Electronic payments boosting global GDP

Eden Estopace
eGov Innovation

Increased use of electronic payment products, including credit, and prepaid cards added $296 billion to global GDP over a five-year period while raising household consumption of goods and services by an average of 0.18% per year.

This was among the results of a global study conducted by Moody's Analytics, commissioned by Visa, that analyzed the impact of electronic payments on economic growth across 70 countries between 2011 and 2015.

Moody’s economists estimate that the equivalent to 2.6 million new jobs were created on average annually, over the five-year period as a result of increased use of electronic payments. The 70 countries in the study make up almost 95% of global GDP.

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 due to the combination of fast-growing labor productivity and increased card usage.

“Electronic payments are a major contributor to consumption, increased production, economic growth and employment creation,” noted Mark Zandi, chief economist for Moody’s Analytics. “Those countries which saw large increases in card usage also saw larger contributions to overall growth in their economies.”

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.

Across the 70 countries in the study, Moody’s found that every 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 GDP attributable to card usage.

The study also indicated that the electronification of payments benefited governments and contributed to a more stable and open business environment.

“Electronic payments helped to minimize what is commonly referred to as the gray economy -- an 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,” the study noted.

Countries with the largest increases in card usage experienced the biggest contributions to growth. 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.

Charlie W. Scharf, Chief Executive Officer, Visa Inc., 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.” he said.

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