WHEN SPENDING MORE FEELS LIKE LESS:

THE INFLUENCE OF THE BUY-NOW-PAY-

LATER PAYMENT METHOD ON CONSUMER
SPENDING BEHAVIOUR

Rhys Ashby
BSc, MCom, MAppFin

Submitted in fulfilment of the requirements for the degree of

Master of Research

Department of Marketing
Macquarie Business School
Macquarie University
December 2019
 Keywords

pain of payment, numerosity effect, consumer judgment and decision making,

instalment price, economic psychology, price perception

The influence of the buy-now-pay-later payment method on consumer spending behaviour i

 Abstract

A new type of buy-now-pay-later payment method allows consumers to own their

purchases prior to payment by interest-free instalments. Despite rapid growth and
consumer self-reports that buy-now-pay-later increases spending, research has not yet
explored why this payment method impacts spending behaviour. The purpose of this
research is to investigate the underlying psychological mechanisms that influence
consumer spending behaviour when using buy-now-pay-later to address this research
gap. The results across three experiments indicate that buy-now-pay-later influences
consumer spending behaviour in a novel way. The numerosity heuristic, the tendency
to infer greater quantity from larger numbers, influences consumers to perceive
purchases as less expensive with smaller instalment prices compared to total prices.
Consumers perceived that purchases were less expensive and felt less pain of payment
when using buy-now-pay-later, leading to increased spending behaviour such as
increased purchase intent, the purchase of more expensive items, and an increased
amount spent. This explanation, supported by empirical evidence for the influence of
buy-now-pay-later on consumer decision-making, extends the current theoretical
understanding of the effects of payment modes on consumer spending behaviour, with
practical implications for policymakers and retailers.

ii The influence of the buy-now-pay-later payment method on consumer spending behaviour

 Table of Contents

Keywords .................................................................................................................................. i
Abstract .................................................................................................................................... ii
Table of Contents .................................................................................................................... iii
List of Figures ...........................................................................................................................v
List of Tables .......................................................................................................................... vi
Statement of Original Authorship .......................................................................................... vii
Acknowledgements ............................................................................................................... viii
Chapter 1: Introduction ...................................................................................... 1
1.1 Background .....................................................................................................................1
1.2 Research Problem ...........................................................................................................2
1.3 Contributions and Justification for the Research ............................................................4
1.4 Methodology ...................................................................................................................5
1.5 Definition of Buy-now-pay-later ....................................................................................5
1.6 Scope and Delimitations .................................................................................................6
1.7 Outline of this Thesis ......................................................................................................7
Chapter 2: Theoretical Background .................................................................. 9
2.1 Theoretical Background..................................................................................................9
2.2 Overview of Existing Explanations of Payment Mode Effects ......................................9
2.3 Pain of Payment ............................................................................................................12
2.4 Numerosity Effect.........................................................................................................15
2.5 Conceptual Framework and Hypotheses Development ................................................18
2.6 Summary .......................................................................................................................20
Chapter 3: Research Design .............................................................................. 21
3.1 Methodology and Research Design ..............................................................................21
3.2 Participants, Procedures and Measures .........................................................................23
3.3 Analyses........................................................................................................................24
3.4 Ethics ............................................................................................................................26
3.5 Overview of the Objectives of each Experiment ..........................................................27
Chapter 4: Study 1 ............................................................................................. 29
4.1 Purpose .........................................................................................................................29
4.2 Method ..........................................................................................................................29
4.3 Results ..........................................................................................................................33
4.4 Discussion .....................................................................................................................34
4.5 Limitations ....................................................................................................................35

The influence of the buy-now-pay-later payment method on consumer spending behaviour iii
Chapter 5: Study 2 ............................................................................................. 37
5.1 Purpose ......................................................................................................................... 37
5.2 Method ......................................................................................................................... 38
5.3 Results .......................................................................................................................... 40
5.4 Discussion .................................................................................................................... 43
5.5 Limitations ................................................................................................................... 43
Chapter 6: Study 3 ............................................................................................. 47
6.1 Purpose ......................................................................................................................... 47
6.2 Method ......................................................................................................................... 48
6.3 Results .......................................................................................................................... 51
6.4 Discussion .................................................................................................................... 53
Chapter 7: Discussion and Conclusions ........................................................... 55
7.1 Summary of Findings ................................................................................................... 55
7.2 Theoretical Implications .............................................................................................. 56
7.3 Managerial Implications .............................................................................................. 58
7.4 Limitations and Future Research ................................................................................. 60
7.5 Coda ............................................................................................................................. 65
References ................................................................................................................. 67
Appendices ................................................................................................................ 75
Appendix A Ethics Approval ................................................................................................. 75
Appendix B Participant Information and Consent Form ........................................................ 76
Appendix C Study 1 Stimulus and Measures – Buy-now-pay-later Condition ...................... 78
Appendix D Study 1 Stimulus and Measures – Credit Card Condition ................................. 81
Appendix E Study 2 Stimulus and Measures – Buy-now-pay-later Condition ...................... 84
Appendix F Study 2 Stimulus and Measures – Cash Condition ............................................ 87
Appendix G Study 3 Stimulus and Measures – Buy-now-pay-later with 8 Payments ........... 90
Appendix H Study 3 Stimulus and Measures – Buy-now-pay-later with 4 Payments ........... 93
Appendix I Market Norms of Buy-now-pay-later Compared to Credit Cards ....................... 96

iv The influence of the buy-now-pay-later payment method on consumer spending behaviour

 List of Figures

Figure 1 - Conceptual Model for the Research .......................................................... 20

Figure 2 - Analytical Model ....................................................................................... 26
Figure 3 - Menu for the Buy-now-pay-later Condition.............................................. 32
Figure 4 – Serial Mediation Model for Study 2 ......................................................... 41
Figure 5 - Hotel Room Attributes in the More Numerous Price Condition ............... 49
Figure 6 – Serial Mediation Model for Study 3 ......................................................... 52

The influence of the buy-now-pay-later payment method on consumer spending behaviour v

 List of Tables

Table 1 - Serial Mediation Results for Study 2 .......................................................... 42

Table 2 - Serial Mediation Results for Study 3 .......................................................... 53
Table 3 - Summary of Hypotheses Tested by Study .................................................. 56

vi The influence of the buy-now-pay-later payment method on consumer spending behaviour

 Statement of Original Authorship

This work has not previously been submitted for a degree or diploma in any
university. To the best of my knowledge and belief, the thesis contains no material
previously published or written by another person except where due reference is made
in the thesis itself.

Signature: _________________________

Date: 16/12/2019 .

The influence of the buy-now-pay-later payment method on consumer spending behaviour vii
 Acknowledgements

Firstly, I am grateful for the support of the Australian Government Research

Training Program Scholarship and the Macquarie University Research Excellence
Scholarship.

My immense gratitude to Dr Yi Li for her unwavering support of this research.

Your selfless guidance, ability to share your understanding and knowledge, and
responsiveness served to encourage my learning and growth. My thanks also go to Dr
Shahin Sharifi for taking me on late in the process, adding additional perspectives and
teaching me the things that I did not know I needed to learn.

My thanks to Professor Aron O'Cass for his mentorship and guidance during the
process. My thanks also to Dr Jun Yao, Dr Ralf Wilden, and Dr Frank Song for the
challenges, feedback and thoughts on my research and writing. I would also like to
thank the members of the Macquarie Business School that helped me along the way.

Sarah, my cherished wife, my thanks for the love, grace, and patience throughout
this research. Without this, I would not be able to do as much or as well. The sacrifices
for me to do this research are shared. It’s always worth it. The first day of my
candidature when we found out that we were pregnant will never be forgotten. The joy
and love for our son Jack are reflected in his brightly shining eyes and his promise for
the future.

viii The influence of the buy-now-pay-later payment method on consumer spending behaviour
Chapter 1: Introduction

This chapter outlines the background and context (section 1.1) of this thesis by
introducing the research problem (section 1.2) and justifying the research (section 1.3)
and the methodology employed (section 1.4). Then, definitions (section 1.5) and
limitations of scope (section 1.6) are presented. Finally, this chapter outlines the
structure of the remaining chapters (section 1.7) of this thesis.

1.1 BACKGROUND

Buy-now-pay-later is a new deferred payment mode that allows consumers to

receive the benefits of ownership and consumption prior to full payment by interest-
free instalments. The buy-now-pay-later market has experienced rapid growth since
the 2015 launch of Afterpay in Australia. Over 2 million Australian consumers, more
than 10% of the adult population, used buy-now-pay-later during the 2017-18 financial
year (ASIC, 2018a)1. The buy-now-pay-later market within Australia has grown from
near zero 4 years ago (ASIC, 2018a) to over $6bn in sales in the 12 months to June
2019 (Reserve Bank of Australia, 2019). Australia’s largest buy-now-pay-later
provider, Afterpay, expanded into the U.S. in May 2018 (Yates, 2018) and into the
U.K. in June 2019 with similar growth in each of these markets (Afterpay, 2019).

In practice, buy-now-pay-later has rapidly gained popularity with consumers in

Australia, and the implications have drawn the attention of policymakers. A consumer
survey as part of a recent government report revealed that consumers believed buy-
now-pay-later payments “allowed them to buy more expensive items that they
otherwise could not afford in one payment (81%), spend more than they normally
would (64%), and make more spontaneous purchases (70%)” (ASIC, 2018a, p. 11).
The new buy-now-pay-later payment mode, therefore, is perceived to influence
consumer spending behaviour to buy more expensive products, spend more, and make
purchase decisions faster (ASIC, 2018a). However, we do not know if the self-reported

1
ASIC (Australian Securities and Investments Commission) is the Australian Commonwealth
Government body which acts as Australia’s corporate, financial services and consumer credit
regulator.

Chapter 1: Introduction 1
consumer perceived effects actually do impact spending. Subsequently, this research
aims to investigate empirically if buy-now-pay-later influences spending behaviour.

The payment mode literature reveals that the payment mode impacts how likely
consumers are to buy (Soman, 2001), what products they buy (Bagchi & Block, 2011;
Thomas, Desai, & Seenivasan, 2011), and how much they spend (Feinberg, 1986).
Research has shown that compared to cash, credit cards tend to lead to similar
outcomes (Feinberg, 1986) to those documented for buy-now-pay-later (ASIC,
2018a). Although credit cards also defer payment, this research argues that credit cards
vary substantially in terms of potential financial costs, the flexibility of payment timing
and amounts, the salience of payment, and the way in which price is presented as the
total price as opposed to instalments. However, there is an absence of academic
research on the effects of the new buy-now-pay-later payment mode as well as the
processes underpinning them, and given the identified differences, research on other
similar payment modes may not generalise to buy-now-pay-later. Furthermore,
research has not investigated the impact of instalment payments on consumer
spending. Subsequently, we do not know the underlying mechanisms that predict and
explain how the new buy-now-pay-later payment mode influences consumer spending
behaviour. This research examines the gaps in understanding of the underlying
payment mode mechanisms which explain the influence of the new buy-now-pay-later
payment mode on spending.

1.2 RESEARCH PROBLEM

The purpose of this research is to address the identified research gaps by

answering the following research question:

What are the underlying mechanisms that predict and explain the
influence of the new buy-now-pay-later payment mode on consumer
spending behaviour?

The research problem is addressed by three experiments that investigate the

influence and underlying mechanisms of the new buy-now-pay-later payment mode
on consumer spending behaviour. This research concludes that buy-now-pay-later
combines a deferred payment mode with the presentation of instalment payments to
influence consumer perception of price. Thus, this study provides a theoretical
explanation supported by empirical evidence of the impact of buy-now-pay-later on

2 Chapter 1: Introduction
consumer spending behaviour. This research finds that buy-now-pay-later instalment
payments influence consumer perception of price and in turn consumer spending
behaviour differently from other existing payment modes. This research, therefore,
offers a novel account of how the new buy-now-pay-later payment mode influences
consumer spending decisions.

1.2.1 Theories and hypotheses

This research draws on the numerosity effect (Pelham, Sumarta, & Myaskovsky,
1994) and the pain of payment (Prelec & Loewenstein, 1998) to examine the
theoretical basis of how the new buy-now-pay-later payment mode influences
consumer spending. Buy-now-pay-later is conceptualised in this research as a deferred
payment mode which presents instalment payment pricing. Hence, this research
combines the numerosity effect to explain the effect of instalment prices on spending
behaviour, and the pain of payment to explain the effect of payment modes on
consumer spending behaviour.

Numerosity. How a quantity is presented influences the perception of the

magnitude of that quantity (Burson, Larrick, & Lynch, 2009; Josephs, Giesler, &
Silvera, 1994; Pandelaere, Briers, & Lembregts, 2011; Pelham et al., 1994). The
numerosity heuristic is the tendency to judge quantities by an over-focus on numbers
and diminished attention on the unit (Pelham et al., 1994). The same quantity
expressed in small numbers (i.e., less numerous) is perceived as less than when
expressed in large numbers (i.e., more numerous). For example, 4 kilograms is
perceived as being less than 4,000 grams, even though both quantities are the same. In
the domain of consumer spending, when the same purchase is presented in a less
numerous foreign currency, numerosity increases consumer spending as the lower
face-value of the price makes the purchase appear less expensive (Raghubir &
Srivastava, 2002).

Pain of payment. The pain of payment is the negative affect of parting with
money (Shah, Eisenkraft, Bettman, & Chartrand, 2016). Payment modes influence the
pain of payment, which then influences consumer spending (Bagchi & Block, 2011).
A lower pain of payment increases consumer spending behaviour in terms of purchase
intent and the amount spent (Shah et al., 2016). The pain of payment is also influenced
by factors other than the payment mode, such as the payment timing with consumption

Chapter 1: Introduction 3
(Prelec & Loewenstein, 1998), payment magnitude (Shah et al., 2016), and what the
purchase represents to the consumer (Zellermayer, 1996).

Subsequently, Chapter 2 establishes the following hypotheses:

• Buy-now-pay-later will increase spending behaviour compared to other

payment modes.

• Less numerous buy-now-pay-later instalment prices (compared to more

numerous prices) will lower perceived expensiveness, which in turn will
lower the pain of payment, and ultimately increase spending behaviour.

1.3 CONTRIBUTIONS AND JUSTIFICATION FOR THE RESEARCH

Addressing the research problem provides several contributions. These

contributions are presented in Section 7.2. In summary, first, this research contributes
to the understanding of financial decision-making within the payment mode research
stream by providing empirical evidence of the effect of the new buy-now-pay-later
payment mode. Second, the numerosity effect is extended from the domain of currency
and product attributes within consumer behaviour to the domain of payment modes
and instalment pricing. Specifically, the numerosity effect lowers the perception of
instalment payment prices. Third, this research finds that the pain of payment is
influenced by the subjectively perceived price, and not just the objective magnitude of
the purchase, extending the research on the factors of the pain of payment.

In addition to the theoretical contributions, this research problem has practical

significance for potential applications to retailers, policymakers, product managers and
consumers. Validation of the perceived effects, and an understanding of the underlying
mechanisms that cause these effects, can assist stakeholders to make better-informed
decisions. Retailers gain by knowing whether offering the new buy-now-pay-later
payment mode benefits their business. Policymakers can determine potential issues to
effectively target interventions that ensure that overspending does not result in
financial difficulties for consumers whilst not unduly impacting the benefits to
consumers, retailers and the economy. Product managers of payment service providers
can design payment services that better meet the needs and desires of consumers.
Finally, consumers can understand how they are affected by using the new buy-now-
pay-later in order to make better-informed choices. This research provides the first

4 Chapter 1: Introduction
steps to assist these stakeholders by providing knowledge of the underlying
mechanisms which influence consumer spending when using buy-now-pay-later.

1.4 METHODOLOGY

This research employs an experimental research strategy to test the underlying

mechanisms which affect consumer spending behaviour. An experimental design is
appropriate to test cause and effect relationships between two variables (Perdue &
Summers, 1986). As this research aims to investigate the underlying mechanisms that
influence consumer spending behaviour as a result of the use of the new buy-now-pay-
later payment mode, the experimental methodology is appropriate to achieve this aim.
Furthermore, this research aims to investigate the underlying mechanisms that
influence decision-making, which requires the measurement of intervening variables
and rigorous control of the decision-making environment in order to establish causality
(Falk & Heckman, 2009). Experimental studies can more satisfactorily control
conditions and measure these decision-making variables than other research methods,
allowing causal inferences to be drawn (Falk & Heckman, 2009), which makes the
experimental research method the most appropriate method to address this research
question.

1.5 DEFINITION OF BUY-NOW-PAY-LATER

The phrase "buy now, pay later" has long been synonymous with credit cards
(Feinberg, 1986; Hirschman, 1979), but is also used loosely to refer to deferred
payments (Siemens, 2007), other credit types (The Economist, 2018), and broader
sociological circumstances where benefits proceed costs (Regens & Lauth, 1992). This
research proposes a formal definition of a new type of payment mode not yet specified
in the academic literature. There are 4 components to this definition, which are next
explored and justified.

First, buy-now-pay-later is defined as a payment mode. A payment mode

distinguishes buy-now-pay-later from other mechanisms that may defer payment, such
as a promotional offer or strategy (e.g., “nothing to pay” or deposit only offers) or a
payment term of the seller (e.g., partial payment or favourable payment terms
including billing on account). Second, buy-now-pay-later defers payment in that the
payment is not made in full by the buyer at purchase, yet ownership of the purchase is
transferred at purchase. This distinguishes buy-now-pay-later from lay-by (Australia)

Chapter 1: Introduction 5
or layaway (U.S.) services which require the receipt of payments in full prior to
ownership of the purchase. Third, as a third-party payment mode, buy-now-pay-later
is a service offered by a third-party who then assumes responsibility for payment to
the seller. Last, fixed and unconditionally interest-free payment terms are set at
purchase, such that meeting the payment terms does not result in any interest charges.
Additional or early repayments above the minimum repayment to avoid interest
charges, which characterise interest-free offers of credit facilities, do not define buy-
now-pay-later services which therefore vary substantially in terms of potential
financial costs. Services which charge interest are defined as a credit facility and are
excluded from the definition of buy-now-pay-later, which distinguishes the buy-now-
pay-later service from interest-free periods of credit cards, leasing or other credit
facilities such as personal loans. The payments are fixed in that the number of
payments, timing and value of each repayment are set at purchase, in contrast to credit
cards and overdrafts which offer the flexibility of varying repayment terms. This does
not preclude the capability of consumers to make early or additional repayments with
buy-now-pay-later. Fees may be charged, but services which charge fees that are
proportional to the amount spent, including services which charge fees in lieu of
interest such as Sharia financing, are excluded from this definition. Therefore, in
summary, this research proposes a formal definition of buy-now-pay-later as a third-
party deferred payment mode which allows a consumer to own a purchase upfront and
defer payment partially or in full, with the fixed and unconditionally interest-free
payment terms set at the point of purchase.

1.6 SCOPE AND DELIMITATIONS

The scope is delimited to decision-making that leads to consumer spending

behaviour after the decision to use the buy-now-pay-later payment mode. The
research, therefore, does not consider the choice of payment mode or the impact of
buy-now-pay-later on post-purchase consumer perception. Hence, this research
focuses on the influence of buy-now-pay-later on the decision-making process that
determines spending behaviour, rather than the choice of payment mode or how buy-
now-pay-later influences post-purchase evaluations.

6 Chapter 1: Introduction
1.7 OUTLINE OF THIS THESIS

This thesis consists of seven chapters and is structured as follows. This chapter
outlined the foundations of this report by introducing the research problem and
background, justifying the research and methodology, and presenting a definition of
buy-now-pay-later and delimitations of scope. Chapter 2 reviews the literature and
theoretical background underlying the research and develops hypotheses from the
background literature. Chapter 3 discusses the research methodology and the research
design to test the conceptual framework. Chapter 4, 5, and 6 presents the method and
data analysis of study 1, 2 and 3 respectively. Chapter 7 discusses the practical and
theoretical implications of this research, concluding with limitations and suggestions
for future research.

Chapter 1: Introduction 7
Chapter 2: Theoretical Background

This chapter reviews the literature of the key topics, beginning with the
theoretical background (section 2.1) to the research question. A brief review of
payment mode theories (section 2.2) provides an overview of the theoretical
explanations for the effect of payment modes on spending behaviour, and justifies the
use of the pain of payment (section 2.3) to address the research question by explaining
the effect of payment modes on spending behaviour. Next, the numerosity effect
(section 2.4) explains the influence of instalment payment prices on the pain of
payment. Then, the conceptual framework (section 2.5) is developed and the formal
hypotheses are stated, and finally, a summary (section 2.6) highlights the implications
for the following chapters.

2.1 THEORETICAL BACKGROUND

This section examines the payment mode and the numerical perception literature
in relation to the research question. It specifically focuses on the pain of payment
theory and the numerosity effect to examine the theoretical basis of how the buy-now-
pay-later payment mode may influence the consumer decision-making process. The
pain of payment is situated in the payment mode research stream of marketing,
drawing primarily on concepts from the disciplines of psychology and economics
(Prelec & Loewenstein, 1998). The numerosity effect research in marketing is based
on concepts of perception and judgement from psychology within the anchoring and
adjustment paradigm (Pandelaere et al., 2011). This section examines how both
theories plausibly explain the impact of buy-now-pay-later consistent with the
consumer perceived increased spending behaviour documented by ASIC (2018c).

2.2 OVERVIEW OF EXISTING EXPLANATIONS OF PAYMENT MODE

EFFECTS

The underlying processes of how payment modes influence consumer behaviour

is an ongoing debate (Thomas et al., 2011), with a range of competing explanations
proposed without consensus. Explanations for the underlying mechanism include the

Chapter 2: Theoretical Background 9

pain of payment (Prelec & Loewenstein, 1998), price inattention (Soman, 2001),
inability to recall past expenses (Srivastava & Raghubir, 2002), construal level theory
(Thomas et al., 2011), and conditioned association bias (Feinberg, 1986). These
explanations and their relevance to this research are briefly examined in order.

Pain of Payment. As an affective reasoning process (Thomas et al., 2011), the

pain of payment is the extent to which pain is felt when parting with money (Chatterjee
& Rose, 2012). There is broad empirical support that the pain of payment influences
spending behaviour (Prelec & Loewenstein, 1998; Raghubir & Srivastava, 2008; Shah
et al., 2016; Soman, 2003). The pain of payment has also been used as a theoretical
basis to extend further conceptual relationships, such as priming’s influence on the
salience of costs or benefits (Chatterjee & Rose, 2012), the positive emotions
experienced during and after purchase (Hahn, Hoelzl, & Pollai, 2013), and consumer’s
post-purchase psychological connection to the item purchased (Shah et al., 2016). A
lower pain of payment has been demonstrated to influence consumer decision-making
to increase purchase intent (Soman, 2001), choose more expensive products (Raghubir
& Srivastava, 2008), increase the amount spent (Soman, 2003), and make faster
decisions (Shah et al., 2016). This research adopts the theoretical account that payment
modes affect the pain of payment, and that pain of payment is the underlying
mechanism that influences consumer purchase decisions (Prelec & Loewenstein,
1998).

Price inattention and expense recall. Soman (2001) finds that future spending
is driven by the recall of past expenses, so payment modes that inhibit recall of past
spending promote future spending. Paying with cash makes consumers pay more
attention to prices, and therefore they are better able to recall those expenses, whilst
credit cards minimise the attention to prices during the purchase process and thereby
inhibit the later recall of expenses, subsequently leading to the underestimation of past
expenses and future overspending (Raghubir & Srivastava, 2002). However, further
research demonstrates no difference in the recall of expenses paid by cash and credit
card, and that the pain of payment predicts the amount spent and the number of items
purchased (Thomas et al., 2011). This suggests that recall or price inattention are
unlikely to be the underlying mechanisms that influence consumer purchase decisions,
whilst supporting that pain of payment is the underlying mechanism that influences
spending behaviour.

10 Chapter 2: Theoretical Background

 Construal level theory. It is speculated that transactions by card may be
construed abstractly by consumers, whilst cash might be construed concretely due to
the vivid nature of cash (Thomas et al., 2011). Construing the same item or decision
at different levels of abstraction can influence perception and decision-making, leading
to preference reversals (Trope, Liberman, & Wakslak, 2007). Subsequently, a more
abstract level of thinking could be induced by the temporal separation (Trope &
Liberman, 2003) of credit cards. An abstract construal due to increased temporal
distance reduces the focus on the negative aspect of payment costs and increases the
focus on benefits of spending behaviour (Bornemann & Homburg, 2011) compared to
the concrete thinking of cash. However, this account is problematic and would appear
an incomplete explanation. Credit cards do not demonstrate higher levels of construal
to debit cards in empirical testing, despite the greater temporal separation of credit
cards (Chen, Xu, & Shen, 2017). The studies that have empirically tested an
explanation based on construal level theory have failed to rule out the pain of payment
as an alternative explanation, and studies that have tested both theories have tended to
support the pain of payment explanation over construal level theory (Chen et al., 2017).

Conditioned association bias. Conditioned associations are those that are

formed over time by the way payment modes are used (Chatterjee & Rose, 2012). The
classical conditioning explanation is based on credit card cues that repeatedly occur at
the same time as purchases (Feinberg, 1986). When consumers spend money, credit
card names and logos appear at the point of purchase and become associated with
spending, such that producing these cues in the future will then induce spending.
Alternatively, using the same theoretical conditioning basis, the separation of the cost
of payment with the purchase by credit cards shifts consumer focus to benefits and
away from the costs of payment which are incurred at a later point in time (Chatterjee
& Rose, 2012). A conditioned association explains how the mere presence of a credit
card image in the purchase context (Feinberg, 1986) or the act of producing a credit
card (Prelec & Simester, 2001) increases consumer spending, even when the credit
card is not actually used to make the purchase. However, a conditioned association
does not apply to a new payment mode such as buy-now-pay-later as an association
between buy-now-pay-later and spending or purchase has not been formed.

Chapter 2: Theoretical Background 11

2.3 PAIN OF PAYMENT

The pain of payment is the negative affect of parting with money (Shah et al.,
2016). Payment modes, such as cash, credit card or cheque, influence the pain of
payment which in turn influences consumer decision-making (Bagchi & Block, 2011).
A lower pain of payment increases consumer purchase intent, the amount spent, and
decision speed (Shah et al., 2016), and is associated with positive consumer affect
during decision-making purchase processes (Hahn et al., 2013). The pain of payment
is influenced by two factors of the payment mode, being payment timing (Prelec &
Loewenstein, 1998) and the salience of expense due to payment transparency (Soman,
2003). Next, how these two factors influence the pain of payment are explained.

First, the payment timing with consumption influences the pain of payment
(Siemens, 2007). The pain of payment and the pleasure of consumption are related
through the concept of coupling (Prelec & Loewenstein, 1998), which is the extent to
which consumption is associated with the parting of money (Raghubir & Srivastava,
2008). The less consumers’ feel they are parting with money, the less they experience
the pain of payment. Payment modes influence coupling (Prelec & Loewenstein, 1998)
by creating temporal or mental separation (Thaler, 1999) between the purchase and the
pain of payment from parting with money. Separation of purchase and payment leads
to decoupling and a decreased pain of payment. Hence, compared to cash, deferred
payment modes such as credit cards and cheques reduce coupling by temporal
separation (Prelec & Loewenstein, 1998) to lower the pain of payment associated with
the purchase decision.

Decoupling increases consumer preference for deferred payment modes by

lowering the pain of payment (Prelec & Loewenstein, 1998). Cash is more painful than
credit cards (Thomas et al., 2011) as cash results in an immediate reduction in wealth,
whilst credit cards defer parting with money (Soman, 2001) to decouple the purchase
from consumption. Payment decoupling due to temporal separation (Prelec &
Loewenstein, 1998) implies that debit cards and cash involve the same pain of payment
(Shah et al., 2016) as wealth depletion occurs at the same time. However, debit cards
exhibit lower pain of payment than cash (Thomas et al., 2011) even though the timing
of outflows is identical. This difference in the pain of payment between debit cards
and cash is due to the payment transparency.

12 Chapter 2: Theoretical Background

 Second, the transparency of the payment mode impacts the pain of payment by
altering the salience of payment (Raghubir & Srivastava, 2008). The payment
transparency is the salience of the payment mode relative to cash (Soman, 2003). The
physical appearance of the payment mode impacts the payment salience (Raghubir &
Srivastava, 2008) and therefore the pain of payment (Thomas et al., 2011). Cash is
highly salient due to its physical form; money is visibly seen, felt, counted and then
handed over in the act of departing the consumer’s possession (Soman, 2003), and
hence has the greatest pain of payment (Raghubir & Srivastava, 2008). Generally, the
more transparent the payment mode, the higher the pain of payment (Raghubir &
Srivastava, 2008). Cash is the most transparent and most painful payment mode,
followed by cheque and then credit card (Soman, 2001), which are less transparent and
therefore less painful (Soman, 2003). Credit cards and debit cards are both more
transparent than stored value cards and bank account direct debits (Soman, 2003). Gift
cards, certificates (Raghubir & Srivastava, 2008) and tokens are less transparent than
cash (Shah et al., 2016), and exhibit lower pain of payment (Soman, 2003). The lower
salience of payment with non-cash payment modes reduces the pain of payment
experienced.

Buy-now-pay-later, as a less transparent and more temporally separated payment

mode, is expected to exhibit a lower pain of payment than cash. Cash is the most
transparent payment mode (Soman, 2003), with the payment timing of purchase and
wealth depletion immediate (Soman, 2001). Both credit cards and buy-now-pay-later
decouple payment and are less transparent than cash, with buy-now-pay-later
estimated to decouple payment slightly less than credit cards, offset by a slightly less
transparent payment mechanism.

The specific way in which the timing of payment is altered with buy-now-pay-
later is unlike other payment modes. Cash purchase and payment occur at the same
time. Unlike cash, payment timing with buy-now-pay-later is decoupled with
consumption due to the temporal separation of purchase from a series of instalment
payments. Payment timing of buy-now-pay-later should, therefore, lower the pain of
payment compared to cash. Compared to credit cards, buy-now-pay-later also
separates payment timing from purchase, decoupling purchase from payment. This
temporal separation is predicted to reduce the pain of payment (Soman, 2001) of both
buy-now-pay-later and credit card compared to cash. However, credit cards are

Chapter 2: Theoretical Background 13

predicted to exhibit a lower pain of payment than buy-now-pay-later due to greater
separation. Temporal separation is expected to be greater with credit cards due to both
an open-ended repayment term and the combination of many purchases into monthly
payments, potentially over many periods. As coupling requires the ability to clearly
and unambiguously assign costs and benefits with purchase, when costs are aggregated
by a credit card monthly bill, the coupling is weakened by the ambiguity of which
costs are paying for which benefits (Soman & Gourville, 2001). In contrast, buy-now-
pay-later maintains tighter coupling with a defined payment term and instalment
payments for each individual purchase. It is clear what purchase the instalment
payment is paying for, and therefore, the coupling should be tighter for buy-now-pay-
later than credit cards. Given the influence of coupling on the pain of payment (Prelec
& Loewenstein, 1998), the payment timing of buy-now-pay-later should, therefore,
increase the pain of payment compared to credit cards.

Buy-now-pay-later is expected to be less transparent than cash. The physical

form of buy-now-pay-later does not resemble cash, and the purchase process of buy-
now-pay-later does not involve rehearsal by counting or handling physical notes or
coins. The salience of payment with buy-now-pay-later should, therefore, lower the
pain of payment compared to cash. Compared to credit cards, buy-now-pay-later is
expected to be less transparent. Paying by credit card is a well-rehearsed payment
process of producing a card, and therefore should be a familiar association with
payment. In contrast, buy-now-pay-later purchases are facilitated by an online app,
even for physical in-store sales, and so does not have the same familiar physical
rehearsal process involving a card. In addition, the absence of physical form reduces
payment transparency (Soman, 2003). Therefore, payment transparency for buy-now-
pay-later is expected to be lower than that for credit cards. As the payment
transparency influences the pain of payment (Raghubir & Srivastava, 2008), the lower
payment transparency of buy-now-pay-later should, therefore, decrease the pain of
payment compared to credit cards. Hence, the net effect of payment timing and
transparency of buy-now-pay-later on the pain of payment relative to credit cards is
unclear.

The payment magnitude also influences the pain of payment (Prelec &
Loewenstein, 1998), independent of the two payment mode factors. A lower payment
magnitude will subsequently lower the pain of payment (Shah et al., 2016). Buy-now-

14 Chapter 2: Theoretical Background

pay-later presents purchase prices as instalment payments of a lower magnitude.
Consumers may focus on the lower instalment payment as the payment magnitude
instead of the purchase price. This is a research gap that has not been explored. The
next section looks at how the instalment payment magnitude influences the perceived
expensiveness of the purchase price.

2.4 NUMEROSITY EFFECT

The stream of numerosity research has documented that the numbers and units
used to represent a quantity influence the perception of the magnitude of that quantity
(Burson et al., 2009; Josephs et al., 1994; Pandelaere et al., 2011; Pelham et al., 1994).
Numerosity refers to the magnitude of numbers (Lembregts & Van Den Bergh, 2018).
The numerosity effect is the tendency to infer quantity more from the numeric
information than from the unit information (Pandelaere et al., 2011). In essence,
individuals generally perceive that larger numbers indicate more quantity (Pelham et
al., 1994). Price is a quantity of money which can be expressed in different
presentations to induce a numerosity effect. For example, $1,200,000 may appear to
be more than $1.2 million due to a focus on numbers and a tendency to ignore the unit.
The numerosity effect impacts the perception of quantity (Lembregts & Van Den
Bergh, 2018) which influences consumer choices (Pandelaere et al., 2011) and
preferences (Burson et al., 2009).

Expressing a quantity using different units can change the perception of that
quantity (Monga & Bagchi, 2011). Expanding the unit in which a quantity is presented
increases the perceived magnitude of quantity due to the numerosity effect (Burson et
al., 2009). For example, expanding a price of $1.20 from a unit of dollars to cents
increases the number from 1.2 to 120. As consumers focus on the larger number and
mostly ignore the unit (Pandelaere et al., 2011), consumers will perceive 120 cents as
more than 1.2 dollars. Buy-now-pay-later presents the price of purchase as four
instalments2 (e.g., a $100 purchase is presented as four instalments of $25). Thus, the
perceived payment magnitude changes from the full upfront purchase price (an
expanded unit; $100 in the above example) to a lower instalment payment price (a

2
Four instalment payments due every two weeks are the most common buy-now-pay-later terms.
Afterpay, the largest buy-now-pay-later service in Australia (Roy Morgan, 2019), makes all purchases
under these terms. For simplicity, four instalments are used throughout this research, unless stated
otherwise (e.g., study 3).

Chapter 2: Theoretical Background 15

contracted unit; $25 in the above example). An expanded unit is more numerous and
exaggerates the perceived differences between alternatives due to implied
discriminability (Burson et al., 2009).

Consumers infer a greater difference in an expanded unit due to an increase in

the ease of discrimination (Burson et al., 2009). Greater evaluability due to ease of
discrimination increases sensitivity to benefits and costs (Lembregts & Van Den
Bergh, 2018). The greater number of increments of an expanded unit increases the
perceived range of variation, cueing an inference that the attribute is more precise or
more accurate than attributes of contracted units (Pandelaere et al., 2011). Enhancing
discrimination of benefits between alternatives increases product valuation (Burson et
al., 2009) and consumer preference for higher quality (Pandelaere et al., 2011) and
premium products (Wertenbroch, Soman, & Chattopadhyay, 2007), consistent with
spending more. The opposite is true for costs, such as price. Contracting the price unit
has the opposite effect in the decision-making process. A contracted unit of price
causes diminished evaluability, which lowers price discrimination leading to the
perception of less price difference between products and ultimately the tendency to
choose more expensive products and increase spending behaviour (Burson et al.,
2009). Thus, the less numerous instalment payment price, as a contracted unit of price,
is predicted to lower the discrimination of price and lower the ease of evaluability of
price, leading to less perceived price difference.

Numerosity also impacts purchase decision-making based on the salience of

either prices or budgets in the domain of currency (Wertenbroch et al., 2007). The
salient reference value in the purchase decision-making process determines whether
the numerosity effects results in the perception of more or less expensive prices. In the
absence of research which investigates the effect of the numerosity of instalment
prices, this research draws on the numerosity of currency as a similar phenomenon
which presents prices in different units. There are two conflicting spending predictions
proposed by numerosity applied to currency units. First, the face-value effect posits
that less numerous units lead to increased purchase intent and amount spent due to the
perceived lower face-value of purchase prices (Raghubir & Srivastava, 2002). For
example, where 110 Japanese Yen (JPY) = 1 U.S. Dollar (USD), the same purchase
for 1,000 JPY in the less numerous USD currency of $9.09 appears a much smaller
purchase due to the lower face-value, which increases spending. Second, the opposing

16 Chapter 2: Theoretical Background

reverse face-value effect prediction is that a less numerous unit leads to less spending
due to perceived lower available budget (Wertenbroch et al., 2007) to which the
numerosity effect applies. For example, where a budget of 10,000 JPY (equivalent to
USD 90.91) is introduced to the decision, the same purchase for 1,000 JPY against the
budget of 10,000 leaves 9,000 in spending money, a seemingly large amount of budget
remaining. In USD, the $9.09 purchase leaves $81.82 in spending money, which
appears to be a relatively smaller amount of remaining budget, which in turn decreases
spending. However, this latter case only applies when budgets are salient. For buy-
now-pay-later, the instalment payment price is expected to be salient, implying that
the face-value effect will apply. Both the face-value and reverse face-value predictions
explain the effects of numerosity through the process of anchoring and adjustment
(Tversky & Kahneman, 1974) using contrasting salient reference values of either
prices or budgets. Consumers may anchor to the instalment payment as the salient
reference value and not adequately translate or adjust to the full purchase price.
Decision-makers may either fail to consider that translation is possible, lack the
motivation to translate, or fail to correctly translate the unit due to the difficulty of
calculation, estimation, or anchoring (Pandelaere et al., 2011). Numerosity acts as a
default, subconscious and spontaneous heuristic judgment, which is a relatively fast
and effortless form of information processing assessed more quickly and easily than
counting or calculation (Pelham et al., 1994). Thus, a salient less numerous price may
lead to underestimation of costs (Pandelaere et al., 2011). Therefore, a salient buy-
now-pay-later instalment price is predicted to result in the perception of a smaller price
magnitude.

Finally, the perception of price magnitude may influence the consumer decision-
making process. Price is a quantity of money which can be presented in different forms
to change the perception of that price by the numerosity effect. Price perception can
influence spending behaviour. The money illusion (Shafir, Diamond, & Tversky,
1997), the biased tendency to think in nominal terms rather than real terms, and the
Pennies-A-Day (PAD) effect (Gourville, 1998), the reframing of an annual cost into
the equivalent daily costs to lower the perceived cost against smaller daily costs, both
demonstrate that reframing of price can reduce the perception of price and hence
influence decision-making and spending behaviour. However, the pain of payment
literature has not appeared to consider the perception of price, but rather has only

Chapter 2: Theoretical Background 17

measured the objective magnitude of price. Specifically, manipulating the payment
magnitude from $10 to $20 for the same purchase was found to influence the pain of
payment (Shah et al., 2016), and in regression across a wide range of purchases, the
dollar amount was similarly found to influence the pain of payment (Zellermayer,
1996). Prelec and Loewenstein (1998) theorise about imputed costs in terms of dollars
spent and the influence on utility as a basis for preferences, but do not measure
perceived cost, only the imputed cost based on temporal discounting, nor the pain of
payment. Therefore, whether subjective price perception can influence the pain of
payment is a research gap which has not been explored. Subsequently, this research
reasons that if numerosity changes the perception of magnitude, and the payment
magnitude of purchase influences the pain of payment, then the perception of price
magnitude may also lower the pain of payment.

2.5 CONCEPTUAL FRAMEWORK AND HYPOTHESES DEVELOPMENT

The conceptual framework of how buy-now-pay-later impacts the purchase

decision-making process is based on theories of the pain of payment and the
numerosity effect. Buy-now-pay-later is conceptualised as the combination of a
payment mode for which hypotheses are developed from the pain of payment
literature, and an instalment payment pricing unit for which hypotheses are developed
from the numerosity heuristic literature. This research claims that in combination,
these theories explain and predict the effect of buy-now-pay-later on consumer
spending behaviour.

The influence of buy-now-pay-later on price perception through instalment

prices is the main difference conceptualised between buy-now-pay-later and other
payment modes. This research claims that buy-now-pay-later presents purchases in
instalment payment prices, which induces a lower perception of price due to the
numerosity effect. Other payment modes do not present purchases as instalments, and
hence do not influence spending behaviour in this way. This research concentrates on
examining this proposed conceptual difference, whilst acknowledging the known
effects of payment modes on consumer spending behaviour (i.e., payment timing and
transparency). Hence, notwithstanding the expected differences in payment timing and
payment transparency, this research primarily tests the claim that buy-now-pay-later
instalment payment prices influence spending behaviour by inducing lower perceived
expensiveness.

18 Chapter 2: Theoretical Background

 This research proposes that the buy-now-pay-later payment mode influences
consumer spending behaviour through a 3-step process. First, due to the numerosity
effect, the less numerous buy-now-pay-later instalment price lowers perceived
expensiveness compared to the more numerous total price. Second, the lower
perceived expensiveness of the instalment payment lowers the pain of payment.
Finally, the lower pain of payment influences consumer decision-making to increase
spending behaviour. Thus, the two theories of the numerosity effect and the pain of
payment explain and predict how buy-now-pay-later influences consumers to increase
spending behaviour.

Step 1 – Numerosity of instalment prices lower perceived expensiveness. Buy-

now-pay-later presents the price of purchase as a less numerous instalment payment.
Findings from the literature on the numerosity effect (Pelham, Sumarta, &
Myaskovsky, 1994; Van Den Bergh & Lembregts, 2018; Wertenbroch, Soman, &
Chattopadhyay, 2007) posit that individuals are more sensitive to numbers than units
when assessing quantity (i.e., $1,000,000 appears more than $1m, even though they
are the same quantity of money). Applied to buy-now-pay-later, this research claims
that the numerosity effect implies that the same quantity of money presented as a
number of instalment payment prices will appear to be less than the total price. Hence,
instalment payments will make the same purchase appear less expensive (i.e., 4
payments of $25 will appear to be less expensive than the total price of $100). As a
result of the numerosity effect, individuals perceive the same purchase in instalment
payment prices as less expensive than the total price. Therefore, it is predicted that the
instalment prices of buy-now-pay-later, as less numerous units of price, will be
perceived as less expensive than the total price of other payment modes.

Step 2 – Lower perceived expensiveness lowers the pain of payment. Next, the
lower perceived expensiveness of buy-now-pay-later instalment payments is predicted
to make payment less painful (i.e., lower the pain of payment). A lower payment
magnitude decreases the pain of payment (Shah et al., 2016), hence, it is reasoned that
the lower perceived payment magnitude of instalment payments lowers the pain of
payment. Therefore, lower perceived expensiveness due to the reduced payment
magnitude of instalment payments is predicted to lower the pain of payment.

Chapter 2: Theoretical Background 19

 Step 3 - The lower pain of payment increases spending behaviour. Finally, the
lower pain of payment influences spending behaviour. The pain of payment mediates
the effect of payment modes on consumer spending behaviour (Thomas et al., 2011).
A lower pain of payment has been found to increase spending behaviour, specifically
the purchase intent (Soman, 2001) and the amount spent (Soman, 2003). Therefore,
the lower pain of payment of buy-now-pay-later is predicted to increase spending
behaviour.

Therefore, this research claims less numerous instalment prices will lower
perceived expensiveness compared to more numerous prices, which will then decrease
the pain of payment, and ultimately lead to increased spending behaviour. The effect
of buy-now-pay-later (vs. other payment modes) on spending behaviour is predicted
to be mediated in serial by perceived expensiveness, and in turn, the pain of payment.
The conceptual model of the hypothesised process is depicted in Figure 1. More
formally, this research predicts,

H1: Buy-now-pay-later will increase spending behaviour compared to other

payment modes.

H2: Less numerous buy-now-pay-later instalment prices (compared to more

numerous prices) will lower perceived expensiveness, which in turn will lower the
pain of payment, and ultimately increase spending behaviour.

Figure 1 - Conceptual Model for the Research

2.6 SUMMARY

The theoretical background of the research question was outlined in this chapter.
The research question in Chapter 1 was developed to hypotheses grounded in the
theory. Next, Chapter 3 presents the research design undertaken through three
experiments to test the hypothesised explanation for why buy-now-pay-later increases
spending behaviour.

20 Chapter 2: Theoretical Background

Chapter 3: Research Design

This chapter describes the design adopted by this research to address the research
question stated in section 1.2 of Chapter 1. Section 3.1 justifies both the methodology
used in the study and the research design. A high-level overview of the participants,
procedures and measures (section 3.2) used in the research are outlined which are then
detailed in Chapters 4 to 6 for each of the three respective experiments. Next, how the
data was analysed (section 3.3) and the ethical considerations (section 3.4) of the
research are discussed, and finally, an overview of the purpose of each experiment
(section 3.5) in this research is provided.

3.1 METHODOLOGY AND RESEARCH DESIGN

3.1.1 Methodology
The research aims to address the research question “What are the underlying
mechanisms that predict and explain the influence of the new buy-now-pay-later
payment mode on consumer spending behaviour?”. This research question seeks to
establish a cause-effect relationship between buy-now-pay-later and spending
behaviour. Moreover, the research question seeks to provide an explanation for the
relationship between the payment mode and spending behaviour variables. Therefore,
an appropriate research methodology to answer this research question needs to
establish a relationship between these two variables and provide an explanation (i.e.,
cause) for the relationship.

A descriptive research approach is unable to determine the causal relationship

between variables. Correlational research approaches involving transactional level
data or archival economic data are not suited to answering the research question as
they cannot establish the causal relationship between the decision-making process
variables. Field experiments provide high external validity, however, would not allow
for intervening decision-making variables to be measured, and also provide limited
ability to control extraneous variables to isolate the causal variables (Falk & Heckman,
2009) in this research. Similarly, quasi-experimental and non-experimental
approaches have high external validity but are unable to determine causality as they
cannot exclude confounding variables, and hence are unable to explain the relationship

Chapter 3: Research Design 21

between variables (Gravetter & Forzano, 2012). Subsequently, other research
methodologies are unable to adequately address the research question by establishing
and explaining the causal relationship between the variables of spending behaviour
and payment modes.

This research employs an experimental research methodology to address the

research question. The experimental research methodology is able to provide an
explanation for the relationship between variables (Gravetter & Forzano, 2012). The
non-experimental methodologies are unable to explain the causal relationship between
variables (Gravetter & Forzano, 2012), and therefore are not well suited to answering
the research question. Therefore, the use of an experimental research methodology is
justified in order to establish a causal relationship between buy-now-pay-later and
spending behaviour, as well as an explanation for the relationship between these
variables.

3.1.2 Research Design

In order to address the research question, this research tested the hypotheses
developed in section 2.5 in a series of experiments using statistical inferences.
Accordingly, this research required the manipulation of payment modes as the
independent-variable within the confines of controlled experiments with measurement
of the resultant spending behaviours the dependent-variable, as well as decision-
making process variables (in study 2 and study 3). Each of these requirements is
subsequently discussed.

The payment mode was manipulated between-subjects, with half of the subjects
randomly assigned to a comparison payment mode to compare spending behaviour to
those assigned to the buy-now-pay-later payment mode. Manipulation of the
independent variable for a between-groups comparison establishes a true experimental
condition (Campbell & Stanley, 1963). Participants were randomly assigned between
conditions to allow the experiments to rule out individual differences as an alternative
explanation (Khan, 2011). Those in the buy-now-pay-later condition were provided
with a description of the buy-now-pay-later payment mode, as a pre-test indicated a
lack of familiarity with buy-now-pay-later by the sample population. For additional
validity as a study package, the payment mode comparison is operationalised
differently for each of the three studies. Study 1 compared buy-now-pay-later to a

22 Chapter 3: Research Design

credit card, study 2 compared buy-now-pay-later to cash, and study 3 compared buy-
now-pay-later with 4 payments to buy-now-pay-later with 8 payments.

A consistent procedure ensured that extraneous variables were controlled.

Hence, each experiment provided participants with a vignette of a hypothetical
spending scenario. Participants were provided experimental scenarios to respond to in
a controlled setting in order to rule out alternative explanatory effects, which is a
commonly used approach in consumer behaviour payment mode research (Shah et al.,
2016). Inadvertent confounding of manipulations is minimised by maintaining ‘ceteris
paribus’ constant conditions across groups (Perdue & Summers, 1986) in each
experiment. The experimental study allows tight controls but may limit external
validity by creating conditions which do not reflect reality (Falk & Heckman, 2009).
This limitation is accepted in order to establish a cause-effect relationship as required
to address the research question. This limitation is discussed further in section 7.4.

All variables were consumer perceived measures, collected directly from

participants by survey following the presentation of the spending scenario. The
spending decisions were collected from the participant, followed by decision-making
process variables in study 2 and study 3. The dependent variables are measured first
as recommended by Wetzel (1977), to ensure that demand characteristics are not
introduced by subsequent measures, and that if the impact of the independent-variable
is only temporary, the effect does not diminish prior to measurement (Perdue &
Summers, 1986). The research operationalises the spending behaviour dependent-
variable in multiple ways. Specifically, in study 1 as the amount spent, in study 2 as
purchase intent and in study 3 as the choice of a more expensive item.
Operationalisation of the dependent variable in multiple ways supports the broad
applicability of the findings of this research (Shah et al., 2016). In addition, the key
process measures (i.e., underlying mechanisms) of the pain of payment and the effect
of numerosity (perceived expensiveness) are also operationalised in different ways
between study 2 and study 3.

3.2 PARTICIPANTS, PROCEDURES AND MEASURES

Participants aged 18 years and above residing in the United States were recruited
online. The online context provides a controlled setting which is a commonly used
approach in consumer behaviour payment mode research (Shah et al., 2016). Consent

Chapter 3: Research Design 23

was obtained prior to commencing participation in the study. Participants completed
the experiment online in Qualtrics and were provided with a small financial incentive
for participating. Participants were provided with a general description of a purchase
decision-making scenario, the assigned payment mode, and the item(s) for purchase.
Participants then responded to a series of questions which collected participants’
spending decisions as outcome variables, process measures directly after making a
spending decision, and variables for alternative explanations. The measures were
operationalised to be appropriate to the specific decision-making process of the
scenario. Finally, demographic information was collected to describe the sample.
Details of the participant sample, the specific procedures and justified measures for
each of study 1, 2, and 3 are provided in the respective chapters 4, 5 and 6.

3.3 ANALYSES

The research data was collected from participants recruited from the online
panels of Prolific and Amazon Mechanical Turk. Data collected in Qualtrics was
exported to SPSS for analysis. Data was statistically analysed using SPSS version
25.0.0.1. Results were analysed by study. Each study was analysed in stages. First, an
investigation of whether the dependent outcome variable and, where applicable in
studies 2 and 3, the process variables, provided evidence of the predicted effects of the
experimental manipulation was conducted. Then, in studies 2 and 3, whether the
processes of the pain of payment and numerosity mediated the experimental
manipulation on spending behaviour was tested. Last, in studies 1 and 2, the effect of
an alternative explanation was investigated.

Study 1 and study 2 measured the spending behaviour dependent variables as

scale variables. Process variables for study 2 as well as the alternative explanatory
variables in studies 1 and 2 were also measured using 7-point scale variables. Study 3
used a bipolar scale to reflect the relative choice presented. As different participants
were assigned to each condition the mean of each group from independent
observations was compared between conditions using a two-tailed independent
samples t-test (Sawilowsky & Blair, 1992). Levene’s Test for Homogeneity was
conducted for each scale variable, with the degrees of freedom adjusted for subsequent
t-test where Levene’s test was significant at a 95% confidence level (Levene, 1960).
Levene’s test was only reported in chapters 4 to 6 where it was significant. Study 3
measured a categorical binary dependent-variable as the choice of either a more

24 Chapter 3: Research Design

expensive or less expensive item, with the payment mode independent-variable
varying between conditions. Therefore, a binary logistic regression analysis of the
choice was performed using a direct modelling approach, with the categorical choice
as the independent-variable and the predictors specified as main effects (Peng & So,
2002) according to the theory-based propositions of this research. Specifically, the
payment mode, the pain of payment, and the perceived expensiveness were specified
as predictors. Significance of the model’s parameter estimate for the categorical
independent-variable regression coefficient was evaluated using the Wald test Chi-
square test statistic (Peng & So, 2002).

The mediating variables for the numerosity effect and the pain of payment are
hypothesised to explain the difference between spending behaviour due to the buy-
now-pay-later payment mode. Therefore, this research used serial mediation analysis
to test for the indirect effects of spending behaviour through the mediating variables
of numerosity (as measured by perceived expensiveness in this research) and the pain
of payment. To test for mediation, this research followed the recommended approach
of Preacher, Rucker, and Hayes (2007) using Hayes (2018) PROCESS script version
3.4 to run a bias-corrected bootstrapping analysis of the serial mediation model. The
bootstrap approach was adopted as it does not require unnecessary assumptions about
the distribution of the sample data (Hayes, 2018) with generally more powerful tests
for multiple mediation models than the normal theory approach, especially for smaller
sample sizes (Williams & MacKinnon, 2008). Specifically, PROCESS Model 6 was
used to test serial mediation (Hayes, 2018) as it matches the proposed analytical model
(see Figure 2), with X as the payment mode independent-variable M1 as perceived
expensiveness to operationalise numerosity, M2 as the pain of payment, and Y as the
spending behaviour dependent-variable. Significance was assessed as a confidence
interval that does not include the value of zero (Hayes, 2018).

Chapter 3: Research Design 25

 Figure 2 - Analytical Model

3.4 ETHICS

Ethical considerations were incorporated into the design and procedures of this
research. Ethical approval was provided by Macquarie University Human Research
Ethics Committee (HREC) Business and Economics Subcommittee, a copy of the
approval is contained in Appendix A. How the key issues of informed consent,
withdrawal, risks of participation and privacy were considered to protect participants
as part of the design of this research are each discussed in turn.

Informed consent was obtained from all participants prior to participation in the
study. A copy of the Participation Information Consent Form (PICF) is contained in
Appendix B. To enable informed consent, the PICF outlines the purpose of the
research, the voluntary nature of participating in the research, the participant’s right to
withdraw from the study at any time without consequence, risks of potential harm,
how privacy is protected, and provided contact details to withdraw, ask questions, or
lodge a complaint about any concerns of the research, and the approval of the research
by the Macquarie University HREC.

Participants were able to withdraw from the study during data collection by not
completing the survey. Participants were also able to withdraw without penalty from
the research project post-data collection by emailing the investigators. The
participant's data are excluded from the study in these circumstances without any
consequence to them. No participants have contacted the researcher to withdraw
consent as at the submission of this thesis.

The risks of participation were minimised where possible. The experiment

consisted of reading a hypothetical scenario and then answering a series of questions.
Participation was voluntary and did not involve any discomfort or invasive procedures.

26 Chapter 3: Research Design

In addition, multiple mechanisms for withdrawal without consequence were provided
throughout the process to minimise the risks of participation or any potential risks of
participation.

The data collection did not require information related to the identity of the
participants. Subsequently, participation was anonymous, with no personal details or
identifying information collected as part of the research. The online panel which
recruited the participant maintains contact details, makes payment to participants and
anonymises survey respondents. These mechanisms minimise potential risk to
participant privacy.

3.5 OVERVIEW OF THE OBJECTIVES OF EACH EXPERIMENT

This research comprises three studies to test how buy-now-pay-later influences

consumer spending behaviour. The objective of the first study is to test the main effect
of buy-now-pay-later compared to credit cards on increasing the total amount spent.
The objective of the second study is to test the effects of buy-now-pay-later compared
to cash on increasing purchase intent. The second study also examines the predicted
explanation for the causal relationship between spending behaviour and buy-now-pay-
later by testing the serial mediation effect of less numerous buy-now-pay-later
instalment prices on spending behaviour by perceived expensiveness, and in turn, by
the pain of payment, resulting in increased spending behaviour. The objective of the
third study is to test the effect of buy-now-pay-later on the choice of more expensive
products. The third study also assesses the role of buy-now-pay-later instalment prices
to induce lower perceived expensiveness, which lowers the pain of payment and
ultimately increases spending behaviour. This third study tests whether the pain of
payment is influenced only by the perceived expensiveness of instalments and not due
to underlying differences between payment modes. As such, the three studies test how
buy-now-pay-later increases consumers’ spending behaviour in terms of the amount
spent, purchase intent and choice of more expensive products compared to other
payment modes. Furthermore, these studies provide evidence supporting the
underlying mechanisms of the numerosity of instalment payment prices and the pain
of payment in influencing the relationship between buy-now-pay-later and spending
behaviour. With the research design justified in this chapter, this research moves onto
study 1.

Chapter 3: Research Design 27

Chapter 4: Study 1

This chapter describes the purpose, methods and results of study 1 to achieve the
objectives stated in section 3.5. The chapter provides an overview of the purpose and
hypotheses tested by the study (section 4.1), describes the participants, procedure,
experimental manipulation and key measures (section 4.2), and then discusses the
findings from the data analyses (section 4.3). The conclusion of the results of the study
are discussed (section 4.4), and finally, the potential limitations (section 4.5) and how
the main limitations will be addressed in study 2.

4.1 PURPOSE

Study 1 investigates the impact of buy-now-pay-later on spending behaviour

compared to credit cards. Specifically, the main objective of study 1 is to test the main
effect of buy-now-pay-later on increasing spending (H1). In addition to testing an
increase in the amount spent, study 1 explores whether the source of increased
spending is due to an increase in the number of items purchased, or the purchase of
more expensive items (as measured by an increase in the average amount per item)
compared to credit cards. As buy-now-pay-later presents purchases in instalment
prices, which are predicted to lower the perceived expensiveness of the purchase, this
study predicts that consumers increase their spending amount when using buy-now-
pay-later compared to when using credit cards. To test the hypothesised effect, the
payment mode (buy-now-pay-later vs. credit card) is manipulated between-subjects in
the context of a purchase decision for food catering for an upcoming party.

4.2 METHOD

4.2.1 Participants
Sixty United States based participants (33 females, Mage = 39.2; SD = 12.8),
recruited from the online panel Amazon Mechanic Turk, took part in the study.

4.2.2 Procedure and design

Participants were provided with a food purchase scenario describing ordering
food for a birthday party. The scenario included a reason for the party (birthday), a
selection of items for purchase (food menu items), prices (per item), a reason for

Chapter 4: Study 1 29
making a purchase today (the venue is free), and a guide of how many items to
purchase (3-4 for a snack and 6-7 for a feast). Participants were then randomly assigned
to one of the two payment mode conditions (buy-now-pay-later vs. credit card),
presented with a menu of food, and then asked to select the menu items they wanted
to order for their guests, and finally asked basic demographic information. The detailed
scenario was as follows,

You are organizing a birthday party with food and drinks for 12 friends this
Saturday night. You want to celebrate and have a good time with your friends.
You have booked a space at a nice local bar. The venue is free if food is pre-
ordered and drinks are purchased on the night. You will pay for the food and
your friends will pay for their drinks. You are going to be at the bar for at least
a few hours during dinner time, so you want to make sure your friends have
enough to eat. There is no on-site catering, so all food must be pre-ordered.
Looking at the menu it says, These small plate size eats are beautifully
presented and perfect for a casual happy hour or a nice formal event! You can
order as many or as few items as you like, but we find 3-4 provides a snack,
and 6-7 is a feast.

4.2.3 Experimental manipulation

The payment mode was manipulated between-subjects as either buy-now-pay-
later or credit card, with participants randomly assigned to either condition.
Participants in the credit card condition read that “You notice that they accept credit
card. As you confirm some details about the party, the caterer explains their service to
you. After understanding their service, you decide to place your order and pay by credit
card on the day.” In the buy-now-pay-later condition, participants were provided with
a brief description of buy-now-pay-later as the payment mode and terminology is not
in common usage in the United States. The similar explanation to the credit card
condition with the brief payment mode explanation was as follows,

You notice that they have a new third-party payment service called 'buy-now-
pay-later'. As you confirm some details about the party, the caterer
explains: With 'buy-now-pay-later' you pay for your purchase with 4 equal
payments. The first payment is due at purchase, then every 2 weeks. Payments
are automatically deducted from your bank account. For example, when you
spend $100, you pay $25 today, and $25 every 2 weeks for 3 more payments.
There is no interest, ever, and no fees when payments are made on time. If you

30 Chapter 4: Study 1
 do not have money in your bank account when a payment is due there is a
once-off $10 late fee. You receive your food before paying for all of the
purchase. After understanding their service, you decide to place your order
and pay by this new 'buy-now-pay-later' payment service on the day.

To reinforce the manipulation of the buy-now-pay-later payment mode, the

prices for each item in the menu were presented in both the total price as well as the
instalment price. Participants in the credit card condition were presented only with the
total price. Figure 3 shows the menu presented in the buy-now-pay-later condition.
The full study is presented in Appendix C and Appendix D for the buy-now-pay-later
and credit card condition respectively. The credit card menu presented the same items
and total prices, but without the instalment payment to the right of each menu item
(e.g., excluding “or 4 payments of $14.50” for the first menu item, and so on for each
menu item).

Chapter 4: Study 1 31
 Figure 3 - Menu for the Buy-now-pay-later Condition

4.2.4 Measures
Increased spending behaviour was measured by the sum of the prices of the items
chosen. A change in the amount spent could be driven by either buying more items or
purchasing more expensive items (i.e., spending more per item). Thus, the study
further explores the measure of the amount spent by analysing two additional measures
of spending behaviour. Thus, three measures of spending behaviour were analysed.
Firstly, whether participants spent more money (as measured by the amount spent),

32 Chapter 4: Study 1
and then, whether the increased spending was driven by either purchasing more items
or purchasing more expensive items, or both.

Amount spent. Amount spent was calculated as the sum of the item prices
ordered by each participant. Participants were asked to “Click on each menu item you
want to pre-order for your guests” to select as many or as few of the 10 items they
wished to order.

Number of items purchased. The number of items was measured by the number
of items purchased. The number of items purchased for each participant was calculated
as the count of the number of items ordered from the menu.

Purchase of more expensive items. Buying more expensive items was measured
by the average price per item. The average price per item was calculated for each
participant as the amount spent divided by the number of items purchased.

4.2.5 Alternative explanation

This study tests for the alternative explanation of price novelty for the results
hypothesised other than the pain of payment and the numerosity effect. When buy-
now-pay-later purchases are presented in instalment payment prices, the instalment
payment may be perceived as a novel form of price. A novel price engages a deeper
level of information processing of the price presented, which influences price
perception and increases spending behaviour (Kim & Kramer, 2006). Instalment
payments may increase the information processing of the price and result in increased
spending. Hence, the novelty of price may explain the main effect predicted.
Therefore, the novelty of price was measured to rule out this alternative explanation.
Participants were asked, “How novel is the way the price was shown?” on a 7-point
scale where 1 = “Not novel” and 7 = “Novel” (Kim & Kramer, 2006). Thus, the novelty
of price was measured as a potential alternative explanation of the predicted increase
in spending behaviour.

4.3 RESULTS

Results were analysed in two stages. First, an investigation of whether the

dependent outcome variables provided evidence of the predicted effects of the
experimental manipulation was conducted. Second, the effect of an alternative
explanation was investigated.

Chapter 4: Study 1 33
4.3.1 Main effects
Amount spent. The buy-now-pay-later payment mode significantly influenced
the amount spent. As hypothesised, participants assigned to the buy-now-pay-later
payment mode spent more than those assigned to the credit card condition (MBNPL =
$188.58, SD = 64.37 vs. MCreditCard = $157.79, SD = 53.92; t(58) = 2.00, p = .050,
Cohen’s d = 4.00). This supports H1, that buy-now-pay-later (vs. credit card) increases
amount spent.

Number of items purchased. The buy-now-pay-later payment mode resulted in

a significant increase in the number of items purchased compared to the credit card
condition. As hypothesised, participants assigned to the buy-now-pay-later payment
mode purchased more items on average than those assigned to the credit card condition
(MBNPL = 4.65, SD = 1.62 vs. MCreditCard = 3.83, SD = 1.39; t(58) = 2.09, p = .041,
Cohen’s d = 0.67).

Purchase of more expensive items. Purchase of more expensive items did not
vary as a function of payment modes (MBNPL = $39.49, SD = 8.03 vs. MCreditCard =
$40.26, SD = 8.64; t(58) = -0.36, p = .72, Cohen’s d = -0.27). This indicates that the
increase in spending with buy-now-pay-later (vs. credit card) was not due to the
purchase of more expensive products, but rather due to an increase in the number of
items purchased.

4.3.2 Alternative Explanation

Next, the alternative explanation of price novelty was examined for differences
between the buy-now-pay-later and credit card payment modes. There was no
significant difference between the buy-now-pay-later and credit card conditions for the
novelty of price, as confirmed by an independent samples t-test (MBNPL= 4.52, SD =
1.48 vs. MCreditCard = 3.86, SD = 1.92; t(58) = 0.93, p = .14, Cohen’s d = 0.51).
Therefore, the study does not find that the amount spent between conditions is due to
the novelty of price presented to participants.

4.4 DISCUSSION

Study 1 finds that the use of buy-now-pay-later increased spending behaviour,

specifically the amount spent and the number of items purchased compared to credit
cards. This study finds that when using buy-now-pay-later as the payment mode,
participants indicated they would purchase more items and increase the amount they

34 Chapter 4: Study 1
spend compared to when paying with credit cards. Therefore, study 1 supports the
hypothesised effects of buy-now-pay-later on spending behaviour versus credit cards,
in the context of purchasing multiple food items from a menu.

The study did not find that buy-now-pay-later led to the purchase of more
expensive items. This may be due to factors specific to the research design. The study
employed a multi-choice design (vs. pairwise choice of a single option) to make the
quantity decisions more salient. Thus, participants focus more on increasing the
number of items chosen, rather than shifting their choices to more expensive items.
Hence, participants spent more by selecting more items, rather than choosing more
expensive items in this study.

4.5 LIMITATIONS

Although the results of study 1 support the hypothesised effect of buy-now-pay-

later on spending behaviour, potential limitations of study 1 are acknowledged. As a
study in isolation, the results of study 1 are limited to a single context and a comparison
to a single payment mode. Furthermore, the study does not measure process variables
as empirical evidence of the underlying processes behind the effects of buy-now-pay-
later.

Study 2 tests the effect of buy-now-pay-later in a different context and against a

different payment mode to test if the effect is observed in other contexts and against
other payment modes. Furthermore, study 2 measures the intermediate process
variables to provide direct evidence of the underlying processes involved in the
decision making that results in the observed increased spending behaviour with buy-
now-pay-later. Thus, having confirmed the main effects of buy-now-pay-later
compared to credit cards on increasing the amount spent and the number of items
purchased, this research moves on to further explore the causes for these effects in
study 2.

Chapter 4: Study 1 35
Chapter 5: Study 2

This chapter describes the purpose, methods and results of study 2 to achieve the
objectives stated in section 3.5. The chapter provides an overview of the purpose and
hypotheses tested by the study (section 5.1), describes the participants, procedure,
experimental manipulation and key measures (section 5.2), and then presents the
findings from the data analyses (section 5.3). The conclusion of the results of the study
are discussed (section 5.4), and finally, the potential limitations (section 5.5), and how
the main limitations will be addressed in study 3.

5.1 PURPOSE

Study 2 investigates the impact of buy-now-pay-later on spending behaviour

compared to cash. Specifically, study 2 tests the main effect of buy-now-pay-later on
increasing purchase intent compared to cash (H1). This study tests this prediction using
a purchase decision for a filling at a dental clinic. The payment mode (buy-now-pay-
later vs. cash) is manipulated between-subjects to present a less numerous price using
instalment payments in the buy-now-pay-later condition. This study also tests the
underlying processes that predict and explain the differences in purchase intent
between the buy-now-pay-later and cash payment modes. Findings from the literature
on the numerosity effect (Pelham, Sumarta, & Myaskovsky, 1994; Van Den Bergh &
Lembregts, 2018; Wertenbroch, Soman, & Chattopadhyay, 2007) posit that
individuals are more sensitive to numbers than units when assessing quantity (i.e.,
$1,000,000 appears more than $1m, even though they are the same quantity of money).
Applied to buy-now-pay-later, this research claims that the numerosity effect implies
that the same quantity of money presented as a number of instalment payments will
appear to be less than the total price. Hence, instalment payments will make the same
price appear lower (i.e., 4 payments of $25 will appear to be less than the total price
of $100). As a result of the numerosity effect, individuals focus more on the instalment
payment price (vs. the total price) and perceive the same purchase in instalment
payments as less expensive than the total price. Therefore, it is predicted that the
instalment prices of buy-now-pay-later, as less numerous units of price, will be
perceived as less expensive than the total price of cash. This research reasons that

Chapter 5: Study 2 37
lower perceived expensiveness will lower the pain of payment, which in turn will lead
to increased purchase intent. Therefore, the effect of buy-now-pay-later (vs. cash) on
purchase intent is predicted to be mediated in serial by perceived expensiveness, and
in turn the pain of payment (H2). This study thus tests the influence of the numerosity
effect as measured by perceived expensiveness and, in turn, the effect of perceived
expensiveness on the pain of payment to ultimately increase purchase intent.

5.2 METHOD

5.2.1 Participants
One hundred and two United States based participants, recruited from the online
panel Prolific, took part in the study. After removing two participants that did not
complete the study, a sample of 100 participants (46 females, Mage = 30.3; SD = 8.9)
were included in the analyses.

5.2.2 Procedure and design

Participants were provided with a health services scenario about going to a
dentist in order to make a purchase decision. The description includes a reason for the
visit (toothache), an item for purchase (filling), price ($180), and support that the price
is reasonable from a third-party (typical cost from an industry association). Participants
were then asked if they intend to make the purchase today. The detailed scenario is as
follows,

Imagine that on Monday morning you go to the dentist as you have had a
toothache over the weekend. The dentist finds that you need a filling, and
advises that it will likely cause further pain if it is not taken care of in the next
few weeks. Your dentist confirms that they can do it now as part of your
appointment, which will cost $180. The dentist also provides you a card from
the American Dental Association (ADA) that outlines the typical cost of a
range of dental services; you notice that the national average cost for a filling
is between $171 and $197.

5.2.3 Experimental manipulation

The payment mode was manipulated between-subjects as either buy-now-pay-
later or cash. Participants were randomly assigned to one of the two conditions, with a
plausible reason for using a particular payment mode given, dependent on the
condition. In the cash condition participants read that “As this was an unexpected

38 Chapter 5: Study 2
purchase you do not have your cards with you. You will use cash if you make this
purchase”. In the buy-now-pay-later condition, participants read that “As this was an
unexpected purchase you do not have your cash or cards with you. Luckily, the dentist
offers a new third-party payment service, called 'buy-now-pay-later'”. In addition, the
following brief description of the payment mode was given in the buy-now-pay-later
condition as this payment mode and terminology is not in common usage in the United
States,

With 'buy-now-pay-later' you pay for your purchase with 4 equal payments.
The first payment is due at purchase, then every 2 weeks. Payments are
automatically deducted from your bank account. For example, when you
spend $180, you pay $45 today, and $45 every 2 weeks for 3 more payments.
There is no interest, and no fees when payments are made on time. If you do
not have money in your bank account when a payment is due there is a once
off $6 late fee. You receive your service today before paying for all of the
purchase.

To reinforce the manipulation of the buy-now-pay-later payment mode,

participants in the buy-now-pay-later condition were presented with both the total
price as well as the instalment price in the payment mode description and participants
in the cash condition were presented only with the total price. The full study is
presented in Appendix E and Appendix F for the buy-now-pay-later and cash condition
respectively.

5.2.4 Measures
Purchase intent. The outcome variable of purchase intent was measured on a 7-
point semantic differential scale by asking participants “Do you intend to make this
purchase today?”, where 1 = “definitely will not purchase” and 7 = “definitely will
purchase” (Raghubir & Srivastava, 2002).

Numerosity. Perceived expensiveness measures the numerosity effect as the first

process variable in this study. Perceived expensiveness was measured by asking
participants “How expensive do you think the purchase is?”, on a 7-point semantic
differential scale ranging from 1 = “very inexpensive” to 7 = “very expensive”, which
is adapted from Slonim and Garbarino (1999).

Pain of payment. The pain of payment was measured as the second process
variable. The pain of payment is measured by asking “How painful would it be to pay

Chapter 5: Study 2 39
for the purchase?” on a 7-point Likert scale, where 1 = “not at all painful” and 7 =
“very painful” (Rick, Cryder, & Loewenstein, 2008).

5.2.5 Alternative explanation

This study tested again for the alternative explanation of price novelty to rule out
this alternative explanation. Using the same measure as study 1, participants were
asked, “How novel is the way the price was shown?” on a 7-point scale where 1 = “Not
novel” and 7 = “Novel” (Kim & Kramer, 2006). Thus, the novelty of price was
measured as a potential alternative explanation of the predicted increase in purchase
intent when the price was expressed as instalment payments (a less numerous price)
vs. the total price (a more numerous price).

5.3 RESULTS

Results were analysed in three stages. First, an investigation of whether the

dependent outcome variable and process variables provided evidence of the predicted
effects of the experimental manipulation was conducted. Second, whether the
processes of numerosity and the pain of payment mediated the experimental
manipulation on spending behaviour was tested. Third, the effect of an alternative
explanation was investigated.

5.3.1 Dependent variable and process variables

Purchase intent. The buy-now-pay-later payment mode significantly influenced
purchase intent. As hypothesised, participants assigned to the buy-now-pay-later
payment mode indicated higher purchase intent than those assigned to the cash
condition (MBNPL = 5.55, SD = 1.60 vs. MCash = 4.80, SD = 1.83; t(98) = 2.19, p = .031,
Cohen’s d = 0.57). This supports H1, that buy-now-pay-later (vs. cash) increases
purchase intent.

Numerosity. Perceived expensiveness was significantly different between the

buy-now-pay-later and cash conditions. As hypothesised, participants assigned to the
buy-now-pay-later payment mode indicated a lower perceived expensiveness than
those assigned to the cash condition (MBNPL = 3.92, SD = 1.61 vs. MCash = 4.71, SD =

40 Chapter 5: Study 2
1.08; t(87)3 = -2.90, p = .005, Cohen’s d = -0.68). This supports that buy-now-pay-
later (vs. cash) lowers perceived expensiveness.

Pain of payment. The pain of payment was significantly different between the
buy-now-pay-later and cash conditions. As hypothesised, participants assigned to the
buy-now-pay-later payment mode indicated a lower pain of payment than those
assigned to the cash condition (MBNPL = 2.76, SD = 1.63 vs. MCash = 4.43, SD = 1.61;
t(98) = -5.14, p < .001, Cohen’s d = -1.31). This supports that buy-now-pay-later (vs.
cash) lowers pain of payment.

5.3.2 Mediation analysis

It was predicted that the price of a purchase (i.e., the filling at the dentist)
presented in less numerous instalment payments with buy-now-pay-later is perceived
as less expensive, and hence less painful to pay for, resulting in higher purchase intent
than a purchase using cash. In the serial mediation model, the independent variable (X)
was the payment mode, the first mediating variable (M1) was perceived expensiveness,
the second mediating variable (M2) was the pain of payment, and the dependent
variable (Y) was purchase intent. Figure 4 presents the serial mediation model. A test
using PROCESS Model 6 (Hayes, 2018) for the predicted serial mediation model was
conducted at a confidence interval at 90% with the number of bootstrapping samples
of 50,000 to accommodate the small sample size.

Figure 4 – Serial Mediation Model for Study 2

3
Levene’s Test of Equality (F = 8.41, p = .005) was significant, which indicated that the assumption
of homogeneity of variance was violated by unequal variances between the two conditions, so degrees
of freedom were adjusted from 98 to 87 as per the recommendation of Levene (1960) and Gastwirth,
Gel, and Miao (2009).

Chapter 5: Study 2 41
 The mediation analysis revealed a marginally significant serial mediation. The
serial mediation by the buy-now-pay-later payment mode on purchase intent by
perceived expensiveness and pain of payment was marginally significant as the
confidence interval does not include the value of zero (b = .02, SE = .02, 90% CI =
0.002 to 0.067). This suggests that buy-now-pay-later (i.e., less numerous prices)
reduced the perceived expensiveness, which in turn reduced the pain of payment,
leading to increased purchase intent. The direct effect of the payment mode on
purchase intent was not significant (b = .18, SE = .13, t(98) = 1.41, p = .16), indicating
that the payment mode fully mediated the effect on purchase intent. The results of the
mediation analyses are summarised in Table 1. These results indicate that by
presenting less numerous instalment prices, buy-now-pay-later lowers the perceived
expensiveness, elicits less pain of payment due to the instalment price, and
subsequently increases purchase intent. Thus, the mediation analysis supports the
conceptual model and serial mediation chain predicted by H2, the effect of buy-now-
pay-later on purchase intent is mediated by perceived expensiveness, and in turn by
the pain of payment.

Table 1 - Serial Mediation Results for Study 2

42 Chapter 5: Study 2
5.3.3 Alternative Explanation
Next, the alternative explanation of price novelty was examined for differences
between the buy-now-pay-later and cash payment mode conditions. There was no
significant difference between the buy-now-pay-later and cash conditions for the
novelty of price, as confirmed by an independent samples t-test (MBNPL= 4.24, SD =
1.54 vs. MCash = 3.96, SD = 1.41; t(98) = 0.93, p = .35, Cohen’s d = 0.23). Therefore,
the study does not find that the difference in purchase intent between conditions is due
to the novelty of price presented to participants. Together with the findings in study 1,
price novelty can be ruled out as an alternative process explanation for the effects of
buy-now-pay-later.

5.4 DISCUSSION

Study 2 finds that the use of buy-now-pay-later increased spending behaviour,

specifically purchase intent, compared to cash. This supports H1. Participants in the
buy-now-pay-later condition had significantly lower perceived expensiveness and
significantly lower pain of payment than those in the cash condition. This study finds
that when paying with buy-now-pay-later, participants indicated an increased purchase
intent, lower perceived expensiveness and lower pain of payment compared to when
paying with cash. A serial mediation analysis demonstrated that the effect of the
payment mode on purchase intent was mediated by perceived expensiveness, which
led to lower pain of payment and resulted in higher purchase intent. This supports H2.
Therefore, study 2 supports the conceptual framework; the pain of payment and
perceived expensiveness of less numerous instalment prices mediate the effect of
payment mode on purchase intent of a filling at a dental clinic.

5.5 LIMITATIONS

Although the results of study 2 offer promising support of the conceptual model
hypothesised, several potential limitations of study 2 are acknowledged. This section
also considers if demand effects could have potentially been created by either the
scenario or the description of buy-now-pay-later, as well as if the difference in deferred
payment between cash and buy-now-pay-later could have explained the results in
terms of temporal discounting. These potential limitations are addressed in the design
of study 3.

Chapter 5: Study 2 43
 A potential limitation is that the scenario in study 2 could be considered to have
created demand effects in two ways. First, describing the operations of the buy-now-
pay-later payment mode (but not cash) may have induced participants to think more
deeply about the payment mode and thus enhanced the perceived benefits of the
assigned payment mode only for those participants in the buy-now-pay-later payment
mode condition. Study 3 will address this potential limitation by using a description of
buy-now-pay-later in both conditions. Second, the payment mode participants were
allocated to was presented as a solution to a problem of not having any cash or cards
available for buy-now-pay-later as opposed to only not having cards available for cash.
Although the halo effect of presenting a payment mode as a solution is unlikely to be
the cause of the differences between conditions, replicating these results when the
randomly allocated payment mode is presented as the consumer’s positive choice
rather than a necessity of not having any other payment mode available enhances the
robustness of these findings.

Although this research reasons that the cause for lower perceived expensiveness
of buy-now-pay-later (vs. cash) was the numerosity of instalment prices, it is also
possible that the difference in perceived expensiveness was not only due to the
numerosity of instalment prices. This decreased perceived expensiveness could have
been due to another difference between the buy-now-pay-later and cash payment
modes in this study. Relative differences between buy-now-pay-later and cash which
influence payment timing could be explained by deferred payments. For instance,
temporal discounting infers that payment deferred to a later time is financially less
than payment today due to the inflationary effects of the time-value of money (Thaler,
1981), and therefore this payment deferral could lead to the purchase being perceived
as less expensive.

To account for any specific payment mode effects, such as the potential effect of
differences in temporal discounting, study 3 focuses on only the buy-now-pay-later
payment mode and tests the effect of buy-now-pay-later with 4 instalment payments
against buy-now-pay-later with 8 instalment payments. By keeping the payment
duration constant and changing only the instalment prices, it is possible to rule out any
effect of differences between payment modes, such as temporal discounting, and
provide direct process evidence for the numerosity effect of instalment prices.

44 Chapter 5: Study 2
 Thus, having confirmed the main effects of buy-now-pay-later compared to cash
on purchase intent, perceived expensiveness and the pain of payment, this research
moves on to study 3. Study 3 builds on the findings of study 2 whilst seeking to address
potential limitations of the findings from study 2.

Chapter 5: Study 2 45
Chapter 6: Study 3

This chapter describes the purpose, methods and results of study 3 to achieve the
objectives stated in section 3.5. The chapter provides an overview of the purpose and
hypotheses tested by the study (section 6.1), describes the participants, procedure,
experimental manipulation and key measures (section 6.2), and then discusses the
findings from the data analyses (section 6.3). Finally, the conclusions of the results of
the study (section 6.4) are discussed.

6.1 PURPOSE

The purpose of study 3 is two-fold. First, the study tests the effects of instalment
payment prices on consumer spending behaviour in the context of product choice.
Second, study 3 tests the mediating effect of numerosity due to instalment payment
prices on spending behaviour. The numerosity of price is manipulated by modifying
the number of instalment payments (4 vs. 8) between-subjects whilst keeping the
payment mode constant as buy-now-pay-later. The design allows differences between
payment modes, such as payment timing or payment transparency, to be ruled out as
an alternative explanation for the effect on spending behaviour. Extending the
numerosity effect (Lembregts & Van Den Bergh, 2018; Pandelaere et al., 2011;
Pelham et al., 1994; Wertenbroch et al., 2007) to instalment payments, people will
perceive prices expressed in 8 instalment payments to be lower and therefore less
expensive than prices expressed in 4 instalment payments. As a result, it is predicted
that people will perceive the difference in prices between two choices as smaller when
expressed in 8 payments (vs. 4 payments). In turn, the lower perceived expensiveness
is predicted to make payments feel less painful. This lower pain of payment leads to
an increase in the proportion of individuals that choose a more expensive item.
Therefore, the effect of less numerous instalment prices on the choice of a more
expensive item is predicted to be mediated in serial by perceived expensiveness, and
in turn the pain of payment (H2). This study tests this prediction using a relative choice
between a cheap and an expensive hotel room.

Chapter 6: Study 3 47
6.2 METHOD

6.2.1 Participants
Three hundred and four United States based participants, recruited from the
online panel Prolific, took part in the study. Three participants that did not complete
the study were excluded from further analyses. Thus, a sample of 301 participants (159
females, Mage = 34.3; SD = 12.5) were included in the analyses.

6.2.2 Procedure and design

Participants were provided with a scenario about choosing between two hotel
rooms for a short-stay holiday. Participants were then informed of a new buy-now-
pay-later payment mode and that they intended to use this payment mode. The choice
of hotel rooms was then presented with a list of several attributes including prices
presented in instalment payments. After reading the scenario, respondents first
indicated the room of their choice through a binary choice item and then completed
measures of process variables, alternative explanatory variables, and finally
demographics. The scenario presented was as follows,

Imagine you are shopping for a holiday at a travel agent you have used before.
You have decided on your preferred destination & hotel for a 3-night long
weekend package. You have budgeted for this purchase, so the prices are
reasonable. You plan to take your holiday next weekend and want to book
today to ensure they do not book out.
At the travel agent you notice that they have a new third-party payment service
called 'buy-now-pay-later'. As you ask for some information, your travel agent
explains:
[buy-now-pay-later payment mode description]
After you understand the terms and conditions, you decide to use this new
payment method.

To help consumers understand instalment payments of buy-now-pay-later, a

brief description of the buy-now-pay-later payment mode was given. The payment
mode description was altered only to be consistent with the different number of
payments between conditions. The description, with modifications between
conditions, represented respectively as 4 payments [8 payments], was as follows,

"With buy-now-pay-later you pay for your purchase with 4 [8] equal
payments. The first payment is due at purchase, then every two weeks [every

48 Chapter 6: Study 3
 week]. Payments are automatically deducted from your bank account. For
example, when you spend $160, you pay $40 [$20] today, and then $40 [$20]
every two weeks [every week] for 3 [7] more payments. There are no interest
or fees when payments are made on time. If you do not have money in your
bank account when a payment is due there is a once-off $10 late fee."

Participants were then presented with a table of each hotel room’s attributes side-
by-side and asked which hotel room they would choose for a 3-night stay. The
attributes presented in columns, in order from top to bottom, were the room type,
description, total price, and instalment payment price. The number of instalment
payments (manipulated between-subjects) and the instalment payment price were in
bold. Figure 5 displays how the room attributes were presented in the more numerous
price condition and the following experiment manipulation section describes the
differences in the less numerous price condition. The full study is presented in
Appendix G and Appendix H for the more numerous 4 payment and less numerous 8
payment condition respectively. To rule out a potential order effect, the order of rooms
were randomised between participants so that half saw the cheaper room first and half
saw the more expensive room first.

Figure 5 - Hotel Room Attributes in the More Numerous Price Condition

6.2.3 Experimental manipulation

The instalment payment prices presented were manipulated between-subjects to
be either more numerous or less numerous. The total price and the duration of
payments were held constant, therefore increasing the frequency of payments, and
hence altering the number of payments. Participants were randomly assigned to either

Chapter 6: Study 3 49
4 payments (more numerous price condition) or 8 payments (less numerous price
condition). Participants in the more numerous instalment payment price condition
were presented with the payments attribute for the cheap and expensive room as 4
payments of $54.00 and 4 payments of $72.00 respectively. Participants in the less
numerous instalment payment price condition were presented with the payments
attribute for the cheap and expensive rooms as 8 payments of $27.00 and 8 payments
of $36.00. The price attributes avoided fractional numbers to aid ease of processing
for both the total prices and instalment payment prices. The price of the more
expensive room was 33.3% greater than the cheaper room, such that the difference
should be noticeable and non-trivial. All other room attributes presented were held
constant across conditions, thus manipulating only the numerosity of the instalment
payment prices.

6.2.4 Measures
Room choice. After presenting the choice of a cheap or expensive hotel room,
room choice was measured as the dependent variable. Participants were first asked to
select either room with the question ‘Which hotel room would you choose for your 3-
night stay?”. Participants selected a room using a radio button immediately below the
room attributes of the cheap room (labelled Standard) or expensive room (labelled
Superior). As the dependent variable is the outcome of a relative choice, the key
process measures of numerosity and the pain of payment are relative measures to
reflect this relative choice.

Numerosity. Numerosity was measured by perceived expensiveness as the first

process variable. The relative perceived expensiveness between the standard and
superior room was measured by asking participants to indicate “Which room is more
expensive?”. Responses were measured using a slider on a bipolar scale, where -5 =
“Standard room is much more expensive”, +5 = “Superior room is much more
expensive”, and 0 = “Neither”. The slider was centred to minimise bias to either
choice, and the numerical measure was not displayed so that the numerical information
would not influence the measure of the perceived difference between the two choices.

Pain of payment. The pain of payment was measured as the second process
variable. The relative pain of payment between the Standard and Superior room was
measured by asking participants to indicate “Which room is more painful to pay for
using buy-now-pay-later payment method?”. Responses were measured using a slider

50 Chapter 6: Study 3
on a bipolar scale, where -5 = “Standard room is much more painful”, +5 “Superior
room was much more painful”, and 0 = “Neither”. Again, the slider was centred to
minimise bias to either choice and the numerical measure was not displayed.

6.3 RESULTS

Results were analysed in two stages. First, the predicted effects on the dependent
outcome variable and process variables as a result of the experimental manipulation
were tested. Second, whether the processes of numerosity and the pain of payment
mediated the effect of the payment conditions on spending behaviour was analysed.

6.3.1 Dependent variable and process variables

Room choice. A less numerous instalment payment price significantly increased
the number of participants that chose a more expensive hotel room. A binary logistic
regression analysis with the instalment payment price condition (more numerous = 1;
less numerous = 0) as the predictor and room choice (expensive room = 1; cheap room
= 0) as the dependent variable revealed a significant main effect of the numerosity of
instalment payment prices on room choice (b = -.55, SE = 0.23, Wald χ2 (1) = 5.55, p
= .02). As predicted, viewing less numerous instalment payment prices significantly
increased the number of participants that chose a more expensive room (from 43% to
57%). This supports that less numerous prices (vs. more numerous instalment payment
prices) increase the number of individuals that choose a more expensive item.

Numerosity. The relative perceived expensiveness was significantly different

between the more numerous price condition and the less numerous price condition. As
predicted, participants perceived that the expensive room was relatively less expensive
in the less numerous condition than in the more numerous condition (Mless numerous =
2.78, SD = 1.35 vs. Mmore numerous = 3.15, SD = 1.30; t(299) = 2.38, p = .018, Cohen’s d
= -0.32). This supports that less numerous prices (vs. more numerous instalment
payment prices) lower perceived expensiveness.

Pain of payment. The relative pain of payment was significantly different

between the more numerous price condition and the less numerous price condition. As
predicted, participants perceived that the pain of payment for the expensive room was
relatively less in the less numerous price condition than the more numerous price
condition (Mless numerous = 1.22, SD = 1.97 vs. Mmore numerous = 1.79, SD = 1.94; t(299) =

Chapter 6: Study 3 51
2.53, p = .012, Cohen’s d = -0.41). This supports that less numerous prices (vs. more
numerous instalment payment prices) lower the pain of payment.

6.3.2 Mediation analysis

It was predicted that an expensive item (i.e., the expensive hotel room) is
perceived as relatively less expensive, and hence, less painful to pay for and therefore
more likely to be chosen when its price is less numerous than when its price is more
numerous. In the serial mediation model, the independent variable (X) was the
numerosity of buy-now-pay-later instalment payment prices, the first mediating
variable (M1) was perceived expensiveness, the second mediating variable (M2) was
the pain of payment, and the dependent variable (Y) was room choice. Figure 6 presents
the serial mediation model. A test using PROCESS Model 6 (Hayes, 2018) for the
predicted serial mediation model was conducted.

Figure 6 – Serial Mediation Model for Study 3

The mediation analysis revealed a significant serial mediation. The serial

mediation of pain of payment by perceived expensiveness on room choice was
significant as the confidence interval does not include the value of zero (b = .08, SE =
.04, 95% CI = 0.01 to 0.19). This suggests that the less numerous prices reduced the
perceived expensiveness, which in turn reduced the pain of payment, leading to more
participants choosing an expensive room. The direct effect of the number of payments
on room choice was not significant (b = .44, SE = .25, z(299) = 1.75, p = .08), indicating
that the numerosity of instalment payment prices fully mediated the effect on choosing
a more expensive room. The results of the mediation analyses are summarised in Table
2. Thus, the mediation analysis supports H2, the effect of the numerosity of instalment

52 Chapter 6: Study 3
payment prices on the choice of a more expensive room is mediated by perceived
expensiveness through the pain of payment.

Table 2 - Serial Mediation Results for Study 3

6.4 DISCUSSION

Study 3 found a significant main effect of the numerosity of instalment payment

prices on the choice of an expensive hotel room. As predicted, the less numerous prices
increased the number of participants choosing a more expensive room. In addition,
there was a significant main effect of instalment payment prices on both process
variables for numerosity (as measured by perceived expensiveness) and the pain of
payment. These effects indicate that less numerous instalment payment prices lower
perceived expensiveness and the pain of payment compared to more numerous prices.
A serial mediation analysis demonstrated that exposure to less numerous prices led to
lower perceived expensiveness and elicited less pain of payment, thereby resulting in
more individuals choosing the more expensive item. This supports H2. In combination
with study 1 and study 2, this result suggests that differences in spending behaviour
using buy-now-pay-later due to instalment prices are separate from any payment mode
differences such as payment timing or payment transparency.

Chapter 6: Study 3 53
Chapter 7: Discussion and Conclusions

This chapter summarises the findings of the three experimental studies in this
research (section 7.1). The chapter then discusses the theoretical (section 7.2) and
managerial implications (section 7.3) of these findings. This chapter then follows with
a discussion of the limitations which provide several directions for future research
(section 7.4) and concludes with a brief coda (section 7.5).

7.1 SUMMARY OF FINDINGS

This research tested the proposition that buy-now-pay-later influences consumer

spending behaviour. Specifically, this research hypothesised that buy-now-pay-later
instalment prices induce lower perceived expensiveness, which lowers the pain of
payment and ultimately increases spending behaviour. Across three experiments buy-
now-pay-later was shown to increase consumer spending behaviour. This research
finds that the underlying processes of numerosity and pain of payment lead to an
increase in consumer spending behaviour with buy-now-pay-later.

Buy-now-pay-later increased spending behaviour compared to cash (study 2)

and credit cards (study 1). Increased spending behaviour was evidenced by an increase
in the number of items purchased (study 1), the amount spent (study 1), purchase intent
(study 2), and the choice of a more expensive item (study 3). Therefore, H1 was
supported, buy-now-pay-later increased spending behaviour compared to other
payment modes. This effect on spending behaviour occurred across the different
contexts of food services (study 1), health services (study 2) and accommodation
(study 3), enhancing the generalisability of the finding.

The results of this research indicate that numerosity-induced lower perceived

expensiveness and lower pain of payment explain the effect of buy-now-pay-later on
spending behaviour. Expressing the same quantity in smaller numbers (i.e., smaller
instalment payment prices) reduces the perceived quantity compared to expressing the
same quantity in larger numbers (i.e., the total price). Buy-now-pay-later, compared to
cash, lowered perceived expensiveness and the pain of payment. Furthermore, the less
numerous prices of buy-now-pay-later, compared to more numerous prices, lowered
both perceived expensiveness and the pain of payment. In addition, a serial mediation

Chapter 7: Discussion and Conclusions 55

effect was supported, such that less numerous buy-now-pay-later instalment prices
were perceived as less expensive than more numerous prices, which in turn lowers the
pain of payment and leads to an increase in spending behaviour. Therefore, the results
support H2. This research confirms the hypotheses proposed from the conceptual
model (as summarised in Table 3), that the underlying processes of numerosity and the
pain of payment predict and explain the effects of buy-now-pay-later on spending
behaviour.

Table 3 - Summary of Hypotheses Tested by Study

H1 H2 Spending behaviour variable

Study 1 ✓ n/a Amount spent
Study 2 ✓ ✓ Purchase intent
Study 3 n/a ✓ Choice of a more expensive item

7.2 THEORETICAL IMPLICATIONS

This research contributes to theory in three main areas of marketing. First, this
research contributes to the understanding of financial decision-making within the
payment mode research stream by examining the effect of the new buy-now-pay-later
payment mode on consumer spending. Second, this research extends the numerosity
effect heuristic to the payment mode domain and shows that the numerosity effect
explains the lowered price perception of instalment payments. This research also
extends the finding that diminished discriminability results in reduced sensitivity to
the difference in attributes from product benefits to product prices. Third, this research
finds that the pain of payment is influenced by the perceptual magnitude of price, and
not just the objective magnitude of payment. Each contribution is discussed in further
detail below.

First, this research contributes to the understanding of financial decision-making

within the payment mode research field. This research finds that the influence of buy-
now-pay-later on spending behaviour is explained by the underlying mechanisms of
two judgement and decision-making theories; numerosity applied to instalment pricing
and the pain of payment associated with payment modes. This research thus reveals
that perception due to the numerosity heuristic influences the emotional impact of the

56 Chapter 7: Discussion and Conclusions

pain of payment. In addition, by addressing the research problem, this research
contributes three firsts to the payment mode field. One, this is the first research to
examine the new buy-now-pay-later payment mode and its effect on consumer
spending. Two, the research proffers a formal definition of a new buy-now-pay-later
payment mode. Three, this is the first research to examine the numerosity effect of
instalment payments.

Second, this research extends the numerosity effect research by applying the
numerosity effect to instalment payments. Although numerosity research has
investigated judgment within product attributes and across currencies, this research
extends the numerosity literature to prices within the same currency, and is the first to
demonstrate the numerosity effect of instalment pricing. This research conceptualises
instalment payments as a purchase price subject to numerosity. This study indicates
that the lower numerosity of instalment payments influences the perceived
expensiveness of the purchase, consistent with an anchoring and adjustment process
based on the face value of the instalment price. Consumers anchor on the face value
of the less numerous instalment price, and insufficiently adjust from this anchor,
resulting in a biased perception of the purchase price. In this way, instalments act as a
new unit of price, in a similar way to how the face value of unfamiliar foreign
currencies influence spending behaviour (Raghubir & Srivastava, 2002). This research
thus contributes to the numerosity literature by demonstrating that numerosity applies
to prices within the same currency, and that the decision-making process is biased by
the numerosity of the instalment price.

Previous research has demonstrated diminished discriminability of product

benefits due to numerosity (Burson et al., 2009). This research extends diminished
discriminability to price due to numerosity by finding that less numerous prices
decrease the perceived differences in price between alternative product choices,
leading to increased spending behaviour. The reduced perceived expensiveness is
evidence of a diminished difference between alternatives as a result of numerosity,
consistent with the diminished discriminability account of Burson et al. (2009). It is
reasoned that a lower perceived expensiveness due to instalment payments reflects a
diminished discriminability in price consistent with the choice of more expensive
products and an increase in spending when using buy-now-pay-later.

Chapter 7: Discussion and Conclusions 57

 Third, this research also contributes to the literature on pain of payment by
showing the perception of payment expensiveness can mitigate the pain of payment.
Prior research indicates that the dollar amount (Zellermayer, 1996) or payment
magnitude (Shah et al., 2016) influences the pain of payment. This research finds that
the perception of instalment prices influences the pain of payment. This research thus
extends this literature by indicating that it is not just the objective magnitude of the
total payment price, but the perception of the price which determines the pain of
payment. That is, the payment amount is subjectively perceived rather than an
objectively quantitative, or unbiased price. Therefore, the subjectively reduced
magnitude of price can also ease consumers’ pain of payment.

The finding that lower pain of payment results from multiple segregated
payments compared to a single payment appears contrary to that implied by prospect
theory (Kahneman & Tversky, 1979) and mental accounting (Thaler, 1985).
Decreasing sensitivity to the size of gains and losses inherent to prospect theory
(Tversky & Kahneman, 1992) implies that segregated losses (i.e., multiple instalment
payments) compared to a single loss (i.e., one total payment) should increase the sense
of loss (Thaler, 1999) and therefore be more painful (Tversky & Kahneman, 1991),
reducing spending behaviour (Prelec & Loewenstein, 1998). However, prospect theory
is not applicable in this circumstance. Payments are not encoded as losses according
to prospect theory, this assumption is clearly rejected in a subsequent paper by the
original authors; “Payments made by consumers are also not evaluated as losses but as
alternative purchases” (Kahneman & Tversky, 1984, p. 349). Therefore, prospect
theory is not applicable to the perception of multiple payments as losses in this
research.

7.3 MANAGERIAL IMPLICATIONS

Retailers. The effects of buy-now-pay-later on spending behaviour have

important implications for retailers. Retailers that offer buy-now-pay-later can benefit
from the influence of buy-now-pay-later on spending behaviour to both increase sales
volume by selling more items, as well as selling more expensive items. The secondary
implication of this research for retailers is arguably even greater. Given a 1% increase
in sales volume on average increases operating profit by 3.3 times that amount (Marn
& Rosiello, 1992), buy-now-pay-later can potentially substantially impact profitability
from additional sales volume. Even though buy-now-pay-later providers have been

58 Chapter 7: Discussion and Conclusions

criticised for their high service cost to retailers (Andrew, 2019; Waters, 2018), the
incremental profitability from either more consumers choosing a product with a 33%
higher price (study 3), a 15.6% increased conversion rate as indicated by purchase
intent (study 2), or a 19.5% increase in the amount spent (study 1) would benefit most
retailers. Subsequently, retailers that offer buy-now-pay-later may increase sales
volumes and operating profits.

Payment service providers. These findings have an important implication for

payment service providers in the financial services industry. This research finds that
more instalments increased spending behaviour. Specifically, 4 instalments increased
spending behaviour compared to no instalments, and 8 instalments increased spending
compared to 4 instalments. Payment services with more instalments had a greater
effect on increasing spending. The practical implications for product managers are the
advantages of designing payment services with more instalments to increase consumer
spending to benefit both consumers and the payment service provider. In Australia,
payment service providers may be constrained by regulatory restrictions on total
payment duration without requiring additional due-diligence commensurate with
credit products (ASIC, 2018c). Globally, product design is likely to move beyond these
constraints. Future buy-now-pay-later products which provide instalment payments at
checkout, such as Visa’s trial to provide instalment payment options at checkout for
purchases made with existing credit cards commencing January 2020 (Visa, 2019), are
evidence of this direction.

Policymakers. Any phenomenon which increases spending behaviour raises

questions for policymakers. This research suggests that increased spending behaviour
from the use of buy-now-pay-later is not just due to the provision of increased credit
to those otherwise credit-constrained speculated by some media sources (McDuling &
Bateman, 2018; Smartcompany, 2019). Rather, buy-now-pay-later influences
consumer’s perception and affective reasoning processes that result in increased
spending.

Regulation by policymakers commensurate with the risks and benefits that target
potential adverse outcomes can achieve optimal policy outcomes (Rothstein, Borraz,
& Huber, 2013). Consumers benefit using buy-now-pay-later as a convenient payment
tool with potentially lower cost compared to consumer credit cards (Reserve Bank of
Australia, 2019). In the event of financial difficulties, buy-now-pay-later issues

Chapter 7: Discussion and Conclusions 59

manifest more quickly than credit cards due to faster repayment times, and with
smaller average arrangement amounts and lower limits, repayment issues are arguably
less severe (see Appendix I for a comparison of buy-now-pay-later and credit cards
market norms in Australia). However, specific risks exist, primarily from using
multiple buy-now-pay-later arrangements simultaneously, especially across multiple
providers, and the potential to provide arrangements to those with an inability to repay
(ASIC, 2018c). These circumvent the lower risk of buy-now-pay-later compared to
credit cards due to smaller arrangements amounts and lower limits. Credit cards and
other credit products have more stringent upfront requirements for lenders to verify
consumers’ financial situation, such as their capacity to repay, and lenders commonly
undertake credit checks to identify past misconduct (ASIC, 2018b). In contrast, 5 in 6
buy-now-pay-providers did not verify the creditworthiness of clients (ASIC, 2018c).
A positive bureau check by buy-now-pay-later providers could ensure that consumers
do not have multiple arrangements with other buy-now-pay-later providers. A lesser
obligation to assess repayment capacity in line with the smaller limits and risks, with
greater requirements for arrangements above a certain financial threshold, could help
to ensure that consumers have the ability to repay amounts that could lead to
overcommitment whilst still providing low-risk and low-cost services to benefit many
consumers. A regulatory obligation in line with the lower comparative risks of smaller
buy-now-pay-later arrangements allows consumers to benefit from generally lower
cost payment services, whilst targeted action by providers and policymakers can
manage higher-risk circumstances.

7.4 LIMITATIONS AND FUTURE RESEARCH

This research provides several important insights into consumer spending

behaviour and the underlying decision-making processes using the new buy-now-pay-
later payment mode. However, several limitations are acknowledged. First, this
research conducted three studies as controlled online experiments. Although the
findings of these three experiments are consistent with consumer reported outcomes,
this research lacks some degree of external validity without real-world empirical
evidence of these outcomes. A potential difficulty of such real-world transaction data
mining is measuring process variables (i.e., intermediate latent variables) of the
decision-making process. A post-purchase online survey as part of an extended
checkout process could achieve this requirement. Further field research on transaction-

60 Chapter 7: Discussion and Conclusions

level data would add additional validity to these findings. Second, the survey used
online participants that were generally unfamiliar with the buy-now-pay-later payment
service. Participants are generally sceptical of unfamiliar payment modes and spend
less when they are uncertain about the perceived security of the payment mode (See-
To & Ngai, 2019). Thus, these findings could be considered conservative. A stronger
spending effect is expected with consumers more familiar with the instalment payment
mode. Further field research can supplement these online experiments to improve the
external validity of the findings of this research.

Several moderators and boundary conditions are identified that could be

explored in future research. This section discusses the future directions for further
research into the moderating influence of salience, budget and pay cycles, unitosity,
construal, individual differences between tightwads and spendthrifts, as well a
consideration of the likely boundary conditions of the finding that number of payments
increases spending in this research. This section then discusses how future research
could also investigate other post-purchase consequences of buy-now-pay-later and
instalment payment pricing, such as the potential impacts of these findings on
reference prices, inferred quality, and brands.

Moderating role of instalment price salience. The experiments in this research

explicitly presented instalment prices to be salient in the buy-now-pay-later conditions.
In study 1 and study 3 the instalment payments were made more prominent by being
presented in bold. This research did not test if the effects of numerosity held without
the salient presentation of the instalment price. Consumers intending to purchase using
buy-now-pay-later may mentally calculate instalment payments in the absence of the
visual presentation of the specific instalment price. However, other research indicates
that such translation is unlikely (Suri, Monroe, & Koc, 2013), with awareness,
motivation and capability to translate all required to be present to translate between
units (Pandelaere et al., 2011). Future research should explore price salience as a
potential moderator to the effect of instalment payments.

Moderating role of budgets and pay cycles. Consumers use spending budgets as
a reference point in evaluating their spending decisions. Budgets are inherently a
periodic construct of temporal framing, i.e., they are an amount of acceptable spending
per week, fortnight, month or year. By presenting periodic instalment payments, buy-
now-pay-later inherently reframes the purchase over multiple budget periods, making

Chapter 7: Discussion and Conclusions 61

the purchase seem more affordable. This research was limited in that it did not
introduce or make salient consumer’s budgets. Hence, the findings of this research are
consistent with the face-value effect (Raghubir & Srivastava, 2002); a less numerous
price increased spending as the smaller price appeared less expensive. Wertenbroch et
al. (2007) found the reverse face-value effect (i.e., the opposite spending preferences)
when budgets were introduced as a salient reference value. When a purchase is
presented in a less numerous price, the purchase appears more expensive (compared
to a more numerous price) because the residual difference between the budget and the
price is smaller. With this alternative reference point, consumers judge the difference
between the price and their budget, with the numerosity effect applying to the
remaining budget. For example, by introducing a budget, say $250 per week, the
residual budget with instalment payments is $200 when assessed against the $50
weekly instalment payment for a $200 purchase. The residual budget, however, is $800
if the more numerous total price of $200 is assessed against 4-weeks’ budget ($1,000
= $250 x 4). Hence, the more numerous total price assessed against the more numerous
4-weeks’ budget makes the purchase appear less expensive, and increases spending.
This prediction reverses the findings in the current research. Further research should
explore if consumers reframe budgets to potentially reverse the effect of buy-now-pay-
later on spending behaviour as predicted.

Similarly, pay cycles may also act as reference values in the decision-making
process of purchases expressed in instalment prices. A purchase framed in instalment
payments of the same period as a consumer’s budget or pay cycle should be easier to
evaluate compared to when the periods are not aligned (i.e., weekly instalment
payments are easier to assess against a weekly pay cycle than when the consumer has
a monthly pay cycle). General evaluability theory implies that consumers are more
sensitive to differences in value when the evaluation uses knowledge of past
experience (Hsee, Rottenstreich, & Xiao, 2005; Lembregts & Van Den Bergh, 2018).
As such, assessing a periodical instalment payment expressed in a budget period or
pay cycle which the consumer is knowledgeable in may diminish the effect of
numerosity due to the increased sensitivity to differences. Thus, consumers’ pay-cycle
or budget may moderate the effect of instalment payment numerosity when they are
aligned. Further research should test the effect of whether the frequency of consumer’s
budgets or pay cycles moderate the numerosity effect of instalment payments.

62 Chapter 7: Discussion and Conclusions

 Unitosity effect. Although this research demonstrates that less numerous
instalment prices result in increased spending behaviour, the unitosity heuristic
(Monga & Bagchi, 2011) implies that the opposite effect can be induced by making
the number of instalments more salient than the instalment price. Monga and Bagchi
(2011) demonstrate that numerosity reverses to unitosity when salience shifts from
numbers to units. Construal level theory (Trope & Liberman, 2003) implies that
judgment with specific prices results in a concrete mindset (Hansen, Kutzner, &
Wänke, 2012), and so numerosity may only occur when the decision-maker is in a
concrete mindset (Monga & Bagchi, 2011). Focusing consumer attention on units may
result in reduced spending behaviour as a reversal of the increase in spending
behaviour found in this research. Future research should test the moderating effect of
the unitosity heuristic.

Moderating effect of tightwads. An avenue for further research is whether

individuals’ spending tendencies moderate the influence of instalment payments on
spending. Spendthrifts tend to overspend and tightwads tend to underspend compared
to their ideal spending preference (Rick et al., 2008). Spendthrifts tend to be less
sensitive to situational determinants (Rick et al., 2008), and so the spending behaviour
of those currently overspending are less likely to be affected by the effects of buy-
now-pay-later compared to those currently underspending. This would imply that the
risk of overspending is limited to those that tend to underspend, and as such, the policy
implications of the increased spending due to buy-now-pay-later would be somewhat
exacerbated.

Effect on reference prices. Consumers mentally update reference prices when

they observe prices in the category (Erdem, Keane, & Sun, 2008). Therefore,
instalment prices may not only influence the internal reference price of purchasers but
also influence the external reference price of all who observe the instalment prices.
Both dominant streams of reference price theory, i.e., the psychological perspective of
assimilation contrast theory and the economic perspective of adaptation-level theories
such as range-frequency theory (Mazumdar, Raj, & Sinha, 2005), suggest that
consumer reference prices will be influenced by the use of instalment payments. Given
that a novel price leads to deeper mental processing and increased consumer recall
(Kim & Kramer, 2006), the potential implication of instalment pricing on reference
prices is significant because both the form and magnitude of instalment prices are

Chapter 7: Discussion and Conclusions 63

fundamentally different to the usual range of reference prices observed by consumers.
Further research is needed to ascertain the effect of instalment prices on consumer
reference price formation, specifically whether consumers lower reference prices when
exposed to instalment prices.

Effect on quality inference and brands. This research found that less numerous
instalment payments were inferred as less expensive. This lower perceived
expensiveness may, in turn, be inferred as lower quality according to the price-quality
relationship. The price-quality relationship heuristic builds on cue-utilisation theory,
which suggests that consumers rely on existing attributes to infer missing information
(Völckner, 2008). The price-quality relationship heuristic implies that an item
perceived as less expensive will be perceived as having lesser quality, especially when
there is either little additional information (Gneezy, Gneezy, & Olié Lauga, 2014) or
in the absence of appropriate information on quality (Miyazaki, Grewal, & Goodstein,
2005). When multiple cues are in conflict, cue-consistency theory posits that such cues
will exhibit negativity bias, i.e., a cue of a negative attribute is more salient in the
evaluation process, disproportionally diminishing the overall evaluation (Miyazaki et
al., 2005). Thus, even high-quality products may be weakened by the inconsistent
pricing cue of a less expensive instalment price of buy-now-pay-later. Further research
should test the effects of instalment payments on consumer perceived quality.

The price-quality relationship is particularly important to branded products.

Consumers search for and rely on price more frequently when evaluating prestige
brands (Brucks, Zeithaml, & Naylor, 2000). This research was limited to unbranded
products in order to avoid the potential confounding effect on results during purchase
consideration. Brand value may be reduced due to the lowered perceived
expensiveness of buy-now-pay-later purchases. The lower perceived expensiveness
may impact brands in two aspects, both the purchase decision as well as the post-
purchase connection. First, further research should test the impact of brands on the
purchase decision using buy-now-pay-later. Specifically, the effects of instalment
payments on spending behaviour using both well-known branded products and
prestige products to test if there is any deterioration in spending behaviour due to
instalment prices. Second, the post-purchase implications of more expensive products
being perceived as less expensive due to instalment payment pricing are directly
relevant to brands pursuing premium positioning. This raises the question, does the

64 Chapter 7: Discussion and Conclusions

effect of lowering perceived expensiveness reduce the cache of premium and luxury
products? Given that the payment mode alters the psychological connection to the
purchase based on the pain of payment, and that a more painful payment increases
psychological connection (Shah et al., 2016), by reducing the pain of payment, a
purchase using buy-now-pay-later may inadvertently reduce brand connection and
therefore diminish brand value post-purchase. Moreover, unforeseen to the customer,
deferred payments lower satisfaction and therefore may disappoint consumers over the
long-run (Hahn et al., 2013). Further research should also investigate the impacts of
using buy-now-pay-later on the post-purchase connection, customer satisfaction and
impact on brand value.

7.5 CODA

The numerosity literature suggests that less numerous units lower the perceived
quantity presented. The pain of payment literature indicates that the payment mode
influences the pain of payment, and in turn influences consumer spending behaviour.
These two theories act in combination as the underlying mechanisms which predict
and explain spending behaviour using the buy-now-pay-later payment mode. This
research found that buy-now-pay-later increased spending behaviour in three
experimental studies. This research showed that buy-now-pay-later lowered perceived
expensiveness, which in turn lowered the pain of payment, and ultimately led to
increased spending. Increased spending was demonstrated by increased purchase
intent, an increased amount spent, a greater number of items purchased, and the
propensity to choose a more expensive item. This research has important practical
implications for retailers and payment service providers, as well as policymakers. The
research provides several avenues for future research on the influence of the buy-now-
pay-later payment mode and instalment payments on consumers.

Chapter 7: Discussion and Conclusions 65

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Appendix A of this thesis has been removed as it may contain sensitive/confidential content
 Appendix B

Participant Information and Consent Form

Department of Marketing
Macquarie Business School
MACQUARIE UNIVERSITY NSW 2109

Phone: +61 (0)2 9850 9602 & +61 (0)2 9850 9173
Email: [email protected] & [email protected]

Chief Investigator’s / Supervisor’s Name: Dr Yi Li & Dr Shahin Sharifi

Participant Information and Consent Form

Name of Project: Consumer Decision Making in Shopping Context

You are invited to participate in a study of consumer behaviour. The

purpose of the study is to understand how consumers make decisions in
various shopping situations. For instance, how consumers make purchase
decisions under different circumstances.

The study is being conducted by Rhys

Ashby to meet the requirements for the degree of Master of Research
under the supervision of Dr Yi Li (+61 (0)2 9850 9602,
[email protected]) and Dr Shahin Sharifi (+61 (0)2 9850 9173,
[email protected]) of the Department of Marketing.

If you decide to participate, you will be asked to complete a short survey

that will take a few minutes. In the survey, you will read a simple
scenario, try to imagine yourself in that scenario and respond how you
would behave in that situation. There is no risk or discomfort of
participation. You will be compensated for participating in this study.

Any information or personal details gathered in the course of the study

are confidential, except as required by law. No individual will be
identified in any publication of the results. Access to data is limited to
those persons directly involved within the research, and no information
identifying participants will be released without the explicit consent of
the participants concerned. A summary of the results of the data can be
made available to you on request by email.

76 Appendices
Participation in this study is entirely voluntary: you are not obliged to
participate and if you decide to participate, you are free to withdraw at
any time without having to give a reason and without consequence.

The ethical aspects of this study have been approved by the Macquarie
University Human Research Ethics Committee. If you have any
complaints or reservations about any ethical aspect of your participation
in this research, you may contact the Committee through the Director,
Research Ethics & Integrity (telephone (02) 9850 7854; email
[email protected]). Any complaint you make will be treated in
confidence and investigated, and you will be informed of the outcome.

Please select one of the following options:

I have read (or, where appropriate, have had read to me) and
understand the information above and any questions I have asked
have been answered to my satisfaction. I agree to participate in this
research, knowing that I can withdraw from further participation
in the research at any time without consequence

I do not agree

Appendices 77
 Appendix C

Study 1 Stimulus and Measures – Buy-now-pay-later Condition

78 Appendices
Appendices 79
80 Appendices
 Appendix D

Study 1 Stimulus and Measures – Credit Card Condition

Appendices 81
82 Appendices
Appendices 83
 Appendix E

Study 2 Stimulus and Measures – Buy-now-pay-later Condition

84 Appendices
Appendices 85
86 Appendices
 Appendix F

Study 2 Stimulus and Measures – Cash Condition

Appendices 87
88 Appendices
Appendices 89
 Appendix G

Study 3 Stimulus and Measures – Buy-now-pay-later with 8 Payments

90 Appendices
Appendices 91
92 Appendices
 Appendix H

Study 3 Stimulus and Measures – Buy-now-pay-later with 4 Payments

Appendices 93
94 Appendices
Appendices 95
 Appendix I

Market Norms of Buy-now-pay-later Compared to Credit Cards

Industry norms in Australia are provided to indicate the typical consumer service.

Buy-now-pay-
Credit Cards
later

Repayment period Two weeks1 Monthly2

Repayment minimum per period 25%1 3%2

Average arrangement balance $1783 $3,2004

Spending cap / average limit $2,0003 $9,5004

1
McDuling, J., & Bateman, P. (2018, September 1). The $4b 'buy now, pay later'
startup built on a legal loophole. Sydney Morning Herald. Retrieved from
https://www.smh.com.au/business/companies/the-4bn-buy-now-pay-later-startup-
built-on-a-legal-loophole-20180829-p500j4.html
2
Canstar. (2016, December 6). What is a credit card minimum repayment. Retrieved
from https://www.canstar.com.au/credit-cards/credit-cards-and-minimum-
repayments/
3
ASIC. (2018). Report 600 - Review of buy now pay later arrangements. Retrieved
from https://asic.gov.au/regulatory-resources/find-a-document/reports/rep-600-
review-of-buy-now-pay-later-arrangements/
4
Reserve Bank of Australia. (2019). C1.1 Credit and Charge Cards – Original
Series – Aggregate Data. Retrieved from:
https://www.rba.gov.au/statistics/tables/xls/c01-1-hist.xlsx

96 Appendices