Privacy Concerns, Bank Mistrust Lead to Higher Cash Use: Study

The findings suggest that government policy to promote electronic payments may have to address fundamental concerns about privacy and confidence in financial institutions.

The use of cash to pay for retail purchases increases with concern for privacy and decreases with confidence in banks, according to new research published as a special feature in the MAS’ semi-annual macroeconomic review.

“Cash facilitates tax evasion, financial crimes, drug smuggling, and terrorism. National governments would dearly like to reduce the use of cash. Yet, cash persists,” the paper says.

The study, funded by Singapore’s Ministry of Education, explores two psychological factors that affect the use of cash but have been largely overlooked in prior research – privacy, and trust in banks.

In cross-sectional regression estimates based on data from 36 countries, the study found:

  • an increase in concern for privacy by one standard deviation is associated with an increase in cash usage of 9.8% points
  • an increase in trust in banks by one standard deviation is associated with a reduction in cash usage of 12.3% points

“Overall, our empirical results are consistent with concern for privacy and mistrust of financial institutions leading individuals to avoid electronic payments in favour of cash,” the paper says.

Cash, privacy, and trust in banks

[Cash, privacy, and trust in banks, Source]

The findings help to explain the persistence in the use of cash particularly in countries where people are concerned about privacy (e.g. Japan) or lack confidence in financial institutions (e.g. Spain).

Further, the findings suggest that government policy to promote electronic payments may have to address fundamental concerns about privacy and confidence in financial institutions – which are “psychological factors that cannot be easily influenced through economic policies”.

Further, country-specific experiences may weigh on policy decisions, especially where individuals have been aggrieved by large-scale data breaches, systemic banking crises or financial scandals.

The full paper is available here.

The paper was authoured by National University of Singapore Professor Ivan Png and NUS Business School Post-Doctoral Fellow Charmaine Tan. The paper is not intended to reflect the views of MAS or NUS.

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