June 8, 2016
With the fast pace of technology development and improving digital experience, electronic payments globally are being adopted at an outstanding pace. Even with increasing concerns over data privacy and security, the trend is expected to continue.
Over the course of development and adoption, electronic payments had a tremendous effect on economies. Recognizing the importance of electronic payments for economies, Visa recently published a report by Moody’s on the impact of electronic payments on economic growth.
The report brings up five important data points proving a substantial contribution of growing electronic payments industry to the economic growth of more than 70 countries analyzed by Moody’s.
According to findings, electronic payments added $296 billion to GDP in the 70 countries studied between 2011 and 2015, which is equivalent to the creation of ~2.6 million jobs on average per year over the five-year period, or about 0.4% of total employment in the 70 countries.
Logically, countries with the largest increases in card usage experienced the biggest contributions to growth. Some of the biggest increases in GDP were recorded in Hungary (0.25%), the UAE (0.23%), Chile (0.23%), Ireland (0.2%), Poland (0.19%) and Australia (0.19%).
However, in most countries, card usage increased regardless of economic performance. In some cases (Finland, Greece and Tunisia), the card usage was reported to decline along with the decline in economic performance and other macro events. The decline in card usage resulted in weaker consumption than it would be in the case of card usage growth or stability.
One of the interesting insights from the report suggests that the increase in electronic payments resulted in almost the same percentage increase in GDP between 2011 and 2015 for emerging markets (0.11%) as for developed countries (0.08%).
However, developed countries were at a more advantageous position as they experienced a higher percentage of GDP growth per 1% of increase of card usage than developing countries. The 1% card usage increase in developed countries resulted in 0.04% growth in GDP, while the same statistic for emerging markets stands at 0.02%. Moody’s analysts conclude that there is a compounding benefit for advanced countries as the usage of electronic payments deepens.
In terms of consumption, each 1% increase in usage of electronic payments produces, on average, an annual increase of ~$104 billion in the consumption of goods and services, or a 0.04% increase in GDP, assuming all other factors remain the same.
Consumption is tightly related to spending habits, which also happens to be affected by the growth of electronic payments. The report suggests that consumption was 0.4% higher between 2011 and 2015 than it would have been if electronic payments had not increased. Total consumption increased on average by 2.3% over the sample period.
Although each 1% growth in electronic payments results in higher GDP growth in developed economies than developing, a different pattern is believed to be working when it comes to consumption. Consumption growth is on average faster in emerging economies and emerging economies have more to gain by increasing electronic payments usage to speed up consumption growth even further.
Electronic payments are believed to be a major force in economic development and significantly affect spending behavior and consumption. Both emerging economies and developed countries are believed to benefit from increasing electronic payments.
However, it is important to understand that the penetration itself can’t guarantee the growth. The report suggests that successful penetration goes hand in hand with a well-developed financial system and a healthy economy.