Advertisement

Journal of Financial Services Research

, Volume 50, Issue 1, pp 121–159 | Cite as

Identity Theft and Consumer Payment Choice: Does Security Really Matter?

  • Charles M. Kahn
  • José M. Liñares-Zegarra
Article

Abstract

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. We use the 2009 Survey of Consumer Payment Choice (SCPC) to study the effect of identity theft incidents on adoption and usage patterns for nine different payment instruments in the U.S. Our results suggest that certain types of identity theft incidents affect positively the probability of adopting money orders, credit cards, stored value cards, bank account number payments and online banking bill payments. As for payment usage, we find that particular types of identity theft incidents have a positive and statistically significant effect on the use of cash, money orders and credit cards and a negative and statistically significant effect on the use of checks and online banking bill payments. These results are robust across different types of transaction, after controlling for various socio-demographic characteristics and perceptions toward payment methods.

Keywords

Identity theft Payment choice Heckman selection model 

JEL Code

G20 D12 E41 

Notes

Acknowledgments

Jose Liñares thanks financial support from the Spanish Ministry of Science (EX2009-0908). We would like to thank the Editors, Haluk Ünal and David Musto, and an anonymous referee for useful comments and suggestions. We also thank participants in seminars at the Bank of Canada, the Federal Reserve Bank of Atlanta, the Computer Laboratory Security Group (University of Cambridge), the Essex Finance Centre (EFiC) and the participants of the 2014 Finest Summer Workshop for helpful comments and suggestions. We also thank participants in the RES Annual Meeting 2012 in London and the 1st Conference for Responsible Banking and Finance held at University of St Andrews.

References

  1. AARP (2007) Consumer payment study. American association of retired persons. February 2007Google Scholar
  2. Acoca B (2008) Online identity theft. OECD Obs 268:12–13Google Scholar
  3. Alvarez F, Lippi F (2009) Financial innovation and the transactions demand for cash. Econometrica 77(2):363–402CrossRefGoogle Scholar
  4. Anderson KB, Durbin E, Salinger MA (2008) Identity theft. J Econ Perspect 22(2):171–192CrossRefGoogle Scholar
  5. Arango C, Hogg D, Lee A (2012) Why is cash (still) so entrenched? Insights from the bank of Canada’s 2009 methods-of-payment survey: bank of canada discussion paper no. 2012–2Google Scholar
  6. Arango C, Taylor V (2009) The role of convenience and risk in consumers’ means of payment. Bank of Canada discussion paper no. 2009–8Google Scholar
  7. Attanasio O, Guiso L, Jappelli T (2002) The demand for money, financial innovation and the welfare cost of inflation: an analysis with households’ data. J Polit Econ 2(110):317–351CrossRefGoogle Scholar
  8. Barker KJ, D’Amato J, Sheridon P (2008) Credit card fraud: awareness and prevention. J Finance Crime 15(4):398–410CrossRefGoogle Scholar
  9. Benton M, Blair K, Crowe M, Schuh S (2007) The Boston Fed study of consumer behavior and payment choice: a survey of federal reserve system employees. Federal reserve bank of Boston, public policy discussion paper: 07–1Google Scholar
  10. Bolt W, Chakravorti S (2008) Consumer choice and merchant acceptance of payment media. Federal reserve bank of Chicago, working paper series: WP-08-11Google Scholar
  11. Bolton LE, Cohen JB, Bloom PN (2006) Does marketing products as remedies create “Get out of jail free cards”? J Consum Res 33(1):71–81CrossRefGoogle Scholar
  12. Borzekowski R, Kiser KE, Ahmed S (2008) Consumers’ use of debit cards: patterns, preferences, and price response. J Money Credit Bank 40(1):149–172CrossRefGoogle Scholar
  13. Burns P, Stanley A (2002) Fraud management in the credit card industry. Federal reserve bank of Philadelphia. Payment cards center discussion paper no. 02–05Google Scholar
  14. Carbó-Valverde S, Liñares-Zegarra JM (2011) How effective are rewards programs in promoting payment card usage? Empirical evidence. J Bank Financ 35(12):3275–3291CrossRefGoogle Scholar
  15. Cameron, A C, Trivedi, PK (2005) Microeconometrics: methods and applications. Cambridge University PressGoogle Scholar
  16. Cheney J (2006) Supply-and demand-side developments influencing growth in the debit market. Federal reserve bank of Philadelphia. Payment cards center discussion paper no. 06–11Google Scholar
  17. Cheney J (2010) Heartland payment systems: lessons learned from a data breach. Federal reserve bank of Philadelphia. Payment cards center discussion paper no. 10–1Google Scholar
  18. Ching AT, Hayashi F (2010) Payment card rewards programs and consumer payment choice. J Bank Financ 34(8):1773–1787CrossRefGoogle Scholar
  19. Conkey C (2007) Assessing identity-theft costs. The wall street journal—Eastern edition Vol. 250Google Scholar
  20. Copes H, Kerley KR, Huff R, Kane J (2010) Differentiating identity theft: an exploratory study of victims using a national victimization survey. J Crime Justice 38(5):1045–1052CrossRefGoogle Scholar
  21. Crooks T (2004) Fear of ID theft may do more harm than the crime. Am Banker 169(102):10Google Scholar
  22. Douglass DB (2009) An examination of the fraud liability shift in consumer card-based payment systems. Econ Perspect 33(1):43–49Google Scholar
  23. Eisenstein EM (2008) Identity theft: an exploratory study with implications for marketers. J Bus Res 61(11):1160–1172CrossRefGoogle Scholar
  24. Federal Trade Commission (2008) Consumer fraud and identity theft complaint data. Federal trade commission. January–December 2007Google Scholar
  25. Finklea KM (2010) Identity theft: Trends and issues. Congressional research service - prepared for members and committees of congress congressional research service, February 2010Google Scholar
  26. Finklea KM (2012) Identity theft: trends and issues. Congressional research service - prepared for members and committees of congress congressional research service, February 2012Google Scholar
  27. Foster K, Meijer E, Schuh S, Zabek M (2011) The 2009 survey of consumer payment choice. Federal reserve bank of Boston, public policy discussion paper no. 11–1Google Scholar
  28. Furletti M, Smith S (2005a) The laws, regulations, and industry practices that protect consumers who use electronic payment systems: ACH e-checks and prepaid cards. Federal reserve bank of Philadelphia, payment cards center discussion paper no. 05–04Google Scholar
  29. Furletti M, Smith S (2005b) The laws, regulations, and industry practices that protect consumers who use electronic payment systems: Credit and debit cards. Federal reserve bank of Philadelphia, payment cards center discussion paper no. 05–01Google Scholar
  30. Hayashi F, Klee E (2003) Technology adoption and consumer payments: evidence from survey data. Rev Netw Econ 2(2):175–190CrossRefGoogle Scholar
  31. He P, Huang L, Wright R (2008) Money, banking, and monetary policy. J Monet Econ 55(6):1013–1024CrossRefGoogle Scholar
  32. Humphrey DB, Pulley LB, Vesala JM (1996) Cash, paper, and electronic payments: a cross-country analysis. J Money Credit Bank 28(4):914–939CrossRefGoogle Scholar
  33. Javelin Strategy & Research (2010) The 2010 identity fraud survey report. CaliforniaGoogle Scholar
  34. Jonker N (2007) Payment instruments as perceived by consumers—results from a household survey. De Economist 155(3):271–303CrossRefGoogle Scholar
  35. Kahn CM, McAndrews J, Roberds W (2005) Money is privacy. Int Econ Rev 46(2):377–399CrossRefGoogle Scholar
  36. Kahn CM, Roberds W (2008) Credit and identity theft. J Monet Econ 55(2):251–264CrossRefGoogle Scholar
  37. Kahn CM, Roberds W (2009) Why pay? An introduction to payments economics. J Financ Intermed 18(1):1–23CrossRefGoogle Scholar
  38. Klee E (2008) How people pay: evidence from grocery store data. J Monet Econ 55(3):526–541CrossRefGoogle Scholar
  39. Kosse A (2013a) Do newspaper articles on card fraud affect debit card usage? J Bank Financ 37(12):5382–5391CrossRefGoogle Scholar
  40. Kosse A (2013b) The safety of cash and debit cards: a study on the perception and behaviour of Dutch consumers. Int J Cent Bank 9(4):77–98Google Scholar
  41. Linnhoff S, Langenderfer J (2004) Identity theft legislation: the fair and accurate credit transactions act of 2003 and the road not taken. J Consum Aff 38(2):204–216CrossRefGoogle Scholar
  42. Listerman RA, Romesberg J (2009) Are we safe yet? Strat Financ 91(1):27–33Google Scholar
  43. Mayer RN (2006) Defending your financial privacy: the benefits and limits of self-help. AARP public policy institute. Working paper no 2006–06Google Scholar
  44. Mooney CZ, Duval RD (1993) Bootstrapping: A nonparametric approach to statistical inference. Sage, Newbury ParkCrossRefGoogle Scholar
  45. Newman GR, McNally MM (2005) Identity theft literature review. Department of Justice, National Institute of Justice. NCJRS Report No. 210459, page 14Google Scholar
  46. Pagan A (1984) Econometric issues in the analysis of regressions with generated regressors. Int Econ Rev 25:183–209CrossRefGoogle Scholar
  47. Roberds W, Schreft SL (2009a) Data security, privacy, and identity theft: the economics behind the policy debates. Econ Perspect 33(1):22–30Google Scholar
  48. Roberds W, Schreft SL (2009b) Data breaches and identity theft. J Monet Econ 56(7):918–929CrossRefGoogle Scholar
  49. Rysman M (2009) Consumer payment choice: measurement topics. In: The changing retail payments landscape: What role for central banks? An international payment policy conference sponsored by the federal reserve bank of Kansas City, Federal reserve of Kansas City, 2009. pp 61–81Google Scholar
  50. Schreft SL (2007) Risks of identity theft: can the market protect the payment system? Econ Rev Fed Reserv Bank Kansas City 92(4):5–40Google Scholar
  51. Schuh S, Stavins J (2010) Why are (some) consumers (finally) writing fewer checks? The role of payment characteristics. J Bank Financ 34(8):1745–1758CrossRefGoogle Scholar
  52. Schultz E (2005) Are credit card providers doing enough to stop identity theft? Comput Sec 24(6):435–436Google Scholar
  53. Sproule S, Archer N (2010) Measuring identity theft and identity fraud. Int J Bus Govern Ethics 5(1):51–63CrossRefGoogle Scholar
  54. Sullivan RJ (2008) Can smart cards reduce payments fraud and identity theft? Econ Rev Fed Reserv Bank Kansas City 93(3):35–62Google Scholar
  55. Sullivan RJ (2010) The changing nature of U.S. card payment fraud: industry and public policy options. Econ Rev Fed Reserv Bank Kansas City 95(2):101–133Google Scholar
  56. Unisys (2009) UNISYS security indexTM report: United States. Lieberman Research Group. March—Wave 4Google Scholar

Copyright information

© Springer Science+Business Media New York 2015

Authors and Affiliations

  1. 1.Department of Finance, College of BusinessUniversity of IllinoisChampaignUSA
  2. 2.Essex Business SchoolUniversity of EssexColchesterUK

Personalised recommendations