ATM machine (Image courtesy of Yonhap)
SEOUL, Nov. 2 (Korea Bizwire) – A new study warns that the proliferation of cashless businesses could disproportionately impact older consumers who rely heavily on cash and have lower digital literacy, according to research released October 31 by the Bank of Korea.
The study, conducted by Lee Kyungtae of the Bank of Korea’s Financial and Monetary Economic Studies Team and Park Jaevin, a professor of economics at Soongsil University, analyzed the relationship between digital literacy and cash demand during the COVID-19 pandemic.
The researchers combined data from the central bank’s payment methods and mobile financial services usage survey, regional social distancing measures, and the distribution of financial institutions and ATMs to conduct their regression analysis.
They classified consumers into high and low digital literacy groups based on survey responses measuring disutility when using digital financial services.
The findings revealed that consumers with lower digital literacy showed a strong tendency to continue using cash even when contactless payment methods were externally mandated, as during the pandemic.
These consumers were only 16% likely to reduce their cash holdings during the pandemic, compared to 26% for those with higher digital literacy.
Simulation results predicted that as cashless establishments become more prevalent, consumer welfare losses would be greater for those with lower digital literacy. (Image courtesy of Pixabay/CCL)
Similarly, the probability of increasing mobile financial service usage was 32% for the low digital literacy group, 14 percentage points lower than the 46% probability for their more digitally savvy counterparts.
Simulation results predicted that as cashless establishments become more prevalent, consumer welfare losses would be greater for those with lower digital literacy, with elderly consumers particularly vulnerable due to their higher cash dependency and lower digital competency.
“While most people under 50 typically have credit cards, the number of payment methods decreases with age, and many in their 70s and above don’t possess credit cards,” explained Lee. “They primarily rely on cash or debit cards, with many depending solely on cash, which leads to more significant welfare losses.”
The report emphasizes the need for both short-term policies to maintain cash acceptance and long-term considerations to ensure new payment systems are accessible to digitally marginalized groups.
The research utilized the Bank of Korea’s comprehensive survey data on payment methods and mobile financial services usage, combined with regional data on social distancing measures and the distribution of financial institutions and ATMs.
Ashley Song (ashley@koreabizwire.com)
