Abstract

This article builds on the theory of money demand to extend the literature stream of payment method choice. Our results indicate that the situation in which a customer places an order has significant influence on her or his payment decision. Especially the customer's very first order at the merchant, express delivery orders, and ordering basic items, increase the likelihood of paying with well-known payment methods (i.e., credit card) compared to more deferred ones (i.e., invoice). Other factors like product familiarity, sales promotion or the customer's solvency score play a subordinate role. Our results are based on an exclusive dataset containing close to a million actual customer transactions in 2016/17 from a leading European online fashion retailer. We suggest a re-interpretation of the transaction demand for money theory in the absence of cash. Online payment deferral represents a new choice the consumer faces compared to what formerly has been the cash vs. card payment decision. By offering deferred payment methods, e-commerce companies implicitly extend their business model to financing services. In practice, merchants should anticipate consumers' payment preferences, which eventually reduces complexity for the seller and increases convenience for the buyer.

Share

COinS
 
 

To view the content in your browser, please download Adobe Reader or, alternately,
you may Download the file to your hard drive.

NOTE: The latest versions of Adobe Reader do not support viewing PDF files within Firefox on Mac OS and if you are using a modern (Intel) Mac, there is no official plugin for viewing PDF files within the browser window.