Identity Theft and Consumer Payment Choice: Does Security Really Matter?
Charles M. Kahn
University of Illinois, Urbana-Champaign; Feseral Reserve Bank of Saint Louis; Bank of Canada
José Manuel Liñares-Zegarra
University of Essex - Essex Business School
October 17, 2013
Security is a critical aspect of electronic payment systems. In recent years, the phenomenon of identity theft has gained widespread media coverage and has grown to be a major concern for payment providers and consumers alike. How identity theft has affected consumer’s payment choice is still an open research question. Using a newly available nationally representative survey from the U.S., we study the effect of identity theft incidents on adoption and usage patterns for nine different payment instruments. Our results suggest that specific identity theft incidents alter the probability of adopting cash, money orders, credit cards, stored value cards, bank account number payments and online banking bill payment, after controlling for socio-demographic and payment characteristics. As for payment usage, we observe a positive and statistically significant effect of certain types of identity theft incidents on cash, money orders and credit cards. However, we also find that specific identity theft incidents could decrease the usage of checks and online banking bill payment. These results are robust across different types of transaction after controlling for various socio-demographic characteristics and perceptions toward payment methods.
Number of Pages in PDF File: 50
Keywords: identity theft, payment choice, Heckman selection model
JEL Classification: G20, D12, E41
Date posted: February 16, 2012 ; Last revised: April 28, 2014