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26-09-2023

Pay it forward (digitally): sizing up the global impact of electronic wages on digital payment usage

Author: Jeffrey S. Allen

Published in: Journal of Economics and Finance

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Abstract

This paper explores the extent to which electronic wage payments affect the likelihood that consumers pay merchants digitally. I examine this relationship on a global basis, using microdata from the World Bank’s 2021 Global Financial Inclusion (Findex) survey. Methodologically, I employ a two-stage modeling approach, which first accounts for a consumer’s access to an electronic payment instrument before estimating the effects of electronic wages on digital payment usage. Overall, I find that consumers who receive wages electronically are 15% more likely to make digital merchant payments than those who do not. Electronic wages have a more powerful effect on the probability of making digital merchant payments than the other relevant demographic, personal economic, and connectivity variables included in the model. Only certain geographic indicators have larger effects. Further, in examining heterogeneous effects across regions, the positive and statistically significant effect of electronic wages holds in seven of eight regions—more often than the other explanatory factors. The findings presented in this paper have implications for scholars and policymakers seeking to understand the drivers of digital payment usage among consumers.

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Footnotes
1
More specifically, the indicator captures the percentage of survey respondents “who report using a debit or credit card, or a mobile phone, to make a purchase in-store or to pay online for an internet purchase” (Demirguc-Kunt et al. 2022, 180).
 
2
The statistical appendix is located in the online data repository.
 
3
In some countries, this is known as direct deposit.
 
4
See, for example: Republic of the Philippines, Department of Labor and Employment (2020).
 
5
See, for example: Ministry of Economic Affairs and Employment of Finland (2001, rev. 2018).
 
6
In the United States, the implementing regulation of the Electronic Funds Transfer Act (Regulation E) stipulates that “an employer may require direct deposit of salary by electronic means if employees are allowed to choose the institution that will receive the direct deposit” (12 C.F.R § 1005.10(e)(2). However, individual state laws may require employers to offer a wider range of payment options, including paper-based methods.
 
7
Figure A.2 in the online statistical appendix replicates this plot at the regional level.
 
8
For purposes of this analysis, I treat digital payments and electronic payments roughly synonymously. Electronic payments are those made using an electronic payment instrument, which is defined in the data section of this paper. In using the term digital payments, analysts often focus on the channel through which payments are made, such as point-of sale terminals, mobile phones, or computers, but such payments must be linked to an electronic payment instrument on the back end. Thus, for analytical purposes, the difference between the two terms is negligible.
 
9
For ease of reference, I periodically use the phrase “digital payment usage” within the context of merchant payments. However, merchant payments are a subset of retail payments and do not include certain types of consumer-initiated retail payments, such as remittances, taxes, and utility payments, which may also be made digitally.
 
10
The Findex survey was also conducted in 2011, 2014, and 2017. However, the 2021 survey was the first to break out questions related to digital merchant payments. Previous surveys do not contain enough granularity to replicate the analysis herein.
 
11
Because I cluster standard errors by country, the number of countries in each region affects the statistical significance of the estimates.
 
Literature
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go back to reference Heckman JJ (1976) The common structure of statistical models of truncation, sample selection and limited dependent variables and a simple estimator for such models. The Annals of Economic and Social Measurement 5(4):475–492 Heckman JJ (1976) The common structure of statistical models of truncation, sample selection and limited dependent variables and a simple estimator for such models. The Annals of Economic and Social Measurement 5(4):475–492
go back to reference Murari K, Bhatt V, Kumar P (2020) Does socio-demographic affect preferences and concerns toward cashless payment? Evidence from the north-eastern region of India. J Paym Strategy and Systems 14(3):207–222 Murari K, Bhatt V, Kumar P (2020) Does socio-demographic affect preferences and concerns toward cashless payment? Evidence from the north-eastern region of India. J Paym Strategy and Systems 14(3):207–222
go back to reference Rogoff KC (2016) The curse of cash. Princeton University Press, Princeton, NJ CrossRef Rogoff KC (2016) The curse of cash. Princeton University Press, Princeton, NJ CrossRef
Metadata
Title
Pay it forward (digitally): sizing up the global impact of electronic wages on digital payment usage
Author
Jeffrey S. Allen
Publication date
26-09-2023
Publisher
Springer US
Published in
Journal of Economics and Finance
Print ISSN: 1055-0925
Electronic ISSN: 1938-9744
DOI
https://doi.org/10.1007/s12197-023-09645-8