Financial Vulnerability, Financial Literacy, and the Use of Digital Payment Technologies

M M Naeser Seldal,Ellen K Nyhus

doi:10.1007/s10603-022-09512-9

Abstract

The purpose of this study is to test the notion that the use of digital payment methods, such as paying with a mobile phone, increases the risk of financial vulnerability. Research from the USA indicates such a relationship, and we study whether this finding can be generalized to other countries. Motivated by recent changes in EU legislation related to financial transactions, we also examine willingness to use social media companies for money transfers along with sharing bank account information with third-party financial services. Exploiting data collected from a representative sample of the Norwegian adult population (n = 2202), we identify differences in financial behaviour and characteristics between users and nonusers of different digital payment methods. In contrast to US studies, we find that mobile payment users were less financially vulnerable than nonusers and those women were more likely users of digital payment technologies than men. Younger generations and those with low financial literacy were more financially vulnerable than others, although we did not find this to be related to the use of mobile payment or other digital payment methods. The results show that there is a need for more research from different countries outside of the USA to obtain an understanding of the consequences of increased digitalization of financial services. In addition, as COVID-19 has shifted a vast amount of spending online and these newer payment technologies have become more available, we need to gain a better understanding of how they influence financial behaviour.

Highlights

Recent studies have worryingly concluded that mobile payment users in the USA are at a higher risk of financial mismanagement than nonusers
This study examined the characteristics and financial behaviour of users of various digital payment methods and whether the adoption of these methods can be linked to different types of financial vulnerability
We investigated whether any group is less financially knowledgeable than others and, if so, how lack of knowledge is reflected in financial behaviour and attitudes toward using new providers of payment services

Summary

Introduction

Recent studies have worryingly concluded that mobile payment users in the USA are at a higher risk of financial mismanagement than nonusers. In a recent study by Heo et al (2021), respondents with a higher level of financial distress had a tendency to engage more in financial technology. The fact that these payment methods are both less transparent and more effortless to use than, e.g., cash and credit cards, could make some consumers more vulnerable to purchasing temptations. We analyze survey data from a representative sample of the Norwegian population to investigate whether we find the same relationships in a Northern European country with a population that has a higher level of financial literacy, is more digitally advanced than the US population, and is one of the countries furthest along in the world in becoming a cashless society (Mumtaza et al, 2020; Wewege & Thomsett, 2019). We investigate which consumers are the most likely first adopters of the generation of financial transaction technologies by identifying consumers who have positive attitudes toward sharing bank information with a third party, such as a social media company

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