In Europe, over a fifth of the population is at least 65 years old. In Japan, the figure is nearly 30 percent. And the World Health Organization projects the percentage of people across the globe who are over 60 years old will reach 22 percent by 2050, just about double what it was in 2015.
Economists wring their hands over numbers like these, expressing concern about labor shortages, pressure on pensions, and a general deceleration in growth. But research by Kellogg’s Filippo Mezzanotti and Nicolas Crouzet, both associate professors of finance, captures another consequence of this trend: older societies are slower to adopt new technologies.
By comparing the uptake of mobile-payment technology—similar to Venmo and Apple Pay—against the use of credit cards in India, the researchers found that younger people were much more likely than older people to use this new technology and that businesses adopted it more rapidly in areas with a higher density of young people.
Ultimately, age was associated with how often people used the mobile-payment technology, and this effect appeared to shape business decisions around its adoption.
“These findings underscore the possibility that population aging leads to slower rates of technology diffusion, which has potential implications for how policy can, or cannot, spur the adoption of new technologies,” Mezzanotti says.
A preference among the young
Together with Pulak Ghosh from the Indian Institute of Management and Apoorv Gupta from Dartmouth, Mezzanotti and Crouzet initially set out to analyze various demographic factors that might drive people to adopt mobile-payment systems.
The researchers looked to India, where mobile-payment technologies supplanted credit cards as the main form of electronic payment, with its share of total e-payments surging from less than 10 percent to approximately 80 percent between 2016 and 2020.
The team reviewed a dataset of 200,000 customers at one of India’s largest banks. The data includes comprehensive bank-account activity and demographic information. Using a statistical tool to determine the likelihood that demographic factors affect mobile-payment adoption, they found that age was responsible for nearly 40 percent of the variation in uptake—a far larger fraction than for factors like wealth (7 percent) or occupation (5 percent).
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Further, they found that people 30 years old and younger used mobile payment for more than half of their transactions, while those 60 and older used it for roughly a fourth of their transactions.
“Interestingly, this relationship is what we in economics would call very monotonic, meaning the pattern shows up at every step of the distribution,” Mezzanotti says. “It’s not just that 20-year-olds are using this more than 70-year-olds, but those in their forties use it less than those in their thirties; those in their thirties use it less than those in their twenties; and so on.”
Age driving demand
But how do businesses interpret and respond to these preferences?
To answer that question, the researchers worked with a fintech company that, in May of 2019, expanded its point-of-sale terminals to allow mobile payment, unlike older terminals that only accepted credit cards. This created a natural test to compare how different merchants responded to the new technology. As might be predicted, stores in areas with a higher density of young people were more likely to adopt the product of the fintech company when the mobile-payment option was available, suggesting that the demand for mobile payment was at least partially driven by the presence of young customers.
The challenge of interpreting this result, Mezzanotti points out, is that the researchers could not randomize the age of people in their sample. So if age was associated with other characteristics, like a younger person’s interest in living in hip neighborhoods, that could muddy the potential relationship between age and the use of mobile payment.
The researchers tackled this in a number of different ways.
They looked at university districts within neighborhoods, which naturally have many young people, and found highly localized increases in the adoption of mobile payment. Roughly 20 percent more merchants located near universities adopted the technology than did merchants located slightly farther away.
Furthermore, the researchers exploited variation in historical fertility as an alternative way to confirm these results.
“None of these tests are perfect, but they all, in the end, point to the same thing,” Mezzanotti says. “We see consistent evidence that the age of the customer seems to be driving demand for a mobile-payment system.”
A new friction
Economists typically view uneven or slow technology adoption as a problem because it signals that businesses are not using tools that could make them more productive.
But the case for mobile-payment technology is different. Stores in older districts aren’t failing to use it because of some barrier or friction. Rather, they’re responding rationally to their customers.
In places where older consumers prefer using credit cards, businesses have little reason to switch to mobile payment. Where younger consumers want mobile payments, businesses provide it. In other words, the market is working exactly as it should: consumer preferences are being reflected in business decisions.
However, a distinct feature of digital technologies like mobile-payment apps complicates this behavior: their value often rests on the size of their network. Facebook or PayPal, for instance, would have little-to-no value if only a few people had accounts. As such, an aging population—with more older people disinclined to use new technologies—could depress the market for digital technologies.
“Beyond things like cost and regulation, this is a new hurdle for companies to consider when it comes to the diffusion of technology,” Mezzanotti says. “The choice by older consumers to not adopt something may have a cost for younger consumers, who ultimately don’t get access to the technology because it doesn’t reach a critical scale.”
In light of this problem, the researchers evaluated two ways that societies could boost the adoption of new technology. First, governments could subsidize the adoption of new technology. Italy’s government, for instance, gives merchants credit for adopting new point-of-sale terminals. Another approach could be to subsidize the use of a technology. Governments could help incentivize mobile payment by partially covering transaction fees.
But an even better strategy, according to the research, is to use both approaches at the same time. “What’s interesting is that when we looked at the ways in which some countries are actually responding [to mobile-payment adoption], we find them doing a little bit of both,” Mezzanotti says. “It turns out what they’re already doing is the right choice.”