This study investigates the influence of paying with digital pre-paid tokens on consumers’ spending behaviour. Using data from two online experiments, I find that consumers make a higher initial charge and show an increased willingness to pay when paying in tokens, compared to their normal currency. Furthermore, consumers are less accurate recalling their expenses when paying with tokens. Those effects seem to occur independent of consumers’ spending type and consumers generally appear to be at least somewhat aware of their occurrence. This study’s findings provide a scientific foundation for policymakers to make informed decisions and can aid consumers to be more mindful when paying with tokens.
Tokens, as a form of currency substitute, are often an indispensable component at events and in entertainment. From larger private events, to nightclubs, amusement parks, concerts, and festivals – tokens are used as currency in a diverse variety of settings.
Originally, tokens were introduced to facilitate and standardise frequently occurring payments. The Oktoberfest for instance, introduced token transactions between waiters and the bar already in the 19th century. At that time, waiters had to purchase the beer from the bar before selling it to the customers. To simplify those purchases, “Biermarken” (beer tokens) were introduced (Naser, n.d.). Now, the waiter paid the bar in “Biermarken” that they previously purchased. This increased transaction speed because no money had to be exchanged. In addition, safety was improved since “real money” was only handled by a few employees and extra profits could be earned because of unused tokens. Furthermore, it also simplified tracking transactions, since counting the tokens spent/received is less time-consuming than counting bills and change. Waiters kept easier track of their income, and the bar knew exactly how many beers they sold (by counting the “Biermarken” they had). Such benefits of tokens do not only take place in a B2B setting (as far as one can call waiters and bars both businesses), however. The same benefits can also be achieved when equipping regular customers with tokens, which again increases overall traceability and transaction speed. Benefits like these are especially valuable in busy environments, which events often are.
However, most of the above-mentioned benefits of token-based systems are also offered by ordinary digital payments. With digital payments, traceability, transaction speed, and security are significantly higher than with cash, and arguably even higher than with physical tokens. Nevertheless, many kinds of events kept the tokens as currency even when moving to a digital system. Therefore, a variety of events today have a fully digital pre-paid token-based payment system. This suggests that there might be other effects of pre-paid token systems that motivate these organisations to create an individual currency for their event.
Up until today, however, no rigorous academic investigation has been conducted into the effect of such systems on spending behaviour. There is, however, existing literature about the impact of decoupled payments (pre-paid/paid afterwards) on spending behaviour and willingness to pay. Furthermore, scholarship has investigated the effect of paying in a foreign currency on spending behaviour. The joint effect of the phenomena this research discovered, however, is not examined yet. Nevertheless, examining this joint effect would be a valuable addition since events and other leisure time activities like video games often employ pre-paid token-based systems that could be subject to both effects. Furthermore, recent societal discussion and lawmaker attention in countries where token-based payments on events are common, underline the need for scientific proof. In Belgium for example, the authorities gave several warnings to festivals in 2023 because they did not properly disclose prices in euros (Ponsaerts, 2023).
Therefore, this study aims to synthesise literature about decoupled payments with literature about payments in foreign currencies and empirically examine how the effects found interact with each other. Hence, this research asks: How does a pre-paid token-based payment system influence spending behaviour?
To answer this question, this study conducted two digital experiments. The first experiment aimed to examine differences in initial charge individuals would make into a pre- paid system, when the system is based on euros and when the system is based on tokens. Therefore, participants were split into two groups (i.e., a euro and a token group) and put in the setting of an imaginary festival. In this setting, the participants were explained their respective payment system and asked to indicate the amount of their first charge into that system in their respective currency.
The second experiment aimed to examine differences in the willingness to pay and the accuracy in the recall of expenses in different payment systems. To be able to differentiate between the effects of payment decoupling and paying in foreign currencies, this survey consisted of three groups. In the setting of an imaginary festival, participants were either assigned to a euro-based direct payment system, to a euro-based pre-paid payment system, or to a token-based pre-paid payment system. Using their respective payment system, participants were asked to indicate their willingness to pay for four common festival items (i.e., a portion of fries, a cup of beer, a burger, or a slice of pizza). The recall accuracy was tested using the participants' absolute deviation of recalled total willingness to pay for the four items displayed from actual total willingness to pay.
The results of the first experiment show an increased initial charge when paying with tokens compared to euros. Regarding the second experiment, participants in the pre-paid euro group showed a higher willingness to pay than those in the ordinary euro-based system. An even higher willingness to pay was observed for the pre-paid token group, compared to the pre- paid euro group. A similar effect is found when looking at the recall of payments. Compared to people making ordinary euro-based payments I find that people who make payments in a pre-paid euro-based system are less accurate recalling their expenses. Regarding people in a pre-paid token-based system I find an even higher inaccuracy when recalling expenses. This research finds no significance of spending type as a moderator of overspending in the token group and hence assumes that the effect of a token-based payment system persists regardless of personal factors. In line with past research, this study assumes that the described effects of overspending are most likely taking place because of a lower pain of payment due to timely decoupling between payment and acquisition and a lower transparency, and therefore lower involvement, due to the token currency.
This study contributes to the existing literature in the sense that it provides experimental proof for the isolated effects of payment decoupling and paying in foreign currencies, found in previous research while showing the complementary nature of those effects. Furthermore, this research creates a scientific base to enlighten consumers about the effects of payment systems using artificial currencies and provides policymakers with an empirical foundation for further decisions regarding this topic.
The remainder of the paper is structured in the following way: it starts with an overview of published research about decoupled payments and payments in foreign currencies. Based on this review, hypotheses will be developed. Afterwards, this study’s methodology will be presented, and the data gained through the experiments will be analysed and used to test the earlier developed hypotheses. Subsequently, the results of this analysis will be discussed, and the research question will be answered. Lastly, a concluding overview of the paper will be given and limitations and possibilities for future research will be mentioned.
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