Increased use of electronic payment products contributes to economic prosperity, a study has shown. Commissioned by Visa, the research carried out by Moody’s Analytics and released on March 10 investigated the impact of electronic payments on economic growth across 70 countries between 2011 and 2015
The study found that increased use of electronic payment products, including credit, debit and prepaid cards, added $296B to GDP, while raising household consumption of goods and services by an average of 0.18% per year. In addition, Moody’s economists estimate that the equivalent of 2.6 million new jobs were created on average per year over the five-year period as a result. The 70 countries in the study make up almost 95% of global GDP.
“Electronic payments are a major contributor to consumption, increased production, economic growth and employment creation,” noted Mark Zandi, Chief Economist of Moody’s Analytics. “Those countries which saw large increases in card usage also saw larger contributions to overall growth in their economies,” he said.
The report also found that the electronification of payments benefited governments and contributed to a more stable and open business environment. It also helped to minimize what is commonly referred to as the grey economy – economic activity that is often cash-based and goes unreported. As a result, electronic payments provided a higher potential tax revenue base for governments, while also bringing the added benefits of lower cash handling costs, guaranteed payment to merchants and greater financial inclusion for consumers.
”These findings reinforce the many positive benefits that electronic payments bring to local economies all over the world,” said Charlie W. Scharf, Chief Executive Officer, Visa Inc.
The research, he said, also suggests that the right public policies can create an open, competitive payment environment, and contribute to economic growth and job creation.
“At Visa we are partnering globally with governments, financial institutions, merchants and technology companies to develop innovative payment products and services that will accelerate electronic acceptance, grow commerce, and bring the benefits of card payments to more people everywhere,” Mr Scharf said.
Highlights of the global study include:
Growth Opportunities:
Card Penetration: Real consumption grew at an average of 2.3% from 2011 to 2015, of which 0.01% is attributable to increased card penetration. This implies that card usage accounted for about 0.4% of growth in consumption. Since consumption growth is, on average, faster in emerging economies, those countries also have more to gain by increasing card usage. Card Usage: Countries with the largest increases in card usage experienced the biggest contributions in growth. For example, big increases in GDP were recorded in Hungary (0.25%), the United Arab Emirates (0.23%), Chile (0.23%), Ireland (0.2%), Poland (0.19%) and Australia (0.19%). In most countries, card usage increased regardless of economic performance.
Contribution to Employment: Increased card usage added the equivalent to almost 2.6 million jobs on average per year across the 70 countries sampled between 2011 and 2015. Notably, the two countries with the greatest average job increases were China (427,000 jobs added) and India (336,000 jobs added), which both had large gains in employment because of the combination of fast growing labor productivity and increased card usage.
Emerging Markets and Developed Countries:
Both emerging markets and developed countries experienced gains in consumption due to higher card usage. Increased card usage added 0.2% to consumption in emerging markets, compared with 0.14% in developed countries between 2011 and 2015. The corresponding figures for GDP were 0.11% for emerging economies and 0.08% for developed countries, and suggests that all markets, regardless of current card penetration rates, can benefit from increases in consumption due to increases in card usage.
Potential Future Growth:
Across the 70 countries in the study, Moody’s found that each 1% increase in usage of electronic payments could produce, on average, an annual increase of approximately $104 billion in the consumption of goods and services. Assuming all future factors remain the same, this could result in an annual average increase of 0.04% to a countries GDP attributable to card usage.
The study, however, says that expanding electronic payments alone will not necessarily increase a country’s prosperity — it requires the support of a well-developed financial system and healthy economy to have the greatest impact. The report recommends at a macro-level, to encourage the further electronification of payments, countries must promote policies that minimize unneeded regulation, create a robust financial infrastructure, and lead to greater consumption.
African countries experienced, on average a 0.05% increase in GDP due to increased card penetration. Many African countries are in the early stages of developing their financial systems with appropriate infrastructure to support electronic payments. In the coming years, the increase in the use of mobile phone technologies to make payments is expected to increase electronic payments penetration. Increased electronic payment usage added US$70,000,000 to Kenya’s GDP from 2011 to 2015.
African countries also had the second lowest average number of jobs added per year from increased card usage (8 000), which is not surprising given the region’s low usage rates and developing financial infrastructure to facilitate electronic payments. Increased electronic payment usage created the equivalent to an average of 5,330 jobs in Kenya per year between 2011 and 2015.
