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 We provide empirical evidence that violent and financial crimes have opposite effects on cash withdrawn and cash payment: On the one side, violent crime increases the amount of cash withdrawn and increases the probability of a cash payment. On the other side, financial crime decreases the amount of cash withdrawn and increases the probability of a credit or debit card payment.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 The increase in the amount of cash withdrawn comes from the reduction of the number of cash withdrawals together with the non-linearity of cash withdrawals at ATMs.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.

A Model of the Indirect Effect of Crime on the Demand for Money

“…It supports a positive money-crime relationship when money is subject to theft. For instance, referring to the theoretical foundations of the Baumol-Tobin model 6 , (Karoubi and Chenavaz, 2015) showed that the higher the incidence of violent crime, i.e., violent theft and street crime, the higher the weekly amount of cash withdrawn, and, they also found a negative correlation between violent theft and the decision of having a paying card. These results may seem counterintuitive, as reduced money holdings seems like the way to diminish the size of expected losses in the event of property crime.…”