Electronic payments boost household spending on goods and services as well as boost GDP, according to a study commissioned by global payments technology company Visa.
Moody’s Analytics investigated the impact of electronic payments on economic growth across 70 countries between 2011 and 2015, finding that the increasing use of credit, debit and prepaid cards added US$296 billion to GDP, while raising household consumption by an average of 0.18 per cent a year. The countries in the study make up almost 95 per cent of global GDP.
Moody’s economists also estimated that another effect was the creation of 2.6 million jobs on average annually over the five-year period as a result of increased use of electronic payments.
“Countries that saw large increases in card usage also saw larger contributions to overall growth in their economies,” says chief economist Mark Zandi.
Purchasing is more convenient and efficient for consumers, and merchants can manage their businesses better and benefit from higher sales.
Electronic payments also benefit governments and contribute to stable and open business environments, says the study, The Impact of Electronic Payments on Economic Growth. Also, electronic payments help minimise the “grey economy” – economic activity that is often cash-based and goes unreported. This means that electronic payments provide 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.
“This research suggests that the right public policies can create an open, competitive payment environment, and contribute to economic growth and job creation,” says Visa CEO Charlie Scharf.
Two countries stood out for their large gains in employment, stimulated by fast-growing productivity and increased use of cards – China (427,000 jobs added) and India (336,000 jobs).
As with GDP gains, job gains were not uniform across regions. North America had the highest average job gains per year (69,000), followed by Asia (62,000).
Some emerging economies have also experienced notable increases in productivity. For example, increased card penetration raised GDP in Vietnam by 0.14 per cent, and Vietnamese labour productivity rose by 18 per cent, resulting in about 75,000 jobs gained each year.
As consumption growth is, on average, faster in emerging economies, those countries also have more to gain by increasing card usage, says the study.
Moody’s found that every 1 per cent increase in usage of electronic payments could produce, on average, an annual increase of about $104 billion in the consumption of goods and services. But expanding electronic payments alone do not necessarily increase a country’s prosperity – this needs the support of a well-developed financial system and healthy economy. Countries need to promote policies that minimise unneeded regulation and create a robust financial infrastructure.
Because of the somewhat lower penetration, card use added 0.06 per cent to GDP a year in Asia.
