Debit Card - Spending Propensity

8/2/2019 Debit Card - Spending Propensity

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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

J Consum Policy (2011) 34:415422DOI 10.1007/s10603-011-9172-7

A. Moore (*)
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card transactions in the USA surpassed credit card transactions in 2006, with 25.3

billion debit transactions against 21.7 billion credit transactions (US Census Bureau

2009). The Survey of Consumer Payment Choice conducted by the Boston Federal

Reserve reported that in 2008, more consumers had debit cards than credit cards (Foster

et al. 2010).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). Visa Inc.'s President for North America, Bill Sheedy,

highlighted in the announcement that....debit is an ideal way for consumers tofocus on

smarter spending, budgeting and control.

The use of debit cards for financial control is emphasized by other financial industry

experts. Edgar Dunn & Company (2004) described consumers' preference to pay with debit

cards as a fundamental shifttowardgreater 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.

In light of prior academic research demonstrating the credit card effect, this move

toward reduced credit card use would seem to be in the right direction. 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. In his

experiments, Feinberg (1986) demonstrated that exposure to credit card logos increased

participants' willingness to spend.

Ironically, consumers looking to enforce financial self-control with debit cards are

exposed to the very same logos when they use their debit cards. It is thus interesting

to study whether a similar increase in willingness to spend occurs in response todebit cards. In our experiment, we found that debit cards with logos did indeed elicit

an increased willingness to spend compared to cash. In fact, logoed debit cards

elicited a willingness to spend comparable to credit cards, suggesting that debit cards

with logos may actually work to hinder a consumer's goal of financial self-discipline.

In the absence of a logo, however, debit cards elicited no difference in spending

compared to cash.

We present a brief review of related literature in the next section followed by a

description of the experimental setup. We conclude with the findings and a discussion

of the results.

Related Research

Prior research has documented the tendency of consumers to spend more with credit cards

compared to cash. 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. 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.Further, research has revealed that merely being exposed to credit card insignia

results in a greater willingness to spend. The mere presence of credit card

416 A. Moore, M. Taylor
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Additionally, in the presence of credit card logos, subjects estimated that they would

donate more to charity; actual donations were also higher in the presence of credit card

insignia.

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 restaurantwhen a credit card logo was present versus absent. 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.

Prior research thus suggests that merely being exposed to credit card logos1 increases

consumers' propensity to spend. Debit cards carry the same logos as credit cards and at

cursory glance are almost indistinguishable from credit cards. There is a dearth of research on

the influence of debit card logos. However, there is a large body of research on the mere

exposure effect that we can draw on. 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. Over 200 experiments investigating the mere exposure effect have beenpublished (for a review, see Bornstein 1989). The effect has been demonstrated to be robust

across cultures, species, in different stimulus domains, and even prenatally (Zajonc 2001). As

in the original studies (Zajonc 1968), subsequent studies have found that the more often

people are exposed to a stimulus, the more positive are their attitudes toward the stimulus.

We therefore hypothesize that the mere exposure to logos on debit cards will result in an

increased willingness to spend, similar to credit cards. Although debit cards have received

some attention in academic studies (e.g., Soman 2001 includes debit cards as one method of

payment in studying the influence of past payments on future expenditure), we are not

aware of any research that compares debit cards with other modes of payment in terms ofconsumers' willingness to spend. If the logos on debit cards facilitate a similar willingness

to spend as credit card logos, debit cards may well defeat consumers' intended goals of

financial self-control.

To assess this effect experimentally, we used four modes of payment: cash, credit, debit-logo,

and debit-statement. Cash and credit card are self-explanatory and were included to facilitate

comparison with prior research. Further, we used two distinct debit card conditions, one with

logos and one without, in order to assess the mere exposure effect of logos. The debit-logo

condition exposed subjects to credit card logos in the debit payment mode. The debit-statement

condition, on the other hand, merely employed a statement describing the debit mode of

payment, and subjects were not exposed to logos; it was included to serve as a control so that themere exposure effect could be explored. Our expectation based on prior research was that debit

cards with logos would elicit an increased willingness to pay, comparable to credit cards. In

addition, if the mere exposure explanation is viable, we expected that the debit-without-logo

condition would not elicit a similar effect. Both these expectations were borne out by our

experimental results, as described more fully in the following sections.

Method

To study the effect of payment mode on willingness to spend, we used a paper-and-pen

survey in which participants indicated the price they would be willing to pay for six

Time to Cut Up Those Debit Cards? 417
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common gift items.2 The four payment modes we used were cash, credit card, debit card

with logo, and debit card statement. Mode of payment was between-subjects, with each

participant being randomly assigned to one of the four payment conditions.

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-subjectsfactor. Level of spending, the dependent variable, was measured as the willingness to pay

for the different items. 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. They were asked to

indicate the amount of money they would be willing to pay for the pictured 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. To

ensure that responses were not influenced by any imagined budget constraints, subjects

were told that there was an adequate budget set aside to buy all the gifts.

To manipulate method of payment, the instructions specified that there was a store that sold

all the gift items they wanted to buy. In each treatment condition, participants were told that thestore only accepted that particular mode of payment. In addition, to serve as a reminder, 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. For the cash condition, this

reminder was in the form ofcash only in uppercase letters. For the credit card condition, the

reminder used credit cards only in uppercase letters along with Visa, MasterCard and

Discover logos. The reminder for the debit card logo condition was uppercase letters debit

cards only along with Visa and MasterCard logos, and for the debit card statement condition

the reminder consisted of justdebit only in uppercase letters.

The photographs of the items along with the reminder text/logos were presented in thesame order in all four treatment conditions. After subjects had indicated their willingness to

pay for the different items, they completed four Likert-type statements to capture attitudes

toward spending and price awareness3 and demographic questions.

One hundred and ten individuals from the general population of a mid-sized university town

in Western USA participated in the study (61 males, 46 females, 3 did not specify gender).

Young adults 18 to 23 years of age made up 54% of the sample, 24% indicated they were

between 24 and 28 years of age, and 20% older than 29. Participants wrote in their occupation in

response to an open-ended question; students constituted the largest occupation category (40%),

with the rest belonging to a range of occupations from accountant to venture analyst.

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. Chi-square tests

on the demographic variables confirmed that the distribution of subjects' age (2(12)=

14.55, p=.27) and gender (2(3)=3.33, p=.34) was not different across the four payment

2

The six items were selected on the basis of a pre-test. The pre-test consisted of an unaided recall task inwhich each of the 15 individuals made a list of as many gift items as he/she could remember that they hadpurchased recently along with the price (or price range) they had paid. Based on the responses from the pre-



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conditions. Similarly, analysis of variance with the scores on the Likert-type attitudinal

statements as the dependent variable and payment as the independent variable confirmedthat subjects' attitudes toward spending did not vary systematically across the treatment

conditions (all p>.05).

We could therefore be confident that our subsequent analysis revealed effects directly

related to our experimental manipulation. Since willingness to pay for the items was elicited

from each participant, 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. The dependent variable in the ANOVA was the item price each respondent was

willing to pay. The repeated-measures ANOVA showed a significant effect of method of

payment on participants' willingness to pay (F(3,104)=19.4, p


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condition for all six items (leather gloves: Mdebit logo

=30.92, Mdebit statement

=16.07, t(33.1)=

3.14, p=.004; kids' bicycle: Mdebit logo=87.73, Mdebit statement=51.25, t(36.39)=3.61, p=.001;

handbag: Mdebit logo=75.73, Mdebit statement=37.96, t(44.81)=2.97, p=.005; perfume: Mdebit

logo=62.04, Mdebit statement=16.96, t(28.85)=6.48, p=.0001; necklace: Mdebit logo=27, Mdebit

statement=13.18, t(34.55)=2.85, p=.007; silverware: Mdebit logo=33.85, Mdebit statement=20.29, t

(40.56)=3.15, p=.003). Table 1 summarizes the means under the four payment conditions

and also indicates which means were significantly different from each other.

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. The

willingness to spend in the debit-logo condition was as high as the stated willingness to spend in

the credit card condition. Further, confirming the mere exposure effect of logos, we found that it

was only in the presence of logos that participants were willing to spend more using debit cards;

stated spending was lower when debit cards were not accompanied by the logos.

The results thus support our hypothesis that exposure to logos on debit cards will

increase participants' level of spending just like credit cards. The level of spending with

debit cards was, in fact, statistically no different than spending in the credit card condition

and was significantly higher than in the cash condition. Of particular interest is the result

that when logos were present in the debit condition, the willingness to spend was

significantly higher compared to the debit condition in which participants were not exposed

to any logos. This pattern of results strongly suggests that debit card logos spur consumers'

willingness to spend more.

To be sure, these are results from a one-shot experimental study, which makes them

susceptible to the caveats surrounding all experimental results. While we would love to

validate these results through real-world transaction data, we are hampered by our lack of

access to suitable purchase data of requisite granularity. Another limitation, derived from

recent research conducted in New Zealand (Lie et al. 2010), is that our results areidiosyncratic to the USA.5 The results do suggest though that given current American

attitudes toward credit and debit use a consumer may well fall prey to the logos on her

Table 1 Mean willingness to pay by payment condition

Item Cash Credit Debit logo Debit statement F (all p


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from the cycle of credit card debt, the logos on debit cards can become the source of

financial harm through overspending.

We would like to point out here that overspending due to the debit card logo effect is

not necessarily a given. Even in the case of credit cards, research suggests that positive

experiences with credit card use are required for an amplification of the willingness tospend (e.g., Feinberg and Meoli 1987). In fact, Feinberg himself (Feinberg 1990), in a

comment on Hunt et al. (1990), pointed out that historical context and positive attitudes

toward credit cards could be necessary conditions for the manifestation of the credit card

effect. Thus, by analogy, overspending with debit cards too may require that consumers

have largely positive associations with debit card use.

In other words, if consumers are subjected to numerous aversive experiences with

the use of debit cards, they may, over time, develop negative associations with debit

cards leading to a dampening of the overspending effect. Such dampening would have

been more likely before recent changes in US banking regulations, because prior to July

1, 2010, consumers were subject to prohibitive and insidious overdraft fees on debitcards. With recent Federal Reserve rules restricting banks from charging such hidden

overdraft fees on debit card transactions, debit card use has become relatively more

positive for consumers. Ironically, however, such positive changes to protect consumers

from debit card fees may well mean that consumers remain susceptible to the

overspending effect with the use of debit cards. In any event, with the current trend

toward increased debit card use, the results from our study could serve as an eye-opener

to consumers and policy-makers alike.

References

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Debit Card - Spending Propensity