Digital Payment in Mitigating Traditional Cash Payment Fraud Risk: A Systematic Literature Review

2.1 Traditional Cash Payment and Digital Payment

The emergence of the digital payment system initially aimed to increase efficiency and effectiveness, reducing risk and fraud in payment transactions (Dahlberg & Oorni, 2007; Hamdi, 2011; Hayashi & Bradford, 2014). Those objectives at first can be met through the aid of the tools/channels from ATM, internet banking, mobile banking (Aishah Mohamad & Kassim, 2017). Kumari (2017) explained that the motivation for the digital transaction is some of the benefits of cashless transaction which are as follows:

Ease of conducting financial transactions: there is no need to carry the amount of cash and to present physically in the Bank.

Reduce risk: reduce the risk of carrying cash and reduce its cost. You can bring digital money to make a transaction digitally. This cash was referred to traditional cash payment.

The problem with traditional cash was somehow; it is still an option people choose in making payments. The reasons for these things happen because of:

Cash was still chosen for low-value transactions (Świecka, 2019), in addition to no alternative options other than cash payment, such as the merchant that did not provide electronic payment options (Arango et al., 2015).

Cash was still considered a convenient, cheaper, quicker, and safe payment option (Górka, 2012; Świecka, 2019).

Lack of infrastructure and electronic payment facilities such as hardware, networking, and internet facilities (Adeyemo et al., 2020)

Although traditional cash payment was still considered an option to use as payment, some drawbacks were found out when using it. The disadvantages are referred to as follows:

The use of traditional cash payment increased the crime event opportunities through physical cash theft and robbery (Sreenu, 2020).

The other crimes such as money laundering, embezzlement, terrorist financing usually use traditional cast payment (Dalinghaus, 2017).

The cost of using cash payment which includes storage to keep it, printing, and physical transfer of cash (Hamdi, 2011; Matthew & Mike, 2016).

These drawbacks were thought to be motivating factors for people to switch from traditional payment methods to electronic payment methods including internet banking, mobile banking, mobile payments, and other digital payment systems. By switching to digital payment methods, users can reduce or even get rid of these inconveniences. By using digital payments, you may speed up the transaction and prevent the trouble of using traditional cash payment (Świecka, 2019). Besides, it was believed to minimize the crimes (Menaka, 2019), decrease cost, and increase the effectiveness and efficiency of the payment process (Matthew & Mike, 2016).

The latest digital payment system technology is included in financial technology (Fintech). Fintech creates an opportunity to increase transparency, reduce cost, and make information more accessible for all users (Ryu, 2018). Gupta and Xia (2018) also stated that financial technology allows users to have a better customer-based banking system and reduce risk and fraud to the user and increase the return to all shareholders.

However, users are still in the awareness stage when it comes to using the existing digital payment system since they are concerned about the security and privacy of their data information. Digital payment companies must make the most of their investment in securing users' data information. To reduce fraud risk, the vendor must tighten its cybersecurity framework (Stewart & Jürjens, 2018).

Despite these facts, it is anticipated that due to the factors listed above and the Covid 19 pandemic, mobile wallet usage would surpass that of cash payment globally (Berthiaume, 2021). According to the Annual Global Payment Report (Boku, 2021), it is predicted that in 2024, cash payment share will only amount to 13% globally, and half of the e-commerce payment will use a digital wallet. However, there were still practical gaps that can be explored on the explanation of user behavior in using traditional cash payment, shifting process to electronic payment up until users were settled in using electronic payment. Finally, in order to attract fintech customers, the vendor must ensure that the application has adequate privacy protection capabilities in order to mitigate and reduce risk and fraud, so that the prospective client feels comfortable when using the application (Lim et al., 2019).

The Evolution of Payment System

The earliest form of transaction mechanism recorded in history is what we know as barter. The barter system process occurs when the resources needed by some people are met by exchanging them with resources owned by some people (Swammy et al., 2019). Before the invention of what we now refer to as money, the bartering era might be viewed as the pre-currency era.

Following the bartering era, the medium of exchange began to form over time, beginning with grain and other agricultural products, which were regarded essential social resources (Swammy et al., 2019). It is regarded as the forerunner of money production. Commodity money can be used in this instance. Money was originally created in history between 1000 and 2000 BC. The first type of money discovered was cowry shells (Swammy et al., 2019). After a long period of employing shell money, coinage composed of metal stuff was established around the sixth or fifth century BC. Initially manufactured as souvenirs, the coins were later employed as a medium of exchange (Swammy et al., 2019).

Coins are perceived to have restrictions in their use along the way, particularly when used for larger transactions, which necessitate a higher number of coins and a lot more storage. The increased demand for coins as a means of exchange causes a shortage of metal supplies. Other hazards, like as currency theft and robbery, would definitely increase when the coins are moved for the transaction. These limitations then encourage the creation of paper money innovations for the medium of transactions. This paper money appeared along with the start of the invention of paper. It was believed that the first invention of paper money was in China. The first form of paper money discovered was in the form of promissory notes issued for coins that were kept as collateral. The development of paper money in Europe was invented long after its development in China, as Marco Polo reported that he used it in the thirteen century (Swammy et al., 2019). Later, the country's central bank was the sole issuer of paper money. The central bank will regulate and establish what denominations will be printed, how much will be printed, and the design of banknotes and coins that will circulate in a country. Before the development of technology in establishing electronic payment systems, paper money and coins were basically the most recent forms of traditional payment systems.

A credit card started to emerge around 1914 in the USA when merchants such as shopping centers, oil companies, and hotels issued cards for their customers to conduct payment (Kabir et al., 2015). Today's forerunner of what is called a debit card is an ATM card (Automated Teller Machine), where customers can only use it to withdraw physical money from an ATM. At that time, the need to withdraw money from ATMs was to pay bills or make payments (Swammy et al., 2019). The first ATMs in Europe are believed to have started in the 1960s and suddenly expanded worldwide (Swammy et al., 2019).

The emergence of e-commerce and mobile commerce technology has eventually created other innovations in financial technology (Fintech), especially electronic payment systems, from official financial institutions such as banks and other non-bank financial institutions. It made innovations such as internet banking, mobile banking, and other payment systems such as e-credit cards, e-cash, e-wallet (Rainer & Prince, 2019). In the beginning, the term for all these electronic payments which use a mobile phone was called mobile payment system (Rainer & Prince, 2019).

Literature Search using Systematic Literature Review

According to (Karsen et al., 2019), there were three steps in conducting aThe first step was searching for related articles to be collected and analyzed further. The second step was performing data extraction. The last step was analyzing the articles collected to answer the research question. In looking for articles that needed to be analyzed, the search was done using database resources such asandThe search use combined keyword such as:

(traditional payment) AND (risk OR fraud)

(traditional payment) AND (e-payment OR mobile payment)

(cash payment) AND (risk OR fraud)

(payment) AND (risk OR fraud)

112 related articles were collected from database resources, and after further reading, 26 articles were removed since they were not directly related to the search objectives. Ultimately, leaving 86 articles that were ready to be extracted and analyzed.

In terms of year distribution, the paper collected was from 1994 to 2020. The reason for including the article from 1990-2000 was because, from those papers in that particular era, non-cash transactions had started to emerge in the form of debit cards, credit cards, and internet banking. The distribution of paper based on the year published can be seen in Table 1.

All articles which were already collected came from many types of articles. Not all the articles were journal articles. After the identification, articles collected comprisedandThe distribution was presented in Table 2

Thematic Analysis

After extracting all of the article characteristics, the next stage was coding possible information formed to a specific unique pattern. A way of identifying the pattern was by looking at common shared meaning or information (Braun & Clarke, 2012). Using Atlas.ti, for general purpose, it can generate most words used in all of those 85 articles,. This information can be used as an initial analysis. It found out that the topmost used words wereandThey were highly related to the research question to be answered. The other words that were generated most wereandThe stage of thematic coding using Atlas.ti revealed some themes, namely:

Why cash was still a King.

The Need to Switch from Cash Payment to Digital Payment System.

Obstacles in Switching from Cash Payment to Digital Payment System

Things to be prepared for switching to Digital Payment

Impact of switching from traditional cash payment to Digital Payment

All particular themes will be described further in detail in discussion part.

Why Cash was still a King

The first thing that emerged from the analysis was why cash was still used worldwide. This behavior explained that cash was used for low value of the payment, Cash was considered easier, safer in a low transaction value (O’Brien, 2014; Świecka, 2019). Cash can be considered to be able to control transaction spending (Runnemark et al., 2015). Another reason was when payment could be made by card or other digital payment, and the only alternative was cash payment (Arango et al., 2015; O’Brien, 2014).

Next reason of convenience, One of the reasons about the were still many cash payments was convenience. Cash payment was still considered easy, safe, and quick in doing transactions (O’Brien, 2014; Świecka, 2019).

Another reason of acceptable almost everywhere, payment activity was forced to do with a traditional cash payment if there were no alternative such as card or mobile payment (Arango et al., 2015; Rusu & Stix, 2017). Moreover, cash payment is specialized in sectors such as food and beverage, tobacco, newspaper, and street outlets (O’Brien, 2014). Digital payment has not yet reached all over kind of place when doing transactions.

The last was free of cost. It found out that people still used traditional cash payment because it was free of the cost compared to digital payment, either on the merchant side or consumer side (Hayashi & Bradford, 2014). Processing cost in merchant, and administrative cost in consumer.

In addition, the ecosystems of digital payment that were already settled caused the creation of the need to use e-wallet payment technology. If the e-wallet payment ecosystem is not settled yet, there is no urgent need to utilize digital payment, especially e-wallet payment. It found out that digital payment was widely used in big cities since the ecosystems were already settled there. In fact, Indonesia does not only consist of big cities, but villages, and progress in development and technology are unfortunately only focused on the island of Java.

Furthermore, all financial technology innovation utilization must be through the banking channel, and this requires one to have a bank account first. From the financial inclusion index, Indonesia was still in 9th position among the world's most countries with unbankable people (up to 51%) above Vietnam and Philippines in Southeast Asia. These findings further strengthen why the use of traditional cash payments is still a lot and shifting toward e-wallet payments is still low.

The need to switch from traditional cash payment to Digital Payment

Over time, there was a need to switch from traditional cash payment to digital payment because there was the cost of holding traditional cash payment. Production of cash payment tools (notes and coin) needed costs such as production, printing, trucking, safekeeping, vending, collecting, guarding the cash (Gleick, 1996; Lundberg et al., 2014). Even though, when the e-payment system is used, there is still the cost of at least printing, safekeeping, and guarding. Cash is expensive and needs something to carry if you use it (Birch, 1999). It can be concluded that the cost of cash is expensive and high, plus added with cost of handling and holding it (Bergman et al., 2008; Hamdi, 2011). If you have to carry notes or a coin, of course, you need something to bring (Chen et al., 2019). The cost of cash was high and more than electronic payment (Kumari, 2017; Véber & Brosch, 2013). Finally, using cash will face the risk of theft, security, and loss issues (Hamdi, 2011; Lundberg et al., 2014; Pritchard et al., 2015).

The next was about the increase in crime from holding traditional cash and transaction using traditional cash. The biggest crime that could ever happen when having cash at the macro level was all the crimes in the shadow economy, such as cash-related corruption, money laundering, and terrorist funding (Dalinghaus, 2017; Sienkiewicz, 2011; Schneider, 2017). Another crime is tax avoidance/evasion and such (Karoubi et al., 2016). Money Laundering happened when the illegal fund was placed in the financial system (Sienkiewicz, 2011). Shadow Economy is a transaction that was not recorded, and most of the shadow economy was done in cash transactions (Schneider, 2017). On the micro-level, potential crime could be in the form of risk of theft, counterfeiting and loss of physical cash at the individual level or merchant level (Arango & Taylor, 2009; Lundberg et al., 2014). If a country is restricted on cash payment, it is expected to reduce potential crime from shadow economy (Schneider, 2017).

Obstacle in Switching from Traditional Cash to Digital Payment

Nevertheless, this switching process was not as simple as expected. There were obstacles found out. This obstacle hindered the cashless movement policy of a nation. They were just like infrastructure problems, including internet, electricity, and other supporting ones. technology innovation that needed supporting infrastructures such as the internet, networking, electricity, computers, and others (Kumari, 2017; Yulianti et al., 2019). In addition, another challenge was the geographical condition that prepared infrastructure was getting complicated (Gupta & Xia, 2018). The technology of e-payment was one of the infrastructures. Over time, technology is updating, while users also have to catch up with the implication of technology and its updating (Menaka, 2019; Sreenu, 2020).

Acceptability and availability of digital payment services that digital payment has not yet accepted and available all over the places. acceptability and availability can be one of the obstacles in using e-payment. It will complement the explanation in the previous part. E-payment such as debit/credit cards, moreover mobile/electronic money were not widely accepted (Arango et al., 2015). Not all people can use e-payment. Mostly, the user of e-payment was people with middle to high-income level (Menaka, 2019). Even when the user was ready to pay with non-cash, the supporting devices were broken, therefore forcing them to pay in cash (Segendorf & Jansson, 2012).

It could be explained from digital payment systems' ecosystem point of view as discussed before. If all the facilities and support were still for traditional cash payment in some areas, there has not been a need to utilize digital payment, especially e-wallet payment.

Others were the possibility of fraud risk from using digital payment. Users were concerned about trust, security, and the risk of losing their money when using digital payment. Initially, the objective of switching from traditional cash to digital payment was to reduce the fraud risk in a traditional cash payment. fraud risk could happen in transactions using e-payment. It has been a concern for potential users to try to use e-payment. It could be an obstacle for the user to switch. Fraud risk could be in the form of trust of the user, concern about a breach of the system, and online embezzlement (Chidiebere & Oluchi, 2017; Gupta & Xia, 2018). Other concerns were privacy and security issue. Lack of privacy can cause the theft of personal information and illegal abuse of personal information for personal benefit (Menaka, 2019). The security issue was about how well a system of e-payment providers (such as banks) could protect consumers' assets from cyber fraud (Kumari, 2017). The last obstacle discussed was that the user did not want to use digital payment because they thought that using it was forbidden according to Islamic sharia according to Focus Group Discussion.

Things to be prepared for switching to digital payment

In order to ease and accelerate the process of switching, there should be good preparation from the government and related stakeholders. Continuing discussion about fraud risk in using digital payment, therefore, there should have been good system security to increase the safety in using digital payment, and ultimately it will increase the trust in using it from users. It must be remembered that digital payment users will entrust their money to the e-wallet vendors, then it must be ensured that the funds will not be misappropriated. It also applies to the personal privacy information of users, and vendors must ensure that such information will be used for the vendor's own benefit, not for things that will harm users. Before preparing sophisticated system security, indeed, a good infrastructure has to be built first. Cyber fraud could be a significant challenge in forcing e-payment policy (Mohanty & Pawar, 2019). The system must have the ability to monitor financial crime that could be happened (Chidiebere & Oluchi, 2017).

Provider of e-payment system must be focused on privacy and security of the system in the preparation stage and maintain them regularly (Loh et al., 2020). The system must have the ability to conduct transactions safely and securely to have trust from the user (Tavilla, 2012). The provider must take measures as well to gain the trust of users. Measure can be in the form of efficient customer care for a problem and its solution (Gupta & Xia, 2018). The future of the increase in usage of e-payment depends on its security (Bezhovski, 2016).

The last is all about creating awareness among potential users by promoting and educating them on digital payment and how to use it. However, this education and awareness must be right on target, given to users and potential e-wallet users, or given to the e-wallet ecosystem that has already been settled or is heading towards being settled. All parties, such as the government, providers, merchants, and other stakeholders, must educate the potential users to create awareness of society in switching to e-payment systems (Ishak, 2020; Meena, 2017). Potential users must have a valid reason to switch from cash payment to e-payment. The right reasons include the benefit of using it (Loh et al., 2020).

Even though all stakeholders were responsible for educating to increase users' awareness and literacy, however, the critical role was on the government because they facilitated and regulated the policy (Sivathanu, 2019). The government created regulations regarding this e-payment system for all the stakeholders (Harasim, 2016). The government did the promotion about e-payment systems and movement to go cashless if needed (Ramya et al., 2017). Promotion and incentives can be given by providers or merchants in the form of such as discounts, cash back, etc. (Abele & Schaefer, 2016; Salim & Frederica, 2020). It also has to be emphasized how unbankable people will be worse off than bankable people, as unbankable people will subsidize the cost of using financial technology from bankable people.

The Impact of switching from tradtional cash to digital payment

Eventually, if the preparation has already taken place properly, the impact of the usage of digital payment will emerge. The first benefit is the convenience of using digital payment relating to the feature of ubiquity. The previous discussion mentioned about the convenience of using traditional cash. In contrast, it found out that e-payment gives convenience also for its users to go digital (Ramya et al., 2017). It was considered that e-payment such as electronic cash and debit card was more convenient than physical cash (Birch, 1999; Bradford & Cundiff, 2006). The positive way of e-payment is that you do not need to carry physical cash, either notes or coins (Pritchard et al., 2015). It is convenient and efficient as an attractive benefit (Kabir et al., 2015; Tavilla, 2012).

Things that were considered convenient were like the feature of ubiquity. You can access e-payment everywhere (Bezhovski, 2016; Tavilla, 2012). Another feature was the speed of doing transactions using e-payment anytime, anywhere (Bradford & Cundiff, 2006; Yulianti et al., 2019). The next feature was the ease of using e-payment; a user-friendly user interface can increase convenience (Kumari, 2017; Ramya et al., 2017).

The following implications had cost reduction and efficiency when there was an increase in using digital payment. A switch to e-payment systems and technology of e-payment was considered to reduce high operational costs in traditional cash payment (Gupta & Xia, 2018; Matthew & Mike, 2016). For the banking system, it will bear a reduction in the cost of banking service and high security and safety (Chidiebere & Oluchi, 2017; Mohanty & Pawar, 2019). E-payment will be cost-effective means of moving funds over a traditional cash payment (Ishak, 2020). E-payment also reduced the cost of preparing and transporting traditional cash to or from banking systems (Meena, 2017; Ugwoke et al., 2019). The non-cash transaction was also reduced social costs that came from traditional cash (it will discuss more detail in the next part) (Harasim, 2016).

Reduction in many aspects of the cost led to efficiency of using e-payment compared to traditional cash payment. This efficiency will impact more to society (Véber & Brosch, 2013). Efficiency appeared in cost reduction in cash collection by eliminating time spent on collecting, counting and sorting cash (Kumari, 2017). Another form of efficiency will be the ability of e-payment systems to track all transactions; therefore, it becomes transparent. On the macro level, this features; Government can monitor the tracking system in more detail transactions for taxation purposes (Meena, 2017; Mohanty & Pawar, 2019). On the individual level, users can monitor all of their spendings using e-payment systems (Ramya et al., 2017).

Reduction of the cost will also give benefit to society on a national level (Chidiebere & Oluchi, 2017; Sreenu, 2020). Mainly economic growth from cashless transactions was because of the reduction in the social cost of the economy (cost of shadow economy) on the national level (Ishak, 2020). The growth of the economy from cashless transactions also came from reduction in cash-related corruption (Meena, 2017).

Lastly, it found out that using digital payment will reduce the risk of crimes. These crimes can be comprised of risk of theft and robbery, cash-related corruption, black money that includes fake currency, money laundering and terrorism fund. All of this crime can create a shadow economy (Schneider, 2017). The simple crime that can be mitigated when using e-payment is cash robbery and theft, and you will minimize the possibility of your cash being stolen when using e-payment (Menaka, 2019; Sreenu, 2020). The next step in crime from using traditional cash would be faking the currency by counterfeiting it (Mohanty & Pawar, 2019). The fraud can use actual cash for crimes like cash-related corruption and money laundering to laundering black money from cash-related corruption (Meena, 2017; Ugwoke et al., 2019). Another crime that can create a shadow economy is tax avoidance, a practical habit when transactions are not recorded to avoid related taxes (Kumari, 2017). Tax avoidance was similar to corruption because it lost the revenue of the nation. As already discussed before, e-payment was traceable. Therefore, it can be used for taxable calculations (Meena, 2017; Mohanty & Pawar, 2019).

It cannot be denied that black money can be in the form of fake currency, cash-related corruption, and money laundering. However, not to mention that illegal drugs transaction and the funding of terrorism can use traditional cash too (Menaka, 2019; Mohanty & Pawar, 2019). It can be concluded that Fake currency, cash-related corruption, tax avoidance and illegal transaction (drugs and terrorism) were part that created the shadow economy.

This finding answered the research question that was asked, that usage of digital payment will mitigate the fraud risk of using traditional cash payment.