Data hacks could lead consumers back to cash: RBC
The recent massive data breach at Equifax Inc. has one bank warning that such incidents have the potential to turn consumers off digital payments, thereby hindering the transition to a “cashless society.”
“We believe large-scale data breaches/fraud (such as the Equifax breach) can slow the pace of innovation and drive consumers back to using cash for payments,” wrote RBC Capital Markets analyst Daniel Perlin on Monday. “In terms of the payment companies we follow, we do not expect any significant direct exposure but, clearly given the size of the breach, cardholder info has been exposed and cards will be reissued; therefore, we believe possible ‘air pockets’ in spending could be created, but should be short lived.”
RBC said last week that “a small number” of its credit card clients may have had their personal information affected by the Equifax breach, The Canadian Press reported.
Equifax, one of the world’s largest credit reporting agencies, disclosed earlier this month it had been hacked and that the personal information of approximately 143 million Americans and 100,000 Canadians had been exposed — numbers that rank the data breach as one of the largest in history, according to RBC.
The situation has taken a hefty bite out of Equifax’s share price, driving it down about 25 per cent. Meanwhile, chief executive Richard Smith stepped down Tuesday, about a week before he was scheduled to face questioning from the U.S. Congress.
RBC cited a number of studies to back up their belief that data breaches can lead consumers back to cash, such as a Federal Reserve Bank of Boston study that found “the percentage of consumers considering credit and debit cards as ‘secure’ declined significantly,” following a 2013 cyber attack on Target Corp.
“On the other hand, ratings of cash relative to all payment methods increased,” added Perlin.
A January 2017 study by Gemalto, Perlin said, found a majority of consumers steered clear of retailers, banks and social media sites if they had been breached. A 2016 study by Thales discovered 88 per cent of Americans would stop using digital payments “if they personally fell victim to cybercriminal activity.”
“In fact, 65 per cent of shoppers are wary of having their personal information being hacked using their mobile/ smartphone, according to a PwC 2017 retail survey,” said the RBC note. “Therefore, any increased concern among consumers following a breach would drive consumers away from mobile and online channels, in our estimation.”
There could be broader “brand” effects felt as well. A recent report on data breaches from U.S. market research firm Forrester warned of “brand recovery costs” a company may incur in order to regain the trust of customers.
Spooked consumers may also be limited in what they can do.
“We are all moving towards a cashless society,” said Bob Hudyma, associate professor at Ryerson University’s Ted Rogers School of Information Technology Management, in an interview. “Even if I wanted to, I would have to take extreme measures to go off the grid ...”