Pay-to-Play: The Impact of Advanced Forms of Payment on Financial Participation

Abstract

This paper looks at how different payment methods influence financial participation for individuals across the world. This study investigates whether more advanced forms of payment provide greater economic benefit for the individuals using them in terms of increased access to and participation in financial services. We specifically look at four main payment types- cash/check, debit cards, credit cards, and mobile payments- and four main measures of financial participation- propensity to save, propensity to deposit, the ability to come up with emergency funds, and propensity to borrow. Using data from the World Bank’s Global Financial Inclusion Database and a series of ordinary least squares (OLS) regressions and two-stage least squares (2sls) regressions, we find the following results: (1) not all payment platforms have an equal impact on financial participation, (2) credit card ownership has the highest statistically significant positive impact on financial participation, (3) mobile payments have little to no impact on financial participation, and (4) advanced payment options most positively impact financial participation for the lowest income groups. Overall, the results suggest that the selection of payment type may have long-term consequences for financial/economic health. Because of this, national governments may wish to institute programs/legislation to encourage the use of advanced forms of payment within their countries. This study provides a framework for determining the causal impact of payment types on financial outcomes. Because the payments industry is highly dynamic and evolving rapidly, further research is needed to evaluate other potential benefits and drawbacks of advanced payment methods.