The increased use of electronic payments around the world has had a huge impact on the global economy over the past few years – and the extent to which this technology is driving growth has been revealed in a recent report.
Whether it is credit, debit or prepaid payment cards, or alternative forms of digital payment, a study conducted by Moody’s Analytics on behalf of Visa found that increased acceptance of electronic payments encourages household spending, boosts employment and supports overall prosperity.
A boost to GDP
Overall, the report, titled ‘The Impact of Electronic Payments on Economic Growth’ estimated that between 2011 and 2015, increased use of electronic payment methods added $296 billion to gross domestic product (GDP) across the 70 countries studied.
The use of these payments benefits governments and contributes to a more stable and open business environment, the study reported. What’s more, electronic payments have helped to minimize the so-called ‘grey economy’ – economic activity that goes unreported, often because it is cash-based.
The result of this is that governments can take advantage of a higher potential tax revenue base, while also bringing benefits such as lower cash handling costs, guaranteed payment to merchants and greater financial inclusion for consumers.
Charlie Scharf, chief executive officer at Visa, said: “These findings reinforce the many positive benefits that electronic payments bring to local economies all over the world. This research also suggests that the right public policies can create an open, competitive payment environment, and contribute to economic growth and job creation.”
Opportunities for growth
As well as its impact on GDP, the growth of electronic payments has had a positive effect on employment rates around the world, while it has also contributed to increased household consumption.
Moody’s analysis estimated that the equivalent of 2.6 million new jobs a year were created over the five-year period as a result of increased use of electronic payments. At the same time, household consumption of goods and services increased by an average of 0.18 percent per year.
Mark Zandi, chief economist at Moody’s Analytics, explained: “Electronic payments are a major contributor to consumption, increased production, economic growth and employment creation. Those countries which saw large increases in card usage also saw larger contributions to overall growth in their economies.”
An essential foundation
So what does this tell us about the prospects for the future economy? For starters, there is a clear correlation between the increased adoption of payments card and improved economic performance. The biggest rises in GDP were in those nations where take-up of these options was also highest, such as Hungary (0.25 percent GDP increase), the United Arab Emirates (0.23 percent), Chile (0.23 percent) and Ireland (0.2 percent).
Moody’s also found that every one per cent increase in the usage of electronic payments could produce an average annual increase of approximately $104 billion in the consumption of goods and services. Assuming all future factors remain the same, this could therefore result in an annual average increase of 0.04 percent to GDP attributable to card usage.
However, the rise in the use of payments cards alone won’t be enough to achieve these results. In order to enjoy success, countries must have a well-developed financial system and healthy economy. The report recommends that in order to encourage the further electronification of payments, countries must promote policies at a macro level that minimize unneeded regulation, create a robust financial infrastructure, and lead to greater consumption.
While purely turning to electronic payment mechanisms drives some gain, more will come as payments become immediate through real time payment mechanisms allowing the funds to be reused immediately rather than waiting for settlement.