Does Crime Influence the Payment Decisions of Consumers?
Abstract
The impact of crime on economic activity has been widely studied. The economic analysis of crime on payment instrument, however, is still lacking. In this paper, we analyze the impact of crime on the use of cash and card payment with an original database of a representative sample of French consumers. We provide empirical evidence that violent and financial crimes have opposite effects on cash withdrawn and cash payment: On the one side, violent crime increases the amount of cash withdrawn and increases the probability of a cash payment. On the other side, financial crime decreases the amount of cash withdrawn and increases the probability of a credit or debit card payment. The probability of mugging is higher when withdrawing cash and automated teller machines (ATMs) deliver only notes. The increase in the amount of cash withdrawn comes from the reduction of the number of cash withdrawals together with the non-linearity of cash withdrawals at ATMs. The increase in the proportion of card owners when financial crime is high is a result of adverse selection: a financial fraudster is more aware of the insurance provided with payment cards, and therefore he places a greater value on having a payment card.