Behavioral drivers of cashless payments in Africa

Batiz-Lazo, Bernardo and Maixe-Altes, J Carles and Peon, David (2023): Behavioral drivers of cashless payments in Africa.

Abstract

We explore the potential of different behavioral drivers for people to use cash when presented with digital payment alternatives in retail transactions. Behavioral finance traits in our study include the otherwise neglected emotional drivers. We conducted an online survey targeting university educated adults in sub-Saharan African countries, a continent characterized by lower levels of banking penetration, intensive use of cash, and increased popularity of mobile money accounts to reduce financial exclusion. We obtain robust evidence that the affect heuristic is the only relevant behavioral trait determining the use of cash and of payments with credit cards, while there is no evidence of behavioral drivers influencing the overall decision to use of electronic payments. However, in specific payment contexts cognitive traits, such as mental accounting, fungibility bias, and habit, do mediate in determining the choice of payment method. We found robust evidence that a higher value of our personal income proxy is associated with a reduction in the intention to use electronic payments. All results are robust to alternative econometric specifications: multinomial logistic, ordered logistic, and logit regressions. Our research provides a clear policy message, namely for authorities to promote a variety of payment alternatives, including cash, and ensure they are available in retail transactions.

• Item Type: MPRA Paper
• Language: English
• Keywords: FinTech, Cash, Digital Payments, Behavioral Finance (Affect Heuristic), Africa (Ghana, Kenya, Nigeria, South Africa).
• Subjects: E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit; G - Financial Economics > G1 - General Financial Markets; G - Financial Economics > G2 - Financial Institutions and Services; L - Industrial Organization > L8 - Industry Studies: Services; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights

References

Abeler J, Marklein F (2017). Fungibility, labels, and consumption. Journal of the European Economic Association 15(1), 99-127.

Antonides G, De Groot I, van Raaij W (2011). Mental budgeting and the management of household finance. Journal of Economic Psychology 32(4), 546-555.

Au YA, Kaufmann RJ (2008). The economics of mobile payments: Understanding stakeholder issues for an emerging technology application. Electronic Commerce Research and Applications 7, 141-164.

Bank of Canada (2021). Central bank digital currencies: foundational principles and core features. Joint report by The Bank of Canada, European Central Bank, Bank of Japan, Sveriges Riksbank, Swiss National Bank, Bank of England, Board of Governors of the Federal Reserve and Bank for International Settlements. Available at https://www.bis.org/publ/othp33.htm

Bargh JA (1994). The four horsemen of automaticity: Awareness, intention, efficiency and control in social cognition. In RS Wyer and TK Srull (Eds.), Handbook of Social Cognition. Hillsdale, NJ: Erlbaum.

Bartzsch N, Seitz F (2016). Cash holdings in Germany and the demand for “German” banknotes: what roles is there for cashless payments? In Gorka J (ed), Transforming payment systems in Europe, Palgrave Macmillan.

Bátiz-Lazo B, Bautista-González MA, González-Correa I (2021). La transformación en el uso de efectivo y pagos digitales durante la pandemia de la Covid-19. Papeles de Economía Española 170, 125-142.

Bátiz-Lazo B, Haigh T, Stearns DL (2014). How the future shaped the past: The case of the cashless society. Enterprise and Society 15(1), 103-131.

Beck T, Senbet L, Simbanegavi W (2015). Financial inclusion and innovation in Africa: An overview. Journal of African Economies 24(suppl 1), i3–i11.

Benartzi S, Beshears J (2017). Should governments invest more in nudging? Psychological Science 28(8), 1045-1055.

BG (2018). Guideline on operations of electronic payment channels in Ghana. Bank of Ghana, April 2018.

BG (2020). Payment system statistics. Bank of Ghana, 2020. Biondi Y (2018). Banking, money and credit: A systemic perspective. Accounting, Economics and Law 8, Article n. 20170047

Boden J, Maier E, Wilken R (2020). The effect of credit card versus mobile payment on convenience and consumers’ willingness to pay. Journal of Retailing and Consumer Services 52, article no. 101910.

Botta A, Fjer A, Gold E, Ofosu-Amaah NA, Seshie E (2022). The future of payments in Africa. McKinsey’s Financial Services Practice, McKinsey & Company. Available at www.mckinsey.com/ industries/financial-services/our-insights/the-future-of-payments-in-africa

Camera G, Casari M, Bortolotti S (2016). An Experiment on Retail Payments Systems. Journal of Money, Credit and Banking 48(2-3), 363-392.

CBK (2018). National payment system report. Central Bank of Kenya.

CBK (2021). National payments strategy, 2022-2025. Central Bank of Kenya.

CBN (2020). Payments system vision 2020. Central Bank of Nigeria.

Ceravolo MG, Fabri M, Fattobene L, Polonara G, Raggetti G (2019). Cash, card or smartphone: the neural correlates of payment methods. Frontiers in Neuroscience 13, article no. 1188.

Cesarini D, Johannesson M, Magnusson P, Wallace B (2012). The behavioral genetics of behavioral anomalies. Management Science 58(1), 21-34.

Chainalysis (2020): The 2020 Geography of Cryptocurrency Report. Analysis of Geographic Trends in Cryptocurrency Adoption, Usage, and Regulation September 2020. Available at https://ag-pssg-sharedservices-ex.objectstore.gov.bc.ca/ag-pssg-cc-exh-prod-bkt-ex/258%20-%20002%20Appendix%20B%20-%202020-Geography-of-Crypto%201.pdf

Chen H, Felt M-H, Huynh KP (2017). Retail payment innovations and cash usage: accounting for attrition by using refreshment samples. Journal of the Royal Statistical Society. Series A: Statistics in Society 180(2), 503-530.

Chironga M, Cunha L, De Grandis H, Kuyoro M (2018). Roaring to life: Growth and innovation in African retail banking. McKinsey & Company. Available at www.mckinsey.com/industries/ financial-services/our-insights/african-retail-bankings-next-growth-frontier

Clark FA (2000). The concepts of habit and routine: A preliminary theoretical synthesis. Occupational Therapy Journal of Research 20, 123S–137S.

Demirgüç-Kunt A, Klapper L (2012). Financial inclusion in Africa: An overview. The Policy Research Working Paper Series. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2084599.

Deutsche Bundesbank (2017). Payment behaviour in Germany 2017. Available at https:// tinyurl.com/2zsvmtcu

Duxbury D, Verousis T, Marsh D (2022). Behavioral Drivers of Intentions to Use Cash: UK Survey Evidence. Mimeo, Newcastle University Business School, Essex Business School, and National Westminster Bank.

ECB (2020). Study on the payment attitudes of consumers in the euro area (SPACE). European Central Bank. At www.ecb.europa.eu/pub/pdf/other/ecb.spacereport202012~bb2038bbb6.en.pdf

Ersche K, Lim T, Ward L, Robbins T, Stochl J (2017). Creature of habit: A self-report measure of habitual routines and automatic tendencies in everyday life. Personality and Individual Differences 116, 73–85.

Ezuwore-Obodoekwe CN, Eyisi AS, Emengini SE, Alio Felix Chukwubuzo (2014). A Critical Analysis of Cashless Banking Policy in Nigeria. OSR Journal of Business and Management 16(5), 30-42.

Finucane ML, Alhakami A, Slovic P, Johnson SM (2000). The affect heuristic in judgments of risks and benefits. Journal of Behavioral Decision Making 13(1), 1-17.

Flötotto M, Gold E, Jeenah U, Kuyoro M, Olanrewaju T (2022). Fintech in Africa: the end of the beginning. McKinsey’s Financial Services Practice, McKinsey & Company. At www.mckinsey.com/ industries/financial-services/our-insights/fintech-in-africa-the-end-of-the-beginning

Fujiki H (2020). Cash demand and financial literacy: A case study using Japanese survey data. Japan and the World Economy 54, Article number 100998.

Gallimore R, Lopez EM (2002). Everyday routines, human agency, and Ecocultural context: Construction and maintenance of individual habits. OTJR: Occupation, participation and health 22, 70S–77S.

Global Finance (2021). World's most unbanked countries 2021. In Statista, from www.statista.com/ statistics/1246963/unbanked-population-in-selected-countries.

Greene and Stavins (2018). The 2016 and 2017 surveys of consumer payment choice: Summary results. Federal Reserve Bank of Boston, Research Data Reports No. 18–3.

Harasim J (2016). The shift from cash to non-cash transactions. In Gorka J (ed), Transforming payment systems in Europe, Palgrave Macmillan.

Hastings J, Shapiro JM (2018). How are SNAP benefits spent? Evidence from a retail panel. American Economic Review 108(12), 3493-3540.

Helion C, Gilovich T (2014). Gift cards and mental accounting: green-lighting hedonic spending. Journal of Behavioral Decision Making 27, 386–393.

Hernandez L, Jonker N, Kosse A (2017). Cash versus debit card: the role of budget control. Journal of Consumer Affairs 51(1), 91-112.

Huebner J, Fleisch E, Ilic A (2020), Assisting mental accounting using smartphones: Increasing the salience of credit card transactions helps consumer reduce their spending. Computers in Human Behavior 113, Article number 106504.

Humbani M, Wiese M (2018). A Cashless Society for all: Determining consumers’ readiness to adopt mobile payment services. Journal of African Business 19(3), 409-429.

IFC (2020). e-conomy Africa 2020 – Africa’s $180 billion internet economy future. International Finance Corporation – World Bank Group.

IMF (2019). Cash use across countries and the demand for Central Bank Digital Currency. IMF Working Paper. At https://www.imf.org/en/Publications/WP/Issues/2019/03/01/Cash-Use-Across-Countries-and-the-Demand-for-Central-Bank-Digital-Currency-46617

Kahn J, Belk RW, Craig-Lees M (2015). Measuring consumer perceptions of payment mode. Journal of Economic Psychology 47, 34-49.

Kahn J, Rivers G (2019). Role of ‘owned’ money and rational spending. K Gangl & E Kirchler (ed.), A Research Agenda for Economic Psychology, pp. 44-57. Edward Elgar Publishing. Kahneman D, Frederick S (2002). Representativeness revisited: Attribute substitution in intuitive judgment. In T Gilovich, D Griffin, D Kahneman (eds.), Heuristics and biases: The psychology of intuitive thought. Cambridge University Press, 49-81.

Kahneman D, Tversky A (1979), Prospect theory: An analysis of decision under risk. Econometrica 47(2), 263-292. Kahneman D, Tversky A (1984). Choices, values and frames. American Psychologist 39, 341-350.

Kamleitner B, Erki B (2013). Payment method and perceptions of ownership. Marketing Letters 24, 57-69.

Kemper J, Deufel P (2018). Show me how you buy and I will tell you how you pay: The situational effect on payment method choice in e-commerce. 26th European Conference on Information Systems: Beyond Digitization - Facets of Socio-Technical Change. ECIS 2018, Portsmouth.

Li B, Hanna SD, Kim KT (2020). Who uses mobile payments: Fintech potential in users and non-users. Journal of Financial Counseling and Planning 31(1), 83-100.

Narula N, Swartz L, Frizzo-Barker J (2023), CBDC: Expanding Financial Inclusion or Deepening the Divide? MIT Lab (Digital Currency Initiative). Available at https://dci.mit.edu/cbdc-fi-1

Okello G, Bongomin C, Ntayi JM, Munene JC (2018). Mobile money and financial inclusion in Sub-Saharan Africa: the moderating role of social networks. Journal of African Business 19(3), 361–384.

Okoye PVC, Ezejiofor RA (2013). The Effect of Human Resources Development on Organizational Productivity. The International Journal of Academic Research in Business and Social Sciences 3(10), 250-268.

Ondiege P (2015). Regulatory impact on mobile money and financial inclusion in African Countries - Kenya, Nigeria, Tanzania and Uganda, Nairobi. Making Finance Work for Africa MFW4A. https://www.mfw4a.org/publication/regulatory-impact-mobile-money-and-financial-inclusion-african-countries-kenya-nigeria

Panetta F (2021a). Evolution or revolution? The impact of a digital euro on the financial system. Speech by Fabio Panetta, Member of the Executive Board of the ECB. 10 February 2021. www.ecb.europa.eu/press/key/date/2021/html/ecb.sp210210~a1665d3188.en.html

Panetta F (2021b). Cash still king in times of COVID-19. Keynote speech by Fabio Panetta, Member of the Executive Board of the ECB, at the Deutsche Bundesbank’s 5th International Cash Conference – “Cash in times of turmoil”. Frankfurt am Main, 15 June 2021. At https://www.ecb.europa.eu/press/key/date/2021/html/ecb.sp210615~05b32c4e55.en.html

Patil P, Tamilmani K, Rana NP, Raghavan V (2020). Understanding consumer adoption of mobile payment in India: extending Meta-UTAUT model with personal innovativeness, anxiety, trust and grievance redressal. International Journal of Information Management 54, Article No. 102144.

Peón D (2015). Behavioral microfoundations of retail credit markets: A theoretical and experimental approximation. Universidade da Coruña. Doctoral Thesis. At: http://hdl.handle.net/2183/13962. DOI: 10.13140/RG.2.2.34232.57604

Peón D, Antelo M, Calvo A (2016). Overconfidence and risk seeking in credit markets: an experimental game. Review of Managerial Science 10(3), 511-552.

Peón D, Antelo M, Calvo A (2017). An inclusive taxonomy of behavioral biases. European Journal of Government and Economics 6(1), 24-58.

Prelec D, Simester D (2001). Always leave home without it: a further investigation of the credit-card effect on willingness to pay. Marketing Letters 12(1), 5-12.

Rabin M (2000). Risk aversion and expected-utility theory: A calibration theorem. Econometrica 68(5), 1281-1292.

Raghubir P, Srivastava J (2008). Monopoly money: the effect of payment coupling and form on spending behavior. Journal of Experimental Psychology: Applied 14(3), 213-225.

Rösl G, Seitz F (2022). Cash demand in times of crisis. Journal of Payments Strategy & Systems 16(2), 107-119.

Rouse M, Bátiz-Lazo B, Carbó Valverde S (2023). M-Pesa and the role of the entrepreneurial state in a cashless technology to deliver an inclusive financial sector. Essays in Economic & Business History, (Forthcoming).

Runnemark E, Hedman J, Xiao X (2015). Do consumers pay more using debit cards than cash? Electronic Commerce Research and Applications 14, 285-291.

Saling LL, Phillips JG (2007). Automatic behaviour: Efficient not mindless. Brain Research Bulletin 73, 1–20.

SARB (2020). The National Payment System framework and strategy: vision 2025. South African Reserve Bank.

Schmiedel H, Kostova G, Ruttemberg W (2012). The social and private costs of retail payment instruments: a European perspective. European Central Bank Occasional Paper Series No. 137.

Shiller RJ (2000). Irrational exuberance. Princeton University Press. Simatele M, Mbedzi E (2021). Consumer payment choices, costs, and risks: evidence from Zimbabwe. Cogent Economics & Finance 9(1), 1-23.

Singh N, Sinha N (2020). Determining factors in the adoption and recommendation of mobile wallet services in India: analysis of the effect of innovativeness, stress to use and social influence. International Journal of Information Management 50, 191-205.

Skagerlung K, Forsblad M, Slovic P, Västfjäll D (2020). The affect heuristic and risk perception – stability across elicitation methods and individual cognitive abilities. Frontiers in Psychology 11, article 970.

Slovic P (1987). Perception of risk. Science 236, 280–285. Statman M (1999), Behavioral finance: Past battles, future engagements. Financial Analysts Journal 55(6), 18-27.

Stavins J (2017). How do consumers make their payment choices? Federal Reserve Bank of Boston, Research Data Reports Paper No. 17-1.

Sveriges Riksbank (2020). The payment behaviour of the Swedish population. Available at https://www.riksbank.se/en-gb/statistics/statistics-on-payments-banknotes-and-coins/payment-patterns/

Thaler RH (1985). Mental accounting and consumer choice. Marketing Science 4(3), 199-214. Thaler RH (1999), Mental accounting matters. Journal of Behavioral Decision Making 12(3), 183-206.

Thomas M, Desai KK, Seenivasan S (2011). How credit card payments increase unhealthy food purchases: visceral regulation of vices. Journal of Consumer Research 38, 126-139.

Tversky A, Kahneman D (1992), Advances in prospect theory: Cumulative representation of uncertainty. Journal of Risk and Uncertainty 5(4), 297-323.

van der Cruijsen C, Hernandez L, Jonker N (2015). In love with the debit card but still married to cash. Working paper No. 461, De Nederlandsche Bank.

van der Cruijsen C, Knoben J (2021). Ctrl+C Ctrl+Pay: Do people mirror electronic payment behavior of their peers? Journal of Financial Services Research 59(1-2), 69-96.

van der Cruijsen C, van der Horst F (2016). Payment behavior: the role of socio-psychological factors. DNB working papers. No. 532, November 2016. At www.dnb.nl/media/m4odd4cf/working-paper-532.pdf

van der Cruijsen C, van der Horst F (2019). Cash of card: unravelling the role of socio-psychological factors. Economist (Netherlands) 167(2), 145-175.

van der Horst F, Mattjitsen E (2013). The irrationality of payment behavior. Occasional Studies 11(4), De Nederlandsche Bank. Van Hove L (2016). Could “nudges” steer us towards a less-cash society? In Gorka J (ed), Transforming payment systems in Europe, Palgrave Macmillan.

Vana P, Lambrecht A, Bertini M (2018). Cashback is cash forward: delaying a discount to entice future spending. Journal of Marketing Research 55(6), 852-868.

Wakamori N, Welte A (2017). Why do shoppers use cash? Evidence from shopping diary data. Journal of Money, Credit and Banking 49(1), 115-169.

Wood W, Neal D (2009). The habitual consumer. Journal of Consumer Psychology 19(4), 579-592.

Zhao Y, Bacao F (2021). How does the pandemic facilitate mobile payment? An investigation on users’ perspective under the COVID-19 pandemic. International Journal of Environmental Research and Public Health 18(3), 1-22.