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Perception of Payment Modes

Master Thesis Expose

Perception of Payment Modes

Clinton Jason Lobo

Perception of Payment Mode 2

1 Abstract

Title: Perception of Payment Modes

Keywords: Money, Payment modes, Cash, Perception, Emotions, Money Management, Social

Gratification

Although many studies conducted so far explore the perceptions, importance and ethics of money

as well the influence of payment method on consumer spending behavior, very few try to capture

or measure the mental and emotional experiences that the corporal quality of the mode of payment

generates in the consumer’s mind and the influence of such emotional and cognitive associations

on spending behavior. Also, most of the existing literature focuses on the differential spending

arising between and cash and credit cards, the relationship between ‘owned money’ and

differential spending has not fully been explored or dealt with. Though decoupling and pain of

payment have been proposed to explain spending behavior, an adequate amount of empirica l

research is still lacking. This linkage needs to be ascertained by capturing perceptions of money

as a tangible entity and the perceptions, once ascertained should be matched to behavior. To

address this gap, this study will try to improvise and contribute to existing literature on the

perception of money, payment mode and spending behavior by developing a conceptual and

empirical framework to capture the perceptions of payment modes. We will further try to

investigate if these emotional and cognitive associations can be a good predictor of spending

behavior because historical and sensory associations that people have with money can influence

their choice of payments modes as well as their spending behavior. The conceptual framework will

deal with four dimensions namely: Emotions related to cash and card based payment modes, social

and personal gratification and money management.


Table of Contents

1 Abstract ......................................................................................................................................2

1.1 List of tables ........................................................................................................................3

1.2 List of Abbreviations ............................................................................................................3

2 Introduction................................................................................................................................4

2.1 Research Question ...............................................................................................................7

3 Review of Literature ....................................................................................................................8

4 Theoretical Background ............................................................................................................. 13

4.1 Perception of Cash ............................................................................................................. 14

4.2 Positive Emotions and Payment Mode ................................................................................ 17

4.2.1 Hypotheses ................................................................................................................ 20

4.3 Social and Personal Gratification with Payment Mode ......................................................... 21

4.3.1 Hypotheses ................................................................................................................ 22

4.4 Money management and Mental accounting....................................................................... 22

4.4.1 Hypotheses ................................................................................................................ 24

5 Methodology ............................................................................................................................ 25

6 Plan of Work ............................................................................................................................. 26

7 References ................................................................................................................................ 27

1.1 List of tables

Literature Review ...............................................................................................................................8

Work Plan ........................................................................................................................................ 26

1.2 List of Abbreviations

PPM – Perception of Payment Modes

ATM – Automated Teller Machines


2 Introduction

Advances in digital technology have facilitated payments through various methods and devices

called Electronic funds transfer systems(EFTS). Such systems use fixed connections but they are

now increasingly available through multiple electronic devices and mechanisms thereby fueling

the speculation that mankind will eventually move toward a cashless society (Humphrey et al.

1996). In such a society, consumers can make payments through the internet, payment at

‘unmanned’ vending machines, ‘manned’ point of sale (POS) using mobile phone device, personal

digital assistant (PDA), smart cards and other electronic payment systems, including debit and

credit cards as well as other forms of prepaid cards. Though, the existing payments using card

based systems are convenient for all purchases the transaction costs involved are too high to be

profitable in micropayment transactions (Zinman 2009). During the 1980s, a new stream of

research attained importance which focused on the relationship and impact of credit cards with the

purchase and spending behaviour of consumers. The studies conducted showed that when the

consumers paid with credit cards, the spend per transaction had increased (Prelec, Simester 2001)

(Prelec, Loewenstein 1998). However, the research did not delve into whether the increase in

purchase spend per transaction was due to the availability of credit or the absence of cash. A study

investigating the difference in consumer’s willingness to pay between two frequently used

payments modes: Cash and Debit cards showed that people were willing to pay more for identica l

products using debit cards than cash (Runnemark et al. 2015). This cannot be solely accounted to

the absence of cash or ‘cash on hand’ restraints. Therefore, the increasing acceptance of Electronic

funds transfer systems (EFTS) as well as the studies showing an increase in spending involving

debit and credit cards has led researchers to believe that the payment mode used could possibly

influence our perceptions of money and thereby our purchase behaviour.

(Runnemark et al. 2015) suggest that this is due to the representation of money and has to do with

the salience of the physical form and the salience of the amount paid with the card. Underpinning

this speculation is the notion that sensory as well historical associations we have with money not

only influence our mental accounting and money management (Thaler 1980), but also impact the

type, value and quantity of products purchased per transaction. (Prelec, Loewenstein 1998),

attribute the increase in spending to the idea being that electronic payment modes lack transparency

so that the real cost of transaction is hidden or obscured - while paying with cash one can actually

see the costs incurred for each item and the pain of paying is brought to the forefront with having


to physically let go of cash whereas the usage of a debit card to pay covers the entire purchase cost

and this leads the consumer to view the transaction as one single expense on the bill. (Soman

2001), suggests the memories that individuals have of past spending is used as a reference point to

determine and guide their present spending. In this retrospective evaluation the intention to

purchase is reduced when the mode of payment requires the user to write down the amount

paid(Cheque) or when the mode of payment is highly transparent(Cash) and also when the wealth

of the consumer is depleted immediately as opposed to a delay. (Raghubir, Srivastava 2008),

suggest that payment modes differ in terms of ‘Transparency’. The outflow of money is vivid and

salient when consumers use legal tender such as cash, thereby making it painful to part with. On

the contrary, any mode of payment which makes the sensation of parting with money less vivid

and therefore less painful, reduces the psychological barrier to spending. Cards are by princip le

less transparent and the increased spending linked to card usage can be attributed to difference in

levels of transparency of the mode of payment. Based on these studies, we for the purpose of this

study assume that the physicality and tangibility of coins, cheques, cash and other forms of

physical money creates in the consumer’s mind a conscious or unconscious awareness that

something of value is being exchanged. This is, in turn, intensified by the consumer’s ability to

process transactional information using perceptual senses such as sight and touch and this impacts

the translation of the outcome as an immediate experience of the amount spent. Under conditions

which involve consumers to pay using electronic means the consumers may not. At that point in

time, be attuned, either mentally or emotionally to the actual amount of money being spent.

More recent research, however, suggests that the mode of payment not only affects the amount of

money spent but also the type of purchase (Thomas et al. 2011) and also have an impact on the

feelings of ownerships associated with the products purchased (Kamleitner, Erki 2013). Payment

by credit card increases the incidence of unplanned and unhealthy food purchases (Thomas et al.

2011). On the other hand, (Bagchi, Block 2013), contest this, claiming that payment by cash

increases the chances of such purchases; their explanation for this being that the indulgent food

purchases provide an instant fix to the pain of paying with cash because there is no significant

delay between payment and consumption and the cost of paying is balanced simultaneously with

the benefits if the purchase. These conflicting and inconsistent findings suggest that the mode of

payment not only differs in terms of physical dimensions and characteristics but also in terms of

the mental and emotional experiences generated by the corporal quality of the payment mode.


However, these emotional and cognitive aspects have largely been neglected but a decent number

of studies have been made into the connection between the payment mode and mental accounting

and money management. Therefore, there is an increasing need for research into the emotiona l,

cognitive and behavioural dimensions of payment modes.

A single prior attempt to link payment mode with emotions is reported by (Thomas et al. 2011),

where the impact of pain of paying was assessed using scales of happy and sad faces and lists of

words identifying the underlying emotions pertaining to negative associations. No reliability or

validity data were reported. As a result of this the next logical step is to develop a study which

would involve an instrument that would capture people’s emotional cognitive associations with

payment modes. Such a study would, for instance, enable and facilitate a more systematic and

deliberate comparison between social groups and purchase situations as well as spending

behaviour and would also, of course, allow for replication. The objective of this research addresses

the calls by (Soman 2003) and (Thomas et al. 2011) for research and development of an instrument

which would capture and measure the sensitivity of each mode of payment based on the

assumption that payment by cards is more inert than payment by cash (Mishra et al. 2006). When

paying for purchases with a card based mode of payment, consumers are required to swipe their

cards in a scanner to complete the transaction. It is probable that at this point in time a decoupling

effect occurs. In the case of a cash based mode of payment, the effect is quite different, because to

complete the transaction one has to part with something tangible: The physical cash. The

physicality of payment mode suggests that consumers are more aware of the price paid for the

products when paying with cash or cheque than when they use a card based mode of payment.

Thus far, existing research has demonstrated the effect of mode of payment on spending behaviour

(Thomas et al. 2011), but the drivers between why there is differential spending in the case of

‘owned money’ remains unanswered and shall be the focus of this research.

Based on our understanding of previous studies, the assumption is that sensory and historica l

associations with cash as well payment mode affects how we account tabulate for our daily

expenses and savings in our mental accounts. The idea is that people who have used cash as a

primary mode of payment have formed a complex, visceral, somatic as well as visual relationships

with such tokens of payment and the agreed upon value of the token becomes embedded in the

actual token – i.e. the representative value is viscerally and physically experienced which cannot

be the same case with new payment modes involving electronic transfers. Further, for the purpose


of this study, we assume that the said psychological relationship with the tokens of payment affect

our perceptions and judgement and that these perceptions and judgement vary across modes of

payment and can contribute to differential spending by consumers. There is, as a consequence a

need for inquiry into perceptions of payment modes which will be addressed in the course of this

study.

From both theoretical and managerial standpoints, it is necessary to develop a study as well as an

instrument that captures and measures the perceptions of payment modes, which we shall refer to

as PPM for the remainder of this paper. The importance of such perceptions of payment modes

(PPM) study shall lie in its ability to measure individual perceptions and also to measure and

compare perceptions across social groups and different purchase situations. This study and the

instrument developed in the course of this study could as a result potentially evaluate perceptions

of various modes of payment across age, income and other demographic variables. Such

evaluations could assist managers and designers of financial services to be more effective in

identifying their target demographic groups that prefer certain modes of payment, thereby

maximising customer satisfaction and creating long term customer relationships and profitability

for retailers. The PPM study could also assist sociologists, economists and consumer researchers

to understand and interpret the emotional and cognitive relationships with payment modes,

particularly in the context of owned money (an area which hasn’t been the focus of much research

so far) and its impact on the consumer’s choice of payment mode. The study will outline and

capture social and personal gratifications in regard to various payment modes, as well as customer

confidence, state of mind, security, mental accounting and money management.

2.1 Research Question

This study shall address two broad objectives to attain its research aims:

a) To capture the emotional and cognitive associations that people make with different payment

modes. For the purpose of this study we shall consider two main modes of payment: Cash and

Debit card because they account for a significant percentage of the world’s financial transactions

which involve physical representation of money.


b) To check if there is a significant relationship between said emotional and cognitive perceptions

and its impact on mental accounting and money management through the evaluation of associated

spending behaviour and to also check if these associations can be used to predict financial spending

via different payment modes.

3 Review of Literature

Table 1

Author Year Title Reference

type Publisher Periodical

Zinman, Jonathan 2009 Debit or credit? Journal

Article

Journal of

Banking &

Finance

Zink, Caroline F.; Tong,

Yunxia; Chen, Qiang;

Bassett, Danielle S.; Stein,

Jason L.; Meyer-

Lindenberg, Andreas

2008 Know your place Journal

Article

Neuron

Zelizer, Viviana A. 1989 The social meaning of

money:" special monies

Journal

Article

University of

Chicago

Press

American

journal of

sociology

Weber, Max 1947 The theory of economic and

social organization

Journal

Article

Trans. AM

Henderson and

Talcott Parsons.

New York:

Oxford

University Press

Walsh, Anthony 1991 The Science of Love Book Prometheus

Books

Thomas, Manoj; Desai,

Kalpesh Kaushik;

Seenivasan,

Satheeshkumar

2011 How Credit Card Payments

Increase Unhealthy Food

Purchases

Journal

Article

J Consum Res

(Journal of

Consumer

Research)


Thaler, Richard H. 1999 Mental accounting matters Journal

Article

Wiley

Periodicals

Inc

J. Behav. Decis.

Making (Journal

of Behavioral

Decision

Making)

Thaler, Richard 1980 Toward a positive theory of

consumer choice

Journal

Article

Elsevier Journal of

Economic

Behavior &

Organization

Tajfel, Henri 1959 Quantitative judgement in

social perception

Journal

Article

Wiley Online

Library

British Journal of

Psychology

Swedberg, Richard;

Granovetter, Mark S.

1992 The sociology of economic

life

Book Westview

Press

Soman, Dilip 2003 The effect of payment

transparency on consumption

Journal

Article

Springer Marketing

Letters

Soman, Dilip 2001 Effects of Payment

Mechanism on Spending

Behavior

Journal

Article

J Consum Res

(Journal of

Consumer

Research)

Snelders, H.M.J.J.;

Hussein, Gönül; Lea,

Stephen E.G.; Webley,

Paul

1992 The polymorphous concept

of money

Journal

Article

Journal of

Economic

Psychology

Simmel, Georg 2004 The philosophy of money Book Psychology

Press

Shafir, E.; Diamond, P.;

Tversky, A.

1997 Money Illusion Journal

Article

The Quarterly

Journal of

Economics

Seligman, Martin E. P.;

Csikszentmihalyi, Mihaly

2014 Positive psychology Contributi

on in…

Runnemark, Emma;

Hedman, Jonas; Xiao,

Xiao

2015 Do consumers pay more

using debit cards than cash?

Journal

Article

Electronic

Commerce

Research and

Applications


Raghubir, Priya;

Srivastava, Joydeep

2009 The Denomination Effect Journal

Article

J Consum Res

(Journal of

Consumer

Research)

Raghubir, Priya;

Srivastava, Joydeep

2008 Monopoly money Journal

Article

Journal of

experimental

psychology.

Applied

Prelec, Drazen; Simester,

Duncan

2001 Always leave home without it Journal

Article

Springer Marketing

Letters

Prelec, Drazen;

Loewenstein, George

1998 The Red and the Black Journal

Article

Marketing

Science

Pine, Karen J. 2009 Report on a survey into

female economic behaviour

and the emotion regulatory

role of spending

Journal

Article

Sheconomics

Survey Report.

University of

Hertfordshire

O'Guinn, Thomas C.;

Faber, Ronald J.

1989 Compulsive Buying Journal

Article

J Consum Res

(Journal of

Consumer

Research)

Oatley, Keith; Johnson-

laird, P. N.

1987 Towards a Cognitive Theory

of Emotions

Journal

Article

Cognition &

Emotion

Mitchell, T. R.; Mickel, A.

E.

1999 THE MEANING OF MONEY Journal

Article

Academy of

Management

Review

Mishra, Himanshu;

Mishra, Arul;

Nayakankuppam,

Dhananjay

2006 Money Journal

Article

J Consum Res

(Journal of

Consumer

Research)

Loewenstein, George;

Lerner, Jennifer S.

2003 The role of affect in decision

making

Journal

Article

Handbook of

affective science

Lea, Stephen E. G.;

Webley, Paul; Walker,

Catherine M.

1995 Psychological factors in

consumer debt

Journal

Article

Elsevier Journal of

Economic

Psychology


Lea, Stephen E. G.;

Webley, Paul

2006 Money as tool, money as

drug

Journal

Article

Cambridge

University

Press

Behavioral and

brain sciences

Kringelbach, Morten L.;

Berridge, Kent C.

2010 The functional neuroanatomy

of pleasure and happiness

Journal

Article

NIH Public

Access

Discovery

medicine

Kringelbach, Morten L.;

Berridge, Kent C.

2009 Towards a functional

neuroanatomy of pleasure

and happiness

Journal

Article

Trends in

cognitive

sciences

Khan, Jashim; Belk,

Russell W.; Craig-Lees,

Margaret

2015 Measuring consumer

perceptions of payment

mode

Journal

Article

Journal of

Economic

Psychology

Kamleitner, Bernadette;

Erki, Berna

2013 Payment method and

perceptions of ownership

Journal

Article

Springer Marketing

Letters

Ingham, Geoffrey 2004 The emergence of capitalist

credit money

Journal

Article

Credit and State

Theories of

Money: The

Contribution of

A. Mitchell Innes

Humphrey, David B.;

Pulley, Lawrence B.;

Vesala, Jukka M.

1996 Cash, Paper, and Electronic

Payments

Journal

Article

Journal of

Money, Credit

and Banking

Goldin, Philippe R.;

McRae, Kateri; Ramel,

Wiveka; Gross, James J.

2008 The neural bases of emotion

regulation

Journal

Article

Biological

psychiatry

FUSARO, MARC

ANTHONY

2013 WHY DO PEOPLE USE DEBIT

CARDS

Journal

Article

Economic

Inquiry

Frijda, Nico H.; Kuipers,

Peter; ter Schure,

Elisabeth

1989 Relations among emotion,

appraisal, and emotional

action readiness

Journal

Article

Journal of

personality and

Social

Psychology

2014 Flow and the foundations of

positive psychology

Book,

Edited

Springer

Fisher, I. 1928 Money Illusion (Adelphi, New

York)

Journal

Article


Elster, Jon 1998 Emotions and economic

theory

Journal

Article

JSTOR Journal of

economic

literature

Desmet, Pieter M. A. 2012 Faces of product pleasure Journal

Article

International

Journal of

Design, 6 (2),

2012

Calder, Lendol; Durkin,

Thomas; Staten, Michael

2002 The Impact of Public Policy

on Consumer Credit

Journal

Article

Springer US

Cacioppo, John T.;

Gardner, Wendi L.;

Berntson, Gary G.

1999 The affect system has parallel

and integrative processing

components

Journal

Article

American

Psychologica

l Association

Journal of

personality and

Social

Psychology

Cabanac, Michel 2010 The dialectics of pleasure Journal

Article

Oxford

University

Press New

York

Pleasures of the

brain

Burgoyne, Carole B.;

Routh, David A.; Ellis,

Anne-Marie

1999 The transition to the euro Journal

Article

Springer Journal of

Consumer Policy

Bruner, Jerome S.;

Goodman, Cecile C.

1947 Value and need as organizing

factors in perception

Journal

Article

The Journal of

Abnormal and

Social

Psychology

Berridge, Kent C.;

Kringelbach, Morten L.

2008 Affective neuroscience of

pleasure

Journal

Article

Psychopharmac

ology

Bergman, Mats;

Guibourg, GABRIELA;

Segendorf, BJÖRN

2008 Card and cash payments

from a social perspective

Journal

Article

Sveriges

Riksbank

Sveriges

Riksbank

Economic

Review

Belk, Russell W.;

Wallendorf, Melanie

1990 The sacred meanings of

money

Journal

Article

Journal of

Economic

Psychology

Begg, D.; Fischer, S.;

Dornbusch, R.

2003 Foundation ofEconomics, 2 Thesis


Baker, Wayne E.;

Jimerson, Jason B.

1992 The sociology of money Journal

Article

SAGE

PUBLICATIO

N Thousand

Oaks

American

Behavioral

Scientist

Baker, Wayne E.; Iyer,

Ananth V.

1992 Information networks and

market behavior

Journal

Article

Taylor &

Francis

Journal of

Mathematical

sociology

4 Theoretical Background

There is a notion that money is an object, it is in essence incorporeal – the tokens are objects that

represent the concept of money and are rendered valuable only by social agreement. From an

economic standpoint, the definition is that money serves as a medium of exchange, a means of

storing wealth and value, a means of comparison and evaluation and a unit of account (Begg et al.

2003). The cash-based mode of payment in itself is seen as an object of value and this value is

passed on from one hand to another for other objects of value. The case for debit cards, credit

cards and prepaid cards is different. Electronic cards are only seen as only stores of value and this

representation of money is at a more abstract level. From an economic viewpoint, cards as opposed

to cash are only stores of value and not value itself. Also the concept of money is not universa l,

because some of its forms are reserved only for special occasions (Belk, Wallendorf 1990). Gifts

and inheritances are not looked at the same as wages and this shows that money is more of a social

construct than an economic one (Zelizer 1989). Numerous studies show that money is more

symbolic and emotional than instrumental. However, when researchers speak about ‘money’ in

terms of social, emotional, instrumental and/or cultural associations it is not clear as to whether

they are talking about the concept of money, the representation of money, or both. The dichotomy

between the instrumental and symbolic representation of money form the basis of numerous

theories developed by anthropologists and psychologists, e.g., the theory of sacred and profane

money (Belk, Wallendorf 1990): where they discuss the translucent nature of money stating that

it serves and functions on more than an economic level of pure exchange. Money takes on the

character of the processes in which it is involved thereby making it profane money or sacred

money. By accepting cash as both concept and representation of value we can conceptualize a

framework for the perceptions of payment modes. However, we shall try to shed some light into


the functioning of money in society and also on how various payment modes have been shown to

influence spending behavior of consumers based on numerous theoretical as well as empirica l

studies.

4.1 Perception of Cash

The literature pertaining to the concept of money is vast and complex. Money, according to

(Snelders et al. 1992) is a polymorphous concept, i.e., a concept whose boundaries and definit ion

cannot be specified precisely. In more traditional economic theories money is usually defined by

three functions assigned to it (e.g. Kaufman 1973):

(1) to be a commonly accepted (i.e. conventional) medium of exchange,

(2) to serve as a store of value,

(3) to serve as a standard of value, by being exchangeable into all other commodities.

As a medium of exchange, money is considered to be superior to the barter system in terms of

reducing the transaction costs. The system of barter requires an improbable coincidence of wants

or events and balancing value. To overcome this coincidence without money requires some process

of in-kind “credit” or “gift exchange”, restricting the trade involving barter to only those who know

each other. The fundamental principle by which money base transactions differ from barter based

transactions is that the burden of trust is removed from the participants involved and is placed on

a third party or institution; mostly the issuer of the money, which in the contemporary sense are

central banks or governments and as long as there is freedom for the token to be exchanged at a

certain value, transactions can be held without restrictions. In this sense, coins and notes embody

in them a store of value within a conveniently portable medium of exchange and acceptable means

of payment (Ingham 2004).

The use of monetary based token systems has been in existence since time immemorial and

psychological and emotional attachment to physical forms of money involving tokens is

understandable. The assumption that this may be how ‘token’ based money is perceived is also

quite understandable. However, the central issue is – How do you agree upon the ‘value’ of a

currency in society? The value given or attributed to the token and/or what the token represents is

a social construct. According to (Weber 1947) the means of storing and transporting this abstract

value is rooted in the social organisation of the monetary system. It is only by ‘social agreement’


that a ‘token’ is able to embody the value agreed upon and by doing so it removes the need to

anchor the value of said ‘token’ to the time and space of any actual transaction.

The system of commodity money, that is, objects which have an intrinsic value as well as their use

as money, in many instances evolved into ‘fiat’ money – a system of representative money. This

was a process in which banks would issue a paper receipt to the depositors, indicating that the

paper receipt was redeemable for whatever precious goods were being stored by the bank (usually

gold or silver money). In this system, paper currency and non-precious coinage had very little

intrinsic value, but achieved a significant amount of market value due to the promise to redeem it

for a given weight of a precious metal, such as gold or silver. The British Pound was a unit of

currency backed by a pound of sterling silver based on the weight of wheat. For most of the 19th

as well as 20th century, many currencies around the world were based on representative money via

the use of the gold standard. In the case of commodity money, trust and value were placed in the

inherent nature of the metal or other commodity which formed the payment. In the case of paper

receipts or representative money, trust moved away from the commodity and toward the social

institution that held the commodity (bullion) and issued the representative money. The use of

representative money made it possible for bankers to issue paper receipts in far excess to what the

depositors could actually redeem and would at times lead to bankruptcy. Since the collapse of the

gold standard, the issue of bank notes by commercial banks as legal tender was replaced by the

issuance of bank notes authorized and controlled by national governments via their central banks.

The shift from traditional forms of token money to representative money required a psychologica l

willingness on the part of the individual to accept a symbol in place of a physical object and a

social willingness on the part of the collective to evolve organizations and systems of account

that could gain and hold the public trust.

Until recent times, this promise to redeem money in its representative form for a thing of physical

and tangible value, such as the given weight of a precious metal; for instance, silver or gold,

suggest that the ‘representative money’ or ‘token’ was tangibly connected to something of

accepted value in society, thereby giving the token itself and inherent value. There is some

evidence, ‘hording behaviour’ aside, from studies to suggest that the physicality of money

influences our perceptions. For instance, (Bruner, Goodman 1947), found that children tend to

overestimate the size of coins in relation to other, physically similar stimuli. The conceptual basis

for this paper is that individuals may perceive money differently based on the shape, size and


colour and this may in turn affect how much they spend and what they spend on. That these

individuals may do so may either be an inappropriate choice of anchor, or an inadequate level of

adjustment. Behavioral economists (Mishra et al. 2006) link this to the concept of ‘Money

illusion’, which suggests that people show a bias toward nominal value instead of the real value of

money. People use the nominal anchor instead of the real anchor when determining the value of

goods (Fisher 1928).

A possible explanation for this illusion is accentuation theory (Tajfel 1959). This theory suggests

that individuals, apart from using information about physical features of objects or psychologica l

features of persons, also utilize information pertaining to a category to form their evaluation. In

cases and instances where objects are consistently labelled or categorized, people tend to make

judgements based on the information contained in the category and this guides their evaluation.

As a consequence, the perceived differences between objects that belong to different categories

increase, the differences between the objects belonging to the same category decrease. This

suggests that the objects belonging to the same category are seen as homogenous and differences

across categories appear to be larger than in reality. (Burgoyne et al. 1999), suggests that currency

which is tangible has a specific emotional meaning in the sense that people tend to develop a sense

of attachment and exhibit a certain level of dependence on that mode of payment.

From a purely cognitive perspective, the form of money or its appearance should not make any

difference to the individuals who use it. A growing body of literature which demonstrates that the

normative principle of descriptive invariance, which says that when the same objective stimuli are

represented in a different way they should not have an effect on the preferences of an individua l,

but this is violated in the domain of money – thereby giving rise to the denomination effect,

wherein individuals perceive the same amount of money; let’s say 100$ differently when presented

as a single note and when presented in 5 denomination of 20$. This invariably has an impact on

an individual’s propensity to spend (Raghubir, Srivastava 2009). (Thaler 1999) argues that people

categorise income and expenditures in different mental accounts and treat money differently based

on how it is labelled and what it is used for. They also deduct and add to those particular mental

accounts and the money in one mental account is not a perfect substitute for money in another

mental account, thereby violating the principle of fungibility. According to the normative princip le

of fungibility – while paying, at the point of purchase, a mental account for the purchase is opened

by the individual and the decision to buy is based on the evaluation of the perceived benefits and


costs of the purchase rather than the emphasis on the payment form used (Prelec, Loewenstein

1998).

We shall, for the purpose of this study define the dimensions of perception based on the acceptance

of cash as both concept and representation of value. The dimensions are broadly categorised into

(a) Positive emotions and payment modes

(b) Social and personal gratification and payment modes

(c) Money management and mental accounting

4.2 Positive Emotions and Payment Mode

An attempt to link emotions to account for utility derivation and economic theory is credited to

(Elster 1998). He broadly categorised emotions into: First; social emotions: anger, hatred, guilt,

shame, admiration and liking. Second; there are many counterfactual emotions generated by

thoughts about what could have possibly happened but didn’t like: regret, rejoicing,

disappointment, Third, there are emotions that are generated by the thought of what may happen:

fear and hope. Fourth, there emotions which are generated by good or bad stimuli: joy and grief.

Fifth, there are emotions that are generated which are related to others or by the possessions of

others: envy, malice, indignation, and jealousy. Finally, there are instances, which do not fall into

a particular category, such as contempt, disgust, and romantic love. Borderline or controversia l

cases include surprise, boredom, interest, sexual desire, enjoyment, worry, and frustration.

Emotions differ from other “visceral factor” in the sense that they are triggered by beliefs and are

not always inherent to the nature of mankind. All of these emotions accommodate for numerous

variations and nuances, which are dependent on the exact nature of underlying beliefs that trigger

them. Therefore, if I feel a person has violated my interest I would feel anger but if I feel that the

other person had every right to do so I will feel indignation. His work was followed by numerous

other researches and studies, in behavioural economics and positive psychology that integrated the

role of emotions into decision making and economic theories (Loewenstein, Lerner 2003), the

neural basis for emotions (Goldin et al. 2008), cognition and emotion, positive effect (Seligman,

Csikszentmihalyi 2014). Positive emotions, according to numerous theorists (Cacioppo et al. 1999)

facilitate approach behaviour – it is a form of behaviour which facilitates and encourages


individuals to move toward their object of emotion, whereas negative emotions stimulate

individuals to withdraw from or reject the object associated with their emotion (Frijda et al. 1989).

Economists are mostly interested in the emotions that will occur as a consequence of behaviour,

such as regret, whereas on the other hand behavioural economists are interested and intrigued by

the effects of emotions as mediators in the process of decision making such as the hypothesised

pain of paying and its impact on consumer spending behaviour.

For the conceptualization of the perception of payment modes, we contest that money, regardless

of the form and amount and representation serves to generate and evoke positive emotions such as

feelings of security, relaxation, assurance, and confidence. On the other hand, spending serves to

evoke negative emotions such as anger sadness and disgust (Oatley, Johnson-laird 1987).

According to the categorization of positive emotions by (Desmet 2012), we shall define confidence

as the “experience of faith in oneself or in one’s ability to achieve something or act in the right

way”. The feelings related to confidence are self-assurance, security and certainty, and the related

tendencies are control, competence, resolution, determination, and being free from doubt (Desmet

2012). People will feel confident about the products that are easy to use and are trustworthy (in

this case the possession of money). Money can make people confident because they instil a sense

of independence or because the possession of money helps people look good. We define relaxation

as “the experience of enjoying a calm state of being , free from mental or physical tension or

concern” (Desmet 2012). According to (Desmet 2012), individuals use products (again the same

definition for our conceptualization is applied to the case of possession of money) to as ‘tools’ for

relaxation. People also feel free when they use ‘money’ to support activities that set them free from

everyday worries. The relationship between emotions and spending behaviour is evident from the

study conducted by (Pine 2009), it was found that a significant proportion of women use shopping

as a way to neutralize emotions or to replace negative motions with positive emotions. Women

reported that when they needed cheering up, or when they were going through emotional turmoil,

spending money became a way to regulate these emotions.

On the other hand, behavioural economists (Prelec, Loewenstein 1998), emphasize the importance

and the role of emotions at the point of purchase and how the representation of money could

possibly have an effect on spending. Their main theory is that at the point of purchase an effect

known as ‘decoupling’ occurs, which affect the extent to which the degree of payment actually


registers in the individual’s mind, and in their view, thus reduces the degree of the pain experienced

while parting with money leading to differential spending when money is represented indiffe rent

forms. Since paying via cash registers as an immediate depletion of wealth in physical terms, an

individual making the purchase sees the outflow of money and instantly experiences negative

emotions – pain of paying. We argue for the purpose of this study that positive emotions

associations with cash as defined earlier in this paper serve to encourage saving behaviour, since

the possessor of the object (money) tries to the best of his/her ability to extend the length of the

time of possession of said object which are the source of these positive feelings, thereby leading

to decreased or regulated spending.

According to (Berridge, Kringelbach 2008), positive emotions result in positive mental states such

as enjoyment, happiness, entertainment, ecstasy and euphoria. (Cabanac 2010) segregates

fundamental sensory pleasure (for e.g. food intake and sex) and higher-order pleasures such social

pleasure, money and altruism. (Kringelbach, Berridge 2009), has shown evidence that fundamenta l

as well as higher order pleasure as processed in the same regions of the brain and use the same

brain structures. Higher order pleasures are learned and rooted in the socialization process that

individuals undergo as children during the early stages of childhood. Higher order pleasures are

processed in combination with fundamental pleasures. (Kringelbach, Berridge 2010) suggest that

pleasure is not limited to a unitary experience but Is experienced in conjunction with and consists

of multiple overlapping brain processes that include but are not limited to liking, wanting, and

learning. As far as positive psychology literature is concerned, the mental state of pleasure acts as

a positive feedback mechanism, thereby motivating an individual to attempt to recreate or relive

the experience or incident which it has found pleasurable (Walsh 1991). This theory also tries to

drive home the point that just as we want to recreate the experience that evoke pleasure we also

strive to avoid situations that have cause us pain in the past (for e.g., regret about unnecessary

spending) and since cash is a salient form money it is likely that any regret caused by unnecessary

spending is reinforced by the physicality of its form. We contend that the pleasure of saving

regulates spending behaviour by stimulating people to extend the length of the possession of the

object which is the source of the pleasure (cash). The assumption here is that the emotiona l

relationship with notes and coins as physical representation of the underlying value create a

visceral and somatic relationship which influences the way we perceive such tokens and that such

perceptions differ from those one can associate with electronic payment modes. The premise is


that the physicality of the payment mode serves to intensify the emotional and cognitive ability to

process information pertaining to the transaction using our perceptual senses and this translates

into an instant experience of saving or spending decisions. The assumption for both cash and card

is that they arouse positive emotions but the degree to which debit cards arouse positive emotions

with physicality of money is lower than that of cash and this has an impact on the amount spent

using the two payment mechanisms. The card based mode of payment decouples the positive

emotional association from the concept of money, as it only acts a store of value, and a tool to

access, and lacks other salient and essential qualities of money.

4.2.1 Hypotheses

4.2.1.1 (H1)

Physicality of Payment mode influences emotions of the user.

Based on the literature involving positive psychology we hypothesise that

H1a – Cash usage evokes positive emotions in the user.

H1b – Debit Card usage evokes positive emotions in the user.

4.2.1.2 (H2)

Emotions associated with the payment mode have an impact on spending behaviour

H2a – Positive emotions for cash is a significant negative predictor of total cash spending.

We hypothesise this because positive emotions associated with cash cause an individual to hold

on to the object of pleasure thereby precipitating a behaviour inclined toward saving.

H2b – Positive emotions for cards is a significant positive predictor of total card spending.

We hypothesise this because the pleasure of using debit cards will cause them to use it more often

and because debit cards differ in representation the decoupling effect occurs causing the individua l

to inaccurately gauge the amount of money spent causing overspending.


4.3 Social and Personal Gratification with Payment Mode

The idea that social relationships shape the meaning of money and that a token of money has value

only upon social agreement is now widely accepted (Baker, Jimerson 1992). According to (Baker,

Jimerson 1992), Money can only be understood in the context in which it operates. Money, in both

its primitive and modern form derive their defining traits from the socioeconomic context in which

they appear. Modern money exists in society integrated by the markets; primitive money exists in

non-capitalistic, stateless and pre-market societies.

Secondly, unlike economists, sociologists typically consider the economy secondary to society

(Swedberg, Granovetter 1992) - i.e. economy is shaped by social relations. Sociologists tend to

reject the notion that the economy operates in an autonomous fashion. The market is considered a

social institution (Baker, Iyer 1992). In the real world, economic actors are not free acting,

autonomous and under-socialized but rather economic action is embedded in social structure. The

sociological take on money occupies a middle ground between anthropology and economics. This

middle ground helps sociology to treat money as both an independent variable – the cause of social

change and a dependent variable – a consequence of social relations or cultural meanings. As

(Zelizer 1989), noted; the utilitarian approach to money is a theoretical and empirical straitjacket.

Although money belongs to the market and is created by the market it is shaped by cultura l

connections and social relations.

People, over ages have displayed their wealth and possessions as signs of material success and as

a barometer of personal achievement. However, the idea of possessing and displaying wealth has

shifted to showcasing buying and borrowing power in the age of electronic transactions. These

days’ people do not display or stacks of money largely due to safety and security concerns.

However, possessing gold, platinum and credit as well debit cards still serves the same age old

purpose of displaying one’s wealth and buying power. Neuroscience has provided evidence that

social status and money are processed in the same brain region (the striatum) and people tend to

evaluate and measure their as well as others’ social standing by weighing spending and wealth

associated with an individual (Zink et al. 2008). We in this study contend that debit cards are

associated with better social standing as the usage of debit cards can signal to an audience or

members of the society that the individual is using money in the bank rather than credit. We also

contend that debit cards are more sophisticated money management tools than a cash based


payment mode. Card based mode of payment provides access to mobile resources, mobile

commerce and information and also reduces transaction costs to a considerable level. The usage

of debit cards gives us freedom of choice, ease of use, convenience – and these qualities are

reinforced via social relations within society and leads to personal and social gratification. If cash

payments still occupy a large place in day to day transactions, then card based mode of payment

dominate the internet market place and e commerce.

4.3.1 Hypotheses

4.3.1.1 (H3)

Physicality of payment mode influences social and personal gratification.

H3a – Cash usage has a positive effect on Social and Personal Gratification

H3b – Debit card usage has a positive effect on Social and Personal Gratification.

4.3.1.2 (H4)

Social and personal gratification with payment mode influences spending behaviour.

H4a – Social and personal gratification with cash is a significant positive predictor of total cash

spending.

H4b – Social and personal gratification with Debit cards is a significant positive predictor of

total card spending.

4.4 Money management and Mental accounting

(Lea et al. 1995) contend that over the centuries the attitude of people toward debt has changed –

from a general abhorrence of debt to the widespread acceptance of debt and credit as part of

modern consumer society. A common layman’s explanation to the increase in average consumer

spending is that people get into financial troubles by treating goods as necessities whose only

function is social display. (Lea et al. 1995) discovered that people with serious problems of debt

regarded certain kind of expenditures as necessities (for example: fashion goods and Christmas

gifts) and would continue to spend on such expenditures until they ran high on debt. (O'Guinn,

Faber 1989) found that some individuals have self-control problems and are therefore likely to


spend more regardless of the mode of payment. As a consequence, they often embark on a journey

of reckless spending that is both dangerous to self and society. Although this may be the case the

link between access to credit and levels of consumption has been well documented (Calder et al.

2002). Therefore, a possible explanation is that the levels of increase in spend per transaction while

using credit cards may be due to the availability of credit and not just the absence of cash.

Researchers over the years have used mental accounting to signify how the mode of payment may

affect our money management practices. (Thaler 1980) suggested while conceptualizing mental

accounting that it is set of cognitive operations used by households and individuals to evaluate,

organize and to track financial activities. At the level of transaction people are said to mentally

open an account for each transaction and to base their evaluations and decisions of the perceived

benefit of consumption with the associated cost of purchase. These mental accounts help reduce

the cognitive pressure on individuals during the decision-making process. Over a period of time

people create mental frames/filters in order to evaluate financial decision making. The assumption

is that these mental accounts and frames impact the experience of paying with a cash based or a

card based mode of payment and therefore also impact spending behaviour. A card based payment

mode decouples the payment from consumption in the sense something tangible (token or cash) is

not given in exchange for consumption – and the feeling of that something of value has been

transferred is dulled. As (Soman 2001) suggests using cash helps people remember how much they

have spent whereas the use of a card based mode of payment doesn’t help recall how much has

been spent in the previous purchases. Also, while using cash many denominations are exchanged

for the products whereas by card based mode of payment the money is deducted automatica l ly

leading the consumer to view the entire transaction as one single event instead of many small

events thereby affecting mental accounting and money management practices.

Some researchers attribute the differential spending while using different modes of payment to

opacity of non-cash payment modes, there is evidence from other researchers that the

characteristics of payment mode may also affect purchase behaviour. (Soman 2003) in their study

found that the usage of prepaid cards increased the amount spent per transaction. However, because

money is transferred so it can be used for a specific purpose there may be greater awareness

amongst consumers that money is being spent and what it is being spent for than with credit cards.

(Thaler 1999) explain this phenomenon as pseudo sunk cost effect. The pseudo sunk cost effect

can be predominantly seen when individuals withdraw money from the ATMs for the purpose of


bus fare, lunch, parking fees etc., When withdrawn from ATM the cash is spent in terms of mental

accounts.

The notion that physicality of cash affects our perceptions and judgements is quite evident from

the coin studies conducted where children as well as adults where adults viewed valued coins as

larger and children, especially viewed large coins as more valuable than smaller ones (Bruner,

Goodman 1947). The physicality of cash perceptions is also seen in research (Mishra et al. 2006)

involving denomination effect wherein people tend to show a reluctance to spend a 100$ bill in

comparison to spending five notes of 20$. The subjects showed a greater interest in keeping the

single note intact in comparison to the smaller denominations. They conclude that the physical

nature of the money serves to reiterate a difference in experience and thus affects our perceptions.

The assumptions here is that the denominations together with the physicality of payment mode

affects the way we mentally account for and manage money. Furthermore, cash maybe a way to

exercise self-control in order to curb spending, whereas the usage of cards dulls the stimuli

contributing to saving thereby leading to differential spending.

4.4.1 Hypotheses

4.4.1.1 (H5)

Payment mode influences money management and mental accounting

H5a – Cash usage has a positive effect on money management

H5b - Card usage has a negative effect on money management

4.4.1.2 (H6)

Money management and mental accounting affect spending behaviour

H6a – Money management is a significant positive predictor of total cash spending.

H6b – Money management is a significant negative predictor of total card spending.


5 Methodology

In order to test the stated hypotheses, we will create an instrument borrowing on existing scales

found in previous studies and incorporating few of the elements of this study to make a new

instrument which will then be presented in the form of a questionnaire to the target group. Previous

researchers (Khan et al. 2015, 2015) and (Mitchell, Mickel 1999) have come up with suitable

instruments which have been field tested for reliability and validity. These instruments will be

altered slightly to incorporate any additional hypotheses and will then be tested using non-random

purposeful sampling. The participants will be chosen either online or through contacts and we shall

try to incorporate participants between the age group of 18-50 with regular spending habits. They

will be first asked to track their spending behaviour by asking to keep the receipts of a single or

multiple grocery shopping trips and the corresponding value will then be codified and the same set

of participants will be presented with a questionnaire on the Perception of payment modes. The

questionnaire will enable us to test out the hypotheses’ regarding Emotions, Social and Personal

Gratification and Money management and by comparing it with the amount spent on grocery

shopping will facilitate the comparison of perceptions and actual spending behaviour and also

allow us to test the effectiveness of using the dimensions of Perceptions of Payment modes as

predictor variables for spending.


6 Plan of Work

Table 2

Work plan

September October November December January

36 37 38 39 40 41 42 43 45 46 47 48 49 50 51 52 1 2 3 4

Preliminary

Finding a Topic

Proposal

Extended Proposal

Expose

Introduction

Literature

Review

Hypotheses

Submission

Work Review

Research Design and

Data Analysis

Questionna

ire

Distribution

Collection

Data

Analysis

Submission

Conclusion

Submission


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