Cash or Card: Consumer Perceptions of Payment Modes - Scholarly ...

enefit of consumption and the associated cost. These mental accounts help reduce the
cognitive load on the decision makers. Over time people develop mental filters as a short cut
to evaluate financial decision making. The assumption is that mental frames/filters influence
the experience of paying by card and cash. A card-based payment mode decouples the
payment from consumption – it removes the transparency so the sense that something of
value has been transferred is dulled. Although similar to Prospect theory (proposes that
people value gains and losses differently and, as such, will base decisions on perceived gains
rather than perceived losses) mental accounting differs in that it can be applied to riskless
situations; whereas prospect theory applies to chance or probabilistic settings, mental
accounting exists independently of attitudes concerning risk (Keeney and Raiffa, 1976).
Mental accounting theory is used in marketing literature to propose two related but
conceptually different theories of “prospective accounting” and “retrospective accounting”
that explain how payment mode influences purchase behaviour.
Prelec and Loewenstein (1998) explain that when something is prepaid (and there is a delay
between the payment and the consumption of the purchase) the acuteness (intensity) of the
payment experience is reduced and this potentially increases the consumers’ evaluations of
the net benefits of the transaction. They argue that specifically, thinking about the cost of
payment at the time of purchase can undermine the pleasure derived from the items
purchased and thinking about the benefits of a purchase can blunt the acuteness of the
payment. They argue that this is a form of ‘decoupling’ and it is not dissimilar to that
experienced when a credit card is used. This is in essence ‘prospective accounting’. At the
time of the transaction payment is in the future. Their main thesis however is that this
‘decoupling’ affects the degree of payment acuteness, or in their understanding, the degree of
pain experienced.
Whilst still in the domain of mental accounting, Soman (2001) proposes retrospective theory
to explain payment mode influences on spending behaviour. The theory involves mental
accounting at the levels of the spending budget rather than at the point of purchase decision.
The theory suggests that individuals have an idea of what they spend and whether their
current spending is above or below the budget; that is, the role of budgeting on spending
decision is driven by retrospection of past expenses. Individuals use their memory of past
spending as a reference point to guide their current spending. Past payment reduces purchase
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