Pay Now or Pay Later: The Impact of Time on Payment Preference in Hotel Booking

Abstract

The “book now, pay later” phenomenon is one form of payment which has flow-on effects such as increasing last-minute cancelations. To encourage prepayment, some hotels have been offering a price discount or free upgrade for choosing the “pay now” option, but little is known about which incentives can generate better outcomes. This study aims to examine what types of payment options are preferable based on the time between booking and check-in (i.e. temporal distance), and to investigate how the payment options and temporal distance jointly influence perceived risks. The findings demonstrate that while people prefer the pay now with monetary incentive option when traveling time is in the near future, they mostly prefer the pay later option when traveling time is distant. In addition, people planning a trip in the distant future perceive significantly higher risks from the pay now with non-monetary and monetary incentive options than from the pay later option.