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Master Thesis

The influence of different methods of

payment and general money

management behaviour on a customer’s

ability to recall how much money they

have spent at the supermarket.

Surname Cieślak Name Julia Student ID 11373547

MSc BA MSc in Business Administration – Marketing Track Institution Amsterdam Business School, University of Amsterdam Date 23-06-2017

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Statement of originality


This document is written by Student Julia Cieślak who declares to take full responsibility for the contents of this document.

I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it.

The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.

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Abstract

The technological development has changed many aspects of people’s lives. Among others, it has influenced the way we shop. Nowadays, we can choose to pay not only with cash but also Chip and PIN or contactless options. However, it is unclear how the more advanced substitutes of cash (especially contactless payment) influence the consumer’s behaviour. The new methods of payment are more convenient, faster to use and more flexible. However, the ease of use with these new methods tends to result in more reckless spending. In this thesis, I investigate whether different methods of payment affect the customer’s ability to recall how much money they spend. Furthermore, I believe that the general money management behaviour moderates this relationship. The results of the observational study conducted in one of the most popular retail chains in Amsterdam, show that customers who pay with the more technologically advanced substitutes of cash tend to have more problems with recalling how much they have spent. In addition to this, money management behaviour has a significant moderation effect on the ability to recall past expenditure for the customers who use contactless option.

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Table of contents

z STATEMENT OF ORIGINALITY ... - 2 - ABSTRACT ... - 3 - TABLE OF CONTENTS ... - 4 - 1 INTRODUCTION ... - 5 - 2 LITERATURE REVIEW ... - 9 -

2.1METHODS OF PAYMENT AND ITS INFLUENCE ON SPENDING...-9

2.1.1 The Pain of Paying ... 10

2.1.2 Cash vs Cards ... 11

2.1.3 New Methods of Payment Contactless Payment and Amazon Go ... 13

-2.2FINANCE MONITORING AND SPENDING BEHAVIOUR ...-15

-2.3RECALL OF MONEY SPENT ...-16

-3 RESEARCH QUESTION AND EXPECTED CONTRIBUTION ... - 18 -

4 DATA AND METHOD ... - 20 -

4.1SETTING...-20

-4.2MEASURES ...-20

4.2.1 Independent variable: Method of payment ... 20

4.2.2 Dependent variable: Recall of amount of money spent ... 21

4.2.3 Moderator variable: Money management ... 22

-4.3DATA COLLECTION AND METHOD ...-23

-5 RESULTS ... - 26 -

5.1DESCRIPTIVE AND FREQUENCIES STATISTICS ...-26

-5.2RELIABILITY ANALYSIS FOR SCALES ...-28

-5.3HYPOTHESIS TESTING:ANOVA ...-29

-5.4HYPOTHESIS TESTING:PROCESS ...-31

-6 DISCUSSION AND IMPLICATIONS ... - 34 -

6.1GENERAL DISCUSSION ...-34

-6.2CONTRIBUTIONS...-35

-6.3LIMITATIONS AND CONCLUSIONS ...-37

-REFERENCES ... - 39 -

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1 Introduction

From bartering, to the emergence of “hard cash” currency, then notes and cheques we have ended up using a wide variety of payment options (The Editorial Team, 2016). These options were further developed in the middle of the 20th century, reflecting the social progress and economic expansion of the world. Today only a small percentage of money circulation is coins and notes (2016). These have been replaced by virtual money which is transformed from account to account. However, paying in cash – compared to paying by more technologically advanced means – has an advantage: it is an easy way to keep track of expenses as it only requires a quick look into the wallet to see how much we have spent and how much money we still have left. According to Hernandez, Jonker and Kosse (2016) this comparative advantage of cash was especially strong in the early years of the payment card. In the 80s, when cards as a method of payment were introduced in Europe, it was hard for card users to obtain up-to-date information about their latest current accounts, as banks sent them a balance statement only once a week (or even less often). Nowadays, banks have introduced several online and mobile innovations that consumers can use to monitor expenses and balances at any time they want. As a result, debit card users now have access to the same if not more data regarding their account balance than consumers using cash. Nevertheless, it still requires more effort, as they have to consult their bank statements, either on a computer or via a mobile phone, or to memorize their pre-set budget and past expenses and make their own calculations.

Another difference is in the so-called pain of paying which is a feeling of “direct and immediate displeasure” (Zellermayer, 1996, p. 2) experienced by individuals while making purchases and parting with money. As proved by Soman (2001), expenditures of the same amount of money may cause different levels of pain depending on the method of payment that was used to make a purchase. Raghubir and Srivastana (2008) further confirmed that people are willing to spend

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more money while using non-cash methods of payment and the authors ascribed this phenomenon to limited transparency of cash substitutes which dulls the pain of paying. Moreover, the research made by Thomas, Desai and Seenivasan (2011) showed that customers who paid by cash were feeling sadder compared to those who paid by credit card as paying by cash is more painful than other, less memorable and “emotionally more inert modes of payments” (2011, p. 128). According to Kamleitner and Erki (2013) payment by card may be hedonically advantageous as it reduces the pain of paying making it easier and more comfortable for customers to part with their money but economically disadvantageous as it leads to an underestimation of the real cost. Based on the study conducted by Thomas, Desai and Seenivasan (2011), pain of payment can repress the impulsive responses and thus reduce the purchase of vice products, e.g. unhealthy food products. The authors proved that payment by card – which is less painful than paying in cash – also increases impulsive purchases among customers which leads to overspending and bad (less healthy) food choices as dulled pain of paying fail to limit impulsive urges (Benjamin & Ubel, 2009).

Previous research has already shown that differences in payment method such as the effort, or pain of payment described above matter for a variety of consumer variables. In my thesis, I would like to draw on this stream of research and investigate whether the payment method (cash versus card versus contactless payments) influence another relevant consumer variable: the consumer’s ability to recall how much money they spent at the store.

Previous research has shown that the ability of recalling money is affected by several factors (Conover, 1986; Dickson & Sawyer, 1990; Soman, 2001; Srivastava & Raghubir, 2002; Rosa – Diaz, 2004; Alhaddad, 2014). One of the factors are consumer characteristics, for instance, money management which has direct consequences for overspending (Kidwell & Turrisi, 2004). In addition, there are contextual factors, such as product category – due to a high level

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of shopping experience or a high level of product involvement in a certain category, consumers may have developed a good memory for relevant price information (e.g., Jacoby & Olson, 1977; Biehal & Chakravarti, 1982; Mazumdar & Monroe, 1990).

This research makes theoretical contributions in several ways. First, and foremost it introduces contactless payments to the literature. There are relevant differences between previously examined cards versus contactless payment options such as extremely limited transparency of the most technologically advanced cash substitutes (Shah, Eisenkraft, Bettman & Chartrand, 2016) which further increase the possibility of overspending and loosing track of expenditures. According to Wiechert, Thiesse and Fleisch (2009), customers who use contactless payment methods are reported to make more frequent transactions – they visit stores supporting wave-and-pay 33% to 52% more often compared to other customers (MasterCard, 2008). Furthermore, this research looks at recall. The ability to recall past expenditures and current account balance is important as it signals money management skills (Srivastava & Raghubir, 2002; Harms, 2015; Roberge, 2015). According to a survey conducted in US, as little as half of all Americans monitor how much money they have (Rossman, 2011). On average, US customers have five credit cards (Ray & Ghahremani, 2012) but many consumers struggle to pay down their credit card balances each month and they allow the debt to grow when their repayment rate slow down (Besharat, Carrillat & Ladik, 2014). Moreover, it is reported that approximately 46% of cardholders have problems with self-control spending due to non-immediacy of pain of payment (2014). Finding out what affects recall is therefore important not only for companies but also from a social perspective. Lastly, this work wants to more gradually look at different consumer types with regard to money management ability. It is proposed that the effect of payment type on the ability to recall how much a customer spent at the store differs depending on the level of money management skills. As financial management is the ability which includes taking effective decision regarding the use of money it should lead

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to improving one’s budget and help to avoid overspending (Noctor et al., 1992). However, despite the wide range of tools which may help to manage one’s own finance, they are not very popular (Lella & Lipsman, 2014). People seem to ignore the importance of managing their own financial situation. Furthermore, there is an ongoing discussion about which modes of payment can help to better keep track of money owned and spent (e.g. Arango, Huynh & Sabetti 2011; Borzekowski & Kiser, 2008).

Managerially, this topic can cast some light on the choice all stores have to make: what payment method should they support? New concepts such as Amazon Go generate a lot of attention and questions. If this is how all the stores will look like in the future, there are many questions how such automation of shopping will influence consumers’ shopping behaviour. It is crucial for marketers to focus on the new strategies and adjust the tactics to the technological development.

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2 Literature Review

This section is written to give background for the researched topic and clarify the most important issues touched upon in this thesis by reviewing the existing literature on the given subject. It is also meant to show the research gap in the present literature to underline the scientific importance of the chosen subject.

2.1 Methods of Payment and Its Influence on Spending

As shown by Soman (2001) nowadays consumers have a wide range of choice of payment mechanisms while purchasing products. The most traditional method is payment by cash but in the recent years plastic payment mechanisms such as credit cards, charge cards, debit cards and additional technologies such as wave-and-pay, e.g. PayPass, Apple Pay, Android Pay, Samsung Pay or Amazon Go are becoming more and more popular.

Int ens it y of T ec hnol og ic a l S ubs ti tut es Cash Cards

Contactless Smart Cards

Mobile Payments

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As technology provides more convenient purchasing methods, it also creates new payment mechanisms that are increasingly distant from conventional cash-and-carry transactions (Schneider, 2002; Gourville & Soman, 1998). There are many factors that influence the customers’ choice of method of payment. Some depend on the interpersonal characteristics such as willingness to adapt and personal preferences. However, it also depends what payment options are available at the given store. Every manager of brick and mortar nowadays must decide what method of payment to accept.

2.1.1 The Pain of Paying

The pain of paying is a one of the factors of the psychology of money (Furnham, 1984). It is a negative emotion that people experience while paying, i.e. parting with money, which may diminish the joy of consumption and decrease the willingness to spend money (Prelec & Loewenstein, 1998). It involves moral guilt that is associated with the payment process. On the other hand, as proved by Cardozo (1965), people tend to evaluate the products better when they had to put more effort into a shopping task to purchase the products. In addition, Harmon-Jones and Harmon-Jones (2007) argued that pain of paying, experienced by customer’s while making a purchase, increases the attractiveness of the acquired product and also decreases the appeal of the rejected alternative. The level of the pain of payment can differ between different methods of payment that were used to purchase a good or service (Soman, 2001; Raghubir and Srivastava, 2008; Thomas, Desai & Seenivasan, 2011; Shah et al., 2016) and timing of the payment (Prelec & Loewenstein, 1998; Soman, 2001).

According to Soman (2003) transparency of the method of payment is one of the main factors that influence the pain of paying – pain of paying is greater, the more transparent the method of payment is. Research on consumption across different transaction mediums demonstrates that people spend more for the same items when paying with credit cards than when paying

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with cash. As proved by Morewedge, Holtzman and Epley (2007), at least in part, these results can be explained by perceiving the pain of payment as smaller when the customer made a transaction and paid by credit card as “subjective costs of credit purchases appear to be less “painful” than cash purchases” (2007, p. 460).

According to Soman (2003), while paying by cash, salience is the highest in both: physical form (when we see money is actually gone) as well as in the amount (coins and bills have to be counted and physically given so the amount is clear and easier to memorise). Cards are less transparent as the process of swiping a card blocks out the cash value of the transaction, detaching people further from the expense (Shah et al., 2016).

Although it might seem to be against the economic efficient payment predictions as “dollar today is worth more than a dollar tomorrow”, because we can keep the money for longer and further invest it, paying prior to the consumption decreases the pain of paying. Prelec and Loewenstein (1998) introduced a term prospective accounting and they proved that payment prior to the consumption increases the enjoyment as the pain is diminished by the benefits that are acquired. Payment after the consumption makes people constantly think about how much they will have to pay at the end which decreases the enjoyment of the consumption, e.g., people think that a prepaid vacation is more pleasurable than one that must be financed after returning (1998).

2.1.2 Cash vs Cards

In the past two decades, the frequency of purchases with plastic instead of paper money have seen large changes (Foster, Schuh, and Zhang 2013). Based on research by Foster et al. (2013) by 2010, in US, the number of paper payments shrank by 20 percent points (from 60% of in-store payments in 1999 to 40% in 2010) as card payments gained in popularity. Moreover, this

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trend seems to speed up due to online and mobile transactions. There are also different preferences in different countries when it comes to the choice of mode of payment. In the Netherlands cash and the debit card are the most frequently used methods of payment (Hernandez, Jonker & Zwaan, 2015). According to a monitoring study by De Nederlandsche Bank and the Dutch Payment Association (DNB/DPA 2014), the share of cash purchases at the Point of Sale (POS) was in 2013 still higher than the share of debit card payments despite the constant popularization of plastic payment mechanisms. However, based on van der Cruijsen and Plooij (2015) consumers tend to value card usage higher than cash. Card payments account for the largest share in terms of value, the average amount paid by plastic means of payment exceeds the average amount of cash transactions, underlining consumers’ preference to pay low-value amounts in cash (Jonker, Kosse & Hernandez, 2012).

Prelec and Loewenstein (1998) argued that the choice of payment method depends on the purchased product/service, i.e., consumers are more likely to pay by credit card while purchasing durable products (e.g., washing machine) and use cash while buying short-lived products (e.g., tickets to the cinema) to “maximize the perceived attractiveness of the transaction by matching payment and consumption streams” (Soman, 2001, p. 460).

According to Hirschman (1979) people perceive cash as a mode of payment which gives more control over spending. During purchases made by cash, the feeling of parting with money is very clear and can be compared to “having one’s meter running” (Thaler, 1999, p. 192). On the other hand, cash was reported to provide less documentation as there are no evidence, records of transactions and it is less secure (Monger & Feinberg, 1997).

Feinberg’s work (1986) demonstrated that the card stimuli speeded up spending response behaviour. People who use cards as mode of payment tend to spend more and quicker. According to Kamleitner and Erki (2013) payment by card may be hedonically advantageous

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as it reduces the pain of paying but economically disadvantageous as it leads to an underestimation of the real cost. Hirschman (1979) and Feinberg (1986) found in their studies that people who paid by cards rather than cash spent more during the identical purchasing situation. Soman (2003) showed in his experiment that individuals who used coins made fewer photocopies compared to the participants who used prepaid copy cards, even though in both conditions people received the same amount of money. This effect was further confirmed by the field study at a Laundromat (2003): when the system changed from coins to prepaid cards, customers were more inclined to separate their whites and colours and pay for two washes.

2.1.3 New Methods of Payment - Contactless Payment and Amazon

Go

As defined by many specialists, including Lacmanović, Radulović and Lacmanović (2010), contactless payment represents a transaction which does not require a physical connection between the consumer’s payment device and POS merchant’s terminal. Firstly, it was developed on credit cards with the implementation of Mastercard PayPass and Visa payWave systems (Pasquet, M., Reynaud, J. & Rosenberger, 2008). However, nowadays contactless payments include not only cards but also other devices such as smartphones and smartwatches, that use radio-frequency identification (RFID), near field communication (NFC) or Magnetic Secure Transmission (MST – Samsung Pay) integrated into mobile devices for making secure payments (Lacmanović et al., 2010).

There is ongoing development of contactless methods of payment but it is still in its early stages. In recent years, big international companies such as Apple, Amazon, Google or Samsung have been working on the use of new technologies and introduced payment forms such as automatic payroll deductions or mobile payments. However, such methods are reported to be even less transparent than payment by cards as the consumer may not even realise that

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the payment was made (Shah et al., 2016). Still, according to Kasper, Silbermann and Paar (2010) as the new modes of payment offer more flexibility and convenience the number of such payments is constantly increasing especially in big metropolises. For instance, based on the UK Cards Association’s Contactless Statistics (2016), in London almost half of payments under £30 are made by using contactless means. Additionally, the amount spent by customers who used contactless methods of payment increased by over 180% on the last year, making it a next record-breaking year for wave-and-pay payments gaining on popularity (Smithers, 2016).

There is a revolution in the way people communicate, interact, buy and conduct business is strongly fuelled by Internet-on-the go. According to Lowry (2016), nowadays approximately 2.6 billion people worldwide use smartphones that are connected to the Internet and it is predicted that by 2020 this number will more than double to 6.1 billion. Companies see the potential of new methods of payment that are becoming more flexible and convenient for the customer. In a press release (Apple, 2014) on September 2014, Apple announced the launch of Apple Pay: a mobile payments solution integrated into the new generation of iPhones and by doing so it joined Google Wallet which was introduced in 2011. Both Pay and Wallet systems are quite similar as they support online purchases directly from an app or website and make the entire checkout process easier and more convenient as all the data are already filled in and it only requires Touch ID verification or PIN entry to complete the transaction. Currently, the vast majority of the newest smartphones have access to digital wallet whether it is Apple Pay, Google Wallet, Android Pay or Samsung Pay. They may differ slightly when it comes to the technology that was used. However, they serve the same purpose – these platforms make purchases easier, quicker and provide more flexible payment solution.

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As shown above, there is a wide range of different methods of payment and companies are using new technologies to match customer’s needs and wants. At most stores in Europe a consumer can use cash or its more technologically advanced substitutes such as cards both insert (also known as Chip and PIN), and with wave-and-pay option or smart devices that support contactless payment (Grüschow, Kemper & Brettel, 2016). However, American electronic commerce and cloud computing company, Amazon, seems to be one step ahead of the competition by introducing a new concept of store - Amazon Go, in which there is no notion of payment anymore. As advertised by the company, Amazon Go uses “the world’s most advanced shopping technology” (Amazon, 2016). It is a new kind of store with no checkout required. The checkout-free shopping experience is made possible by the same types of technologies used in self-driving cars: computer vision, sensor fusion, and deep learning. To enter the store, customer needs the free Amazon Go mobile app installed on their smartphone and Amazon account. Amazon’s Just Walk Out Technology automatically detects when products are taken from or returned to the shelves and keeps track of them in a virtual cart (2016). When a person is done shopping, they can just leave the store. Shortly after, Amazon will charge the corresponding Amazon account and send a receipt.

As of now, Amazon has introduced only one Amazon Go store in Seattle which is in the Beta version – used only by Amazon’s employees. Nevertheless, after the testing phase, Amazon plans to open it to public in early 2017 and further expand in the future. However, as contactless payment was described as very low on the transparency scale (Shah et al., 2016) where can the concept of no checkout be placed in this scale?

2.2 Finance monitoring and Spending Behaviour

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management (Harms, 2015). Moreover, Thaler (1999, p. 183) described mental accounting as the “set of cognitive operations used by individuals and households to organize, evaluate, and keep track of financial activities.” According to Ksendzova, Donnelly and Howell (in press) financial management can influence many aspects of people’s life. It can help to avoid compulsive shopping (2013), increase financial satisfaction (Johnson & Krueger, 2006), diminish financial stress (Xiao, Sorhaindo & Garman, 2006), boost people’s savings (Antonides, de Groot, & van Raaij, 2011) and even help to stay in better shape (O’Neill, Sorhaindo, Xiao, & Garman, 2005). However, recall of past expenses is crucial to efficient budget which is not always easy (Srivastava and Raghubir, 2002).

Nevertheless, there is little literature so far discussing the impact of budget control on consumers’ payment choices (Hernandez et al., 2016). Some authors indicate that cash is preferred mode of payment as it is the most transparent one and it helps to limit overspending and keep better track of expenses (e.g., Ameriks, Caplin, & Leahy 2004; Arango, Huynh, & Sabetti, 2011; von Kalckreuth, Schmidt, & Stix, 2014;). On the other hand, there are authors such as Borzekowski and Kiser (2008) who proved that plastic methods of payment are chosen by consumers who monitor their expenses more closely and actively try to avoid overspending.

2.3 Recall of Money Spent

Researches have paid quite some attention to consumers’ price awareness which is defined as ability to recall price paid but it focuses on recall of specific products’ price (Alhaddad, 2014). In economic theory, the main assumption is that consumers, within a moderate degree of accuracy, know the prices of the products they purchase (Rosa-Diaz, 2004).

Based on the previous studies (e.g., Conover, 1986) on the price knowledge it has been suggested that about 50% of shoppers know the exact price of items they have purchased.

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According to Dickson and Sawyer (1990) while consumers might be able to list most of the items they recently purchased, many of them cannot correctly recall the price paid per item. On the other hand, the empirical evidence regarding consumer price knowledge and the factors that influence it lacks consistency and coordination, and, in some cases, it yields contradictory results (Kim & Wilcox, 1999). However, there is very little research into the topic of how well individuals can retain the information about the total amount of money spent during the shopping.

Srivastava and Raghubir (2002) reported that people recall their cash payments better than their credit card expenses, indicating that the salience of individual payments is lower for credit card payments. Also, Soman (2001) argued that individuals who use checks can better remember how much they spent as they must write down the exact amount themselves. However, both papers studied only two conditions and report many limitations.

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3 Research Question and Expected Contribution

Example of Amazon Go shows that companies are tapping on the quickly developing technologies to provide better service to the customers. Following Amazon Go concept, it may seem that the stores of future may have different form than the one we currently know.

Table 1. Transparency of Different Payment Methods

Method of Payment Salience of Form

Salience of Amount

Transparency

1. Cash Very High High High

2. Cards Medium Medium Medium

3. Contactless Payment

Low Medium Low

4. No Checkout Very Low Very Low Very Low

Based on reviewed literature I find there is a research gap regarding new methods of payment and more precisely the extent of technological substitutes for cash such as smartcards and contactless payment and they influence the consumer’s ability to recall how much money they spent at the store. Moreover, I believe that money management moderates an individual’s ability to recall expenditures and as such the results will contribute to the work on finance monitoring.

Accordingly, the research question for this thesis was raised: “How do different methods of payment: cash, insert card and contactless payment, influence an individual’s ability to recall how much money customers spent at the store and whether it is mediated by an individual’s general money management behaviour?” and I propose two hypotheses that I am going to test

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in an observational study:

H1: Individuals who use less technologically advanced methods of payment (e.g., cash/insert card versus contactless payments) can better recall the amount of money they spent

H2: Individuals who score higher at the money management are better at retaining the information of the recent expenditure and are less likely to forget even when using more advanced technologies.

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4 Data and Method

4.1 Setting

I want to research whether different methods of payment have an impact on customer’s ability to recall how much money they spent at the store. In addition, I believe that general money management behaviour will moderate this effect. In order to test the two proposed hypotheses. in my work, I propose a study design reflected on the Figure 1.

Figure 1. Conceptual model

4.2 Measures

This section contains the variables included and used in the study to test the hypotheses.

4.2.1 Independent variable: Method of payment

Nowadays consumers have a wide range of choice of payment mechanisms while purchasing products (Soman, 2001). To establish how different methods of payment influence some shopping behaviours, previously researches used different measures and manipulations. In my

Method of payment Recall of money spent Money management Independent Variable (IV) Dependent Variable (DV) Moderator Hypothesis 1 H ypot he si s 2

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study, I will encode what method of payment – cash, inserted card or contactless payment, has been used by the individual in a field setting as previously described by Klee (2008). This approach will allow me to provide high external validity of my study and test all three modes of payment.

I decided not to incorporate manipulations used by Thomas, Desai and Seenivasan (2011) in their online experiment which involved assigning participants to cash or card conditions by showing them the statement: “store accepts only cash payments; cards or checks are not accepted at this store” or logos of three card companies (MasterCard, Visa, Maestro) accompanied by the statement “The store accepts all major cards”. In my opinion, this manipulation influences the perception of the convenience of the store as only one method of payment is accepted. Additionally, the pain of paying, which is at its highest while paying by cash (Prelec & Loewenstein, 1998), may be subdued by the lack of real transaction and only imagination of one of the scenarios, influencing the results.

4.2.2 Dependent variable: Recall of amount of money spent

The price knowledge results of past studies (e.g., Grocer, 1975; Allen, Harrell, and Hutt 1976; Conover, 1986) have suggested that about 50% of shoppers know the exact price of items they have purchased. However, as proved by Dickson and Sawyer (1990) price knowledge at the point of choice may be high but quickly drops as the shopper progresses to considering the next purchase.

In my study, to measure the extent to which consumers are able to recall the amount they spent for their groceries immediately after leaving a checkout, I have followed the Lichtenstein, Ridgway and Netemeyer (1993) method. I have approached shoppers and ask whether they would be willing to participate in the study on how people shop and what is the ratio of different

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categories of products in a typical shopping basket. I have not immediately informed customers about the measured variables in order to acquire reliable data, not influenced by their focus on prices. If the shopper agreed to take part in the experiment I have asked them to keep hold of their receipt so I can inspect itafter they leave the checkout. I have written down the objective amount they spent and before handing back the receipt, asked the participant whether they remember how much they paid and if yes to give me the exact price. According to Estelami and Lehmann (2001) accuracy of consumer’s price recall normally focuses on the deviation between the respondent’s memory of the amount of money spent and the actual expenditure. The percentage deviation has been the most frequently used formula by Zeithaml (1984), Dickson and Sawyer (1990), Mazumdar and Monroe (1992), Wakefield and Inman (1993), and others, and is also used in the given study. The accuracy of the price estimate was measured by the Percentage Absolute Deviation (PAD) measure which is defined as follows:

𝑃𝐴𝐷 = |𝑜𝑏𝑗𝑒𝑐𝑡𝑖𝑣𝑒 𝑝𝑟𝑖𝑐𝑒 − 𝑟𝑒𝑐𝑎𝑙𝑙𝑒𝑑 𝑝𝑟𝑖𝑐𝑒 𝑜𝑏𝑗𝑒𝑐𝑡𝑖𝑣𝑒 𝑝𝑟𝑖𝑐𝑒 |

The PAD measure in inversely related to price recall accuracy, as the higher the percentage deviation levels the lower accuracy in recalled prices, the farther is the consumer’s price estimate from the actual price

4.2.3 Moderator variable: Money management

Knowing how much money one has is crucial to avoid overspending (Gutter, Copur & Garrison, 2009). However, according to a recent survey, only half of all Americans keep track of how much money they have (Rossman, 2011).

To measure money management in my study, I decided to follow Robb (2011) measurement of Self-Assessed Financial Confidence: four questions were asked of respondents regarding their own assessment of their financial skills and knowledge. Respondents were asked to agree

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or disagree with a statement according to a 5-point Likert-type scale with 1 indicating “Strongly Disagree,”, 2 meaning “Disagree”, 3 indicating “Neither Agree nor Disagree,”, 4 meaning “Agree” and 5 indicating “Strongly Agree” (Kerkmann, Lee, Lown & Allgood, 2000). The four questions read as follows:

1) “I am good at dealing with day-to-day financial matters such as checking accounts, credit and debit cards, and tracking expenses.”

2) “I am pretty good at math.”

3) “I regularly keep up with economic and financial news.”

4) “On a scale from 1 to 5, where 1 means very low and 5 means very high, how would you assess your overall financial knowledge?”

In measuring money management, I want to avoid questioning limited scope of population (Martin, 2007) by choosing a store in neither lower nor higher income area. Moreover, to be precise I avoided dichotomous responses, (e.g., Atkinson, McKay, Collard & Kempson, 2007) but to find more respondents who complete the survey I had to avoid too long questionnaires (Donnelly, Iyer & Howell, 2012).

4.3 Data Collection and Method

My original idea of conducting an experiment in which the conditions are the different methods of payment the participants use to make their purchase, would not be feasible as a field study with the time and money resources I have. As such, I have opted to do an observational study instead. In observational studies, cause and effect are hard to establish. However, associations and predictabilities among variables can be investigated (Altmann, 1974). Such associations and predictabilities may be further studied in a lab setting.

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shopping. According to many authors (e.g., Conover, 1986; Wolverton & Diaz, 1996; Vanhuele & Drèze, 2002), the level of the customer’s involvement is an important factor influencing capturing attention which, in turn, results in a more accurate knowledge of prices (Estelami, 1998). As doing groceries is habitual and mostly characterized by lower involvement (Rhee & Bell, 2002), price perception should nor vary between evaluated participants (Rosa–Diaz, 2004). Consequently, I conducted my research in one of the most popular retail chains in Amsterdam: supermarket DEEN. I have chosen this store as it accepts all methods of payment included in my work. On top of this, it was the only retail chain in Amsterdam from which I contacted which approved my observational study and allowed me to conduct a survey on its premises. Furthermore, I decided to choose a store in a central location to maximise the chance of having a wider range of customers from different backgrounds and with different income levels to avoid the bias and threats to external validity by ensuring a random selection of items from a population to form a representative sample.

In addition to this, I want to control for gender, age and the expenditure levels in my research. Firstly, according to previous research (Maynes & Assum, 1982; Zeithaml & Berry, 1987; Estelami & Lehmann, 2001), women are better at recalling prices as they are more involved in the house chores (e.g. doing groceries) and might be more aware of the price. However, this tendency has lessened in recent years (McGoldrick et al., 1999; Putrevu, 2001; McGinnis et al., 2003;) and differs across different cultures (Rosa–Diaz, 2004).

Also, the views on the impact of age on the recall are contradictive (Brown, 1971; Zbytniewski, 1980; Turley & Cabaniss, 1995). On one hand, the group of older respondents may have more time to carefully study the prices and in result remember them better (Rosa–Diaz, 2004). On the other hand, elderly people have lower mental ability to perform calculations and memorize prices which may decrease their ability to recall the amount of money they spent at the

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supermarket (Zeithaml & Fuerst, 1983; Zeithaml, 1984).

Lastly, the income and the expenditures levels may also influence customers’ ability of recollection. According to Brown (1971) and Estelami and Lehmann (2001), people with lower income levels tend to pay more attention to prices as they have to be careful not to overspend and plan their budget accordingly. Also, the research conducted by Rosa-Diaz (2004), shows that the people with lower income tend to give more accurate estimations of the real prices.

To analyze obtained data, I have decided to perform an independent factorial ANOVA and a regression-based mediation analysis using PROCESS.

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5 Results

In the following section I will discuss the results of the analysis of data conducted via SPSS tool.

5.1 Descriptive and Frequencies Statistics

In my observational study, customers who agreed to participate in it were given a survey to fill in. Separately, I coded the method of payment chosen by a customer as well as the exact amount of money they spent on their groceries. There were 127 people who agreed to take part in my research. However, due to missing answers, two participants were excluded from the analysis. In total, 34 participants paid by cash, 39 participants paid by card which they inserted into terminal and entered the pin to confirm transaction, 44 participants paid by contactless option and 8 participants paid by contactless option but had to enter their PIN to verify the transaction as they exceeded the limit of €25 per contactless transaction. Due to the small cell size of customers who paid by contactless option but had to enter their PIN to verify the transaction, the interaction with terminal group was created from all those who had to enter their PIN and consists of 47 participants.

The age of the respondents ranged between 18 and 72 years old. For 125 respondents, the mean age was equal to 33.32 years (SD = 12.882) and more than half of the participants were younger than 28 years old. Participants’ households contained from 1 up to 5 people (M = 1.89, SD = 1.010) and on average, per visit, participants spend between €5 and €150 on their groceries and other purchases (M = 26.87, SD = 22.098). Moreover, 52% of the sample respondents were female. In total, 65 female and 60 male responses were recorded.

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The dependant variable “recall of amount of money spent” was measured by Percent Absolute Deviation which is a continuous variable. The average PAD levels range from .00 (remembering the exact amount spent) to close to .33 (over-underestimating the amount by 33%) and across all the observations of 125 participants who successfully completed the survey, the mean PAD was equal to 0.04880 - 4.88% (SD = 0.668). Moreover, 75% of the observations were between PAD levels of 0 and .07. In the given research, all the customers were able to recall and give the best, approximate price they paid for their groceries and other purchases. This value is in line with the results of similar studies of Chanson et al. (1986, 94 percent) or McGoldrick and Marks (1987, 88 percent). However, lower percentages were reported, for instance, by Turley and Cabaniss (1995, 42.7 percent). When it comes to accuracy, 28 percent of the participants could recall the exact amount of money they spent on their groceries. It could suggest an inaccurate recall. However, within a certain error permitted, there is a substantial increase in the retention of the amount of money spent – 70.4 percent of the participants could name the price within a 5 percent margin of error. The results are similar or higher than in other investigations (e.g. Sowter, Gabor and Granger, 1969, 65.3; Vanhuele and Drèze, 2002, 30; Rosa-Diaz, 2004, 61.5). Furthermore, 56 percent of the participants who made a mistake while recalling the amount they spent at the store underestimated the total price while 44 percent of subjects were above the correct total purchase price. These results are in line with the previous research that customers tend to underestimate the prices (Rosa–Diaz, 2004; Dickson & Sawyer, 1990; Maynes & Assum, 1982).

The mean of the moderator variable (Self-Assessed Financial Confidence, which was measured on a 5-point Likert scale where 1 means low confidence and 5 means high confidence) was equal to 3.63 (SD = 0.802), suggesting that most of the participants have above average Self-Assessed Financial Confidence. This is further confirmed by negative skewness indicating left-skewed distribution (Skewness = -.685).

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5.2 Reliability Analysis for Scales

All participants had to circle one number from 1 to 5 for each statement to indicate to what extent they agreed or disagreed with different items of the Self-Assessed Financial Confidence scale, i.e. “I am good at dealing with day-to-day financial matters such as checking accounts, credit and debit cards, and tracking expenses.”, “I am pretty good at math.”, “I regularly keep up with economic and financial news.” and also participants were asked to indicate on a scale from 1 to 5, where 1 means very low and 5 means very high, how would they assess their overall financial knowledge.

A reliability analysis for the Self-Assessed Financial Confidence scale was performed to see whether data collection techniques and analysis procedures yield consistent findings. Therefore, Cronbach’s Alpha (𝛼) was used to measure the internal consistency of the scale (Adamson & Prion, 2013). In the following analysis, to ensure the reliability of the Self-Assessed Financial Confidence scale 𝛼 should to be greater than or equal to 0.70 (Tavakol & Dennick, 2011; McCrae, Kurtz, Yamagata & Terracciano, 2011).

The money management measure by Self-Assessed Financial Confidence scale has high reliability, with Cronbach’s Alpha = .753. The corrected item-total correlations indicate that all items have a good correlation with the total score of the scale – all above .30. Moreover, none of the items would substantially affect reliability if they were deleted.

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Table 2: Means, Standard Deviations, Correlations Variable M SD 1 2 3 4 5 6 7 1. Gender 1.48 .50 - 2. Age 33.32 12.82 .04 - 3. Average groceries 26.87 22.10 -.06 .18* - 4. Number of people per household 1.89 1.01 .19* .19* .33** - 5. Method of payment 2.10 .79 -.02 -.01 .06 -.00 - 6. Money management 3.63 .80 .23** .14 -.03 -.15 .10 (.75) 7. Percent Absolute Deviation .05 .07 -.04 .20* .11 .14 .39** -.34** -

** Correlation is significant at the 0.01 level (2-tailed) * Correlation is significant at the 0.05 level (2-tailed)

5.3 Hypothesis testing: ANOVA

In order to test the hypothesis that different methods of payment (cash, interaction with terminal, contactless payment) had an effect on the customer’s ability to recall how much they spent on their groceries, at 95% confidence interval, a one way ANOVA between the independent and dependent variable was executed.

The assumption of homogeneity was tested and found untenable using the Levene’s Test F(2,122) = 14.737. It means, with the significance of p < .001 the assumption of homogeneity of variances has been violated. However, looking at the Robust Tests of Equality of Means the significance of Welch and Brown-Forsythe test is p < .001 which is statistically significant. Thanks to Welch’s F(3, 28.904) = 8.383, p < .001, we can conclude that at least two out of the three conditions differ significantly on their average ability to recall the exact amount of money spent at the store.

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Figure 2. plots the marginal means of the dependent variable (PAD) for all possible in the study payment method (PayMeth) conditions. According to Field (2009), when there is a doubt that the population variances are equal, the Games-Howell procedure offer the best performance. The Games-Howell post-hoc test revealed that the Percent Absolute Deviation was lower, i.e. customer’s ability to recall the exact amount they spent on their groceries was higher, in the cash condition (M = .016, SD = .028) compared to the interaction with terminal option (M = .043, SD = .052, p = .01) and contactless group (M = .081, SD = .086, p < .01). Moreover, there is also a statistically significant difference between the participants who paid by the contactless option and interaction with terminal group (p = .037).

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5.4 Hypothesis testing: PROCESS

In order to analyse the potentially significant moderation effect, the PROCESS Procedure for SPSS written by Andrew F. Hayes was added to SPSS.

Table 3. contains a regression model estimating recall of amount of money spent from the choice of payment method using an indicator coding system. In the data, the three conditions are held in a variable named PayMeth (1 = cash, 2 = interaction with terminal, 3 = contactless) and PAD is the participant’s score of Percent Absolute Deviation measure. Cash condition was used as the reference (D1 = D2 = 0), with D1 coding the interaction with terminal condition (D1 = 1, D2 = 0) and D2 coding the contactless condition (D1 = 0, D2 = 1). The money management variable was standardized (ZMM). The model accounts for just over 36% of the variance in recall of amount of money spent, R2 = .3622, F(5,119) = 11.5592, p < .001. The

regression coefficient for D1 is b1 = .030, which is equal to the difference between means of the interaction with terminal and cash conditions (Ȳ2 - Ȳ1 = .044 – .014 = .030). The regression

coefficient for D2 is b2 = .071, which is equal to the difference between the means of the contactless and cash conditions (Ȳ3 - Ȳ1 = .085 – .014 = 0.071). The regression constant b0 is

the mean of Y for the reference group, which in this case is the cash condition so b0 = .014 = Ȳ1.

Although the interaction term 1 is not significant, p = .654, the regression coefficient for interaction term 2 is statistically different from zero, b = -.039, p < .05. It means that there is a moderation effect for the contactless payment category. Consequently, as shown in the Figure 3., the effect of the interaction is negative, i.e. for the contactless payment category, the higher participants scored on money management behaviour scale, the lower the effect of payment type on their ability to recall the amount they spent at the supermarket.

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Table 3. Analysis of Money management (MM) moderation effect Model Summary R R2 F df1 df2 P .6019 .362 11.560 5.000 119.000 <.001 Model Coefficient se t P constant .014 (b0) .004 3.647 <.001 D1 .030 (b1) .009 3.573 <.001 D2 .071 (b2) .013 5.647 <.001 ZMM -.012 .006 -1.932 .056 int_1 -.006 .013 -.450 .654 int_2 -.039 .017 -2.260 .026

Product key terms: int_1: D1 x ZMM int_2: D2 x ZMM

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Furthermore, another moderation based regression analysis was performed in PROCESS, with added covariates: objective price (ActualAmountSpent), age (Age) and gender (Gender), as control variables. The model accounts for almost 40% of the variance in recall of amount of money spent, R2 = .399, F(8,116) = 9.628, p < .001. The results show that the effect of age is

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6 Discussion and Implications

6.1 General Discussion

The analysis of collected data provides new insights into more technologically advanced substitutes of cash and their influence on consumer behaviour. Furthermore, the study also adds up to the topic of money management and financial monitoring.

The conducted research has shown that customers’ recall of the total price they paid for their purchases at the supermarket is rather inaccurate. Although, all the participants were able to give at least an estimation of the price, only 28 percent of them were correct. On the other hand, the majority of customers (over 70 percent) were able to name a price within 5 percent error margin. It means that most shoppers have a good idea how much they spent on their purchases at the store.

In line with the first hypothesis, the results of the conducted observational study show that the customer’s choice of the method of payment influences the ability to recall the exact amount of money they spent at the supermarket. The findings indicate that the more technologically advanced substitutes of cash were used to finish transaction, the higher the Percent Absolute Deviation levels, i.e. the lower the ability of recall of the amount of money the participants spent at the store. Consequently, customers who paid by cash had the best recollection of how much they spent for their groceries, while the ability to recall the exact amount of money spent at the supermarket was the lowest within the customers who used wave-and-pay option. In addition to this, the ability to recall the total price for the groceries of the customers who interacted with the terminal (used insert card or had to enter the PIN to validate the contactless transaction), was also significantly higher compared to contactless option group. Therefore, the

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results of the observational study show that there is a considerable difference in the customers’ ability to recall the amount of money spent on groceries and items that they buy in the supermarket for their household depending on what method of payment they have chosen to finalize the transaction.

Hypothesis 2 was also confirmed with respect to the moderation relationship of the levels of money management behaviour on the group of participants who paid by contactless option. The results of the study show that the higher the customer scored on the Self-Assessed Financial Confidence scale the lower the effect of payment method on their ability to recall the amount they spent at the supermarket, i.e. individuals who used wave-and-pay option and score higher at the money management scale are better at retaining the information of the recent expenditure and are less likely to forget even when using more advanced technologies compared to participants with lower scores. However, no statistically significant relationship was found for levels of money management behaviour and the interaction with terminal (insert card and contactless payment with PIN verification of transaction) group.

6.2 Contributions

This study offers several important theoretical contributions. Firstly, it adds up to the past research on the methods of payment and its influence on consumer behaviour. It was already proved that the customers who pay by credit cards tend to spend more compared to individuals who pay by cash or checks (Prelec & Loewenstein, 1998; Soman 2001; Soman, 2003; Thomas, Desai & Seenivasan, 2011; Shah et al., 2016). However, in this thesis I address the factor that was not thoroughly investigated yet: contactless mode of payment. Due to increasing number of innovations and the development of new technological substitutes of cash the shops are becoming more automated and convenient than ever before. This study helps to understand the

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influence of some new technological improvements in retail on the customer behaviour, focusing on the advantages as well as the possible repercussions connected with the introduction of cashless transactions. In addition, it also addresses a practical implication for store managers. The fact that customers tend to spend more by using the contactless payment option and have a poor recall of past expenditures is an important factor that should be taken into account while deciding which payment methods will be available in the given store.

Furthermore, my work contributes to the theories about the ability of recall (Conover, 1986; Dickson & Sawyer, 1990; Soman, 2001; Srivastava & Raghubir, 2002; Rosa – Diaz, 2004; Alhaddad, 2014). The results of my study are in line with previous research (e.g. Gabor & Granger, 1969; Vanhuele & Drèze, 2002; Rosa-Diaz, 2004) and shows that most customers cannot remember the exact price they spent on their purchases. However, within 5 percent error margin, the vast majority of customers were able to recall the total price of their purchases. These findings help to understand customers’ behaviour and the tendency to rounding the prices. Additionally, in accordance with past research (Rosa – Diaz, 2004; Dickson & Sawyer, 1990; Maynes & Assum, 1982), the analysis of the results shows that customers tend to underestimate the prices which is also an essential managerial implication. It is very useful knowledge for the store managers responsible for the pricing strategy. Consequently, it is an important issue that should be addressed by the Authority for Consumers and Markets as the doubt of ethics in retail may be raised.

Lastly, according to many studies (Srivastava & Raghubir, 2002; Harms, 2015; Roberge, 2015), the recall also signals money management skills. Consequently, my thesis contributes to the research on money management behaviour (Godwin & Koonce 1992; Donnelly et al. 2012; Donnelly et al. 2013) as its influence on the ability to recall past expenditures was investigated. There is a robust offer of apps and programs that help to track, plan and monitor

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expenses (Böhmer et al., 2011). However, most people do not actively use such software (Lella & Lipsman, 2014) to monitor their finance. Interestingly, my research adds up to the theory by showing that most customers have above average Self-Assessed Financial Confidence.

6.3 Limitations and Conclusions

This observational study has been conducted in the Netherlands, Amsterdam in one of the most popular retail chains DEEN which accepts all selected modes of payment. I decided to choose a central location of the store to provide as wide a range of customers as possible and ensure a better random selection. However, the survey was conducted in English and only people who knew the language could participate in it. In addition to this, the single store location may have caused some bias of the chosen sample. The store’s neighbourhood may affect the type of the customers who visit the store.

Furthermore, the observational study helps to observe facts and notice correlations but does not necessarily imply causation. As opposed to the experiment, in the observational study the subjects are not assigned to the specified conditions. The participants’ behaviour is investigated but not influenced. Such research provides high internal validity but is also more prone to bias than an experiment. The results of the given research, may also be influenced personal characteristics of customers. Further investigation would be needed to rule out the possible correlation between the choice of method of payment and some types of personalities and general behaviour. It is possible that people who are more reckless and tend to overspend prefer to use wave-and-pay.

In addition, I approached many customers in the store. However, only a small part of them agreed to take part in my observational study and fill in the survey. It might be beneficial for the study to include a bigger sample. Also, it is possible, that I have approached customers who

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seemed to be the friendliest and it may have skewed the results of the study as I may have chosen participants with similar characteristics.

In conclusion, in my thesis I have focused on the gap in the previously conducted research. My work adds up to the topics of payment methods and recall as well as money management behaviour. The fast-developing world we live in has also changed the way we are shopping nowadays. The results obtained from the conducted analysis, show that the more technologically advanced substitutes of cash we use to pay for the purchases, the harder it is to remember how much we actually spend. Additionally, the importance of financial monitoring was stressed as it significantly influences the ability to recall the price by the customers who decided to use wave-and-pay. I hope that this research helps to better understand how different payment methods affect the recollection of expenditures and brings more attention to the usefulness of the financial monitoring software.

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