showed that spending in the credit card condition (Mcredit =33. t (47.0.05). In support of our hypothesis. p=. respectively.334. women's handbag (Mdebit logo =75. Mcash =20.81. t (32.0001).56. Mcash =51.09. 13.9)=−1.29 for gloves. p=. no different than in the cash condition (Mdebit statement =16. Since willingness to pay for the items was elicited from each participant.63.04. p<. As seen in Figure 1.004). 53. this pattern was consistent across products.7)=−3. we analyzed the data using a one-way repeated-measures analysis of variance with payment mode as the independent variable and repeated measures on the items. 40. for leather gloves (Mdebit logo =30. charm necklace (Mdebit logo =27.1)=−6. on the other hand.4. participants indicated a higher willingness to pay in the debit-logo and credit conditions compared to the cash condition.41)=−3. Debit cards without the logo.
739 F(3.96a 16. which makes them susceptible to the caveats surrounding all experimental results.1)= 3. we found that it was only in the presence of logos that participants were willing to spend more using debit cards. 2010).106)=31. Although the use of debit cards instead of credit cards could protect a consumer 5 Lie et al. Further. (2010) found a “reverse” credit card effect in which credit cards inhibited spending.73b 62. Taylor Cash 14.037 26. the willingness to spend was significantly higher compared to the debit condition in which participants were not exposed to any logos. p=.28b 79.14. t(44.001. b A.26 a Credit 33. t(28.07. To be sure. Mdebit statement =16.81)=2.106)=4.97.92. The willingness to spend in the debit-logo condition was as high as the stated willingness to spend in the credit card condition.420 Table 1 Mean willingness to pay by payment condition Item Leather gloves Kids' bicycle Women's handbag Perfume Charm necklace Silverware set a. p=. Another limitation.07a 51.005.04.663 F(3. Mdebit statement =37. Mdebit statement =16.85b Means identified by different letters are significantly different from each other (within each row).85. handbag: Mdebit logo =75. t(34.09a 51.73 b Debit statement 16. Mdebit statement =51.05) F(3. The level of spending with debit cards was. ascribed to New Zealand student subjects' negative associations with credit cards.63a 18.24 F(3. p=.84 b Debit logo 30.13a 15.0001.56)=3. M.85)=6. p=. we are hampered by our lack of access to suitable purchase data of requisite granularity. While we would love to validate these results through real-world transaction data.18a 20. t(33. stated spending was lower when debit cards were not accompanied by the logos.105)=5.106)=8. Discussion and Concluding Comments The statistical analysis reported above reveals that participants were willing to spend significantly more in the debit-logo condition compared to cash for all six items.73.29. p=. perfume: Mdebit logo =62.39)=3. Table 1 summarizes the means under the four payment conditions and also indicates which means were significantly different from each other.29a F (all p<. confirming the mere exposure effect of logos.96.18. is that our results are idiosyncratic to the USA.29a 77.106)=4. Moore.5 The results do suggest though that given current American attitudes toward credit and debit use. derived from recent research conducted in New Zealand (Lie et al. The F value listed in the last column is from the one-way ANOVA for each item employed for contrast analysis. This pattern of results strongly suggests that debit card logos spur consumers' willingness to spend more. necklace: Mdebit logo =27.25a 37.61.81b 40. a consumer may well fall prey to the logos on her debit card.004.04b 27b 33. Mdebit statement =13.007. Of particular interest is the result that when logos were present in the debit condition. .29a 20. p=. The results thus support our hypothesis that exposure to logos on debit cards will increase participants' level of spending just like credit cards.003).56b 53.84b 28.96a 13. Mdebit statement =20. statistically no different than spending in the credit card condition and was significantly higher than in the cash condition. kids' bicycle: Mdebit logo =87.48.73. t (40.15.55)=2. these are results from a one-shot experimental study.104)=6. silverware: Mdebit logo =33.25.468 F(3.96.016 F(3. t(36. in fact.92b 87.38b 75. condition for all six items (leather gloves: Mdebit logo =30.85.
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