Payment cards are certainly convenient – they are much more secure and convenient than cash and if lost or stolen, a quick phone call to the bank or issuer will get the situation resolved. But did you know that payment cards are also helping to build and improve global economies? Thanks to the fast pace of technology and an ever-improving digital experience, electronic payments are having a tremendous effect on global economies, despite concerns over data privacy and security. This trend, which is seeing electronic payments adopted at a dizzying pace, is expected to continue, as they have made significant financial contributions to 70 countries between 2011 and 2015.
A recent report by Moody’s and published by Visa shows that electronic payments have added $296 billion to the gross domestic product (GDP) of 70 countries, which is the equivalent to an average creation of about 2.6 million jobs per year (about one-half percent of the total employment of those countries) over the five-year period of the study. Much of this is due to the rapid rise and accessibility of credit, debit and prepaid cards, which have changed not just how consumers pay for goods and services and how merchants manage their businesses, but also how governments make and collect payments of all kinds.
But electronic payments have also leveled the playing field for many people worldwide, giving them better and more secure access to their funds and promote greater financial inclusion, particularly for those without access to formal financial services. This helps to reduce friction in the overall economy and promotes increased spending on goods and services, leading to increased production, more jobs, higher incomes and greater economic prosperity.
Some highlights of the study include:
- There is a correlation between card usage and GDP growth. Countries such as Hungary, the UAE, Chile, Ireland, Poland and Australia, which had the largest increases in card usage during the study, experienced the biggest growth. In the United Arab Emirates alone, the rise in electronic payment methods added $3.7 billion to the GDP, and created an average of 14,170 jobs a year during the study, with just a six percentage point increase in card usage.
- While increased usage of electronic payments did not result in a significant increase in GDP between emerging markets (those with low to middle per capita income) and undeveloped countries (those with the lowest purchasing power parity), there was a larger percent increase in GDP in developed countries when card usage increased by just 1 percent in all countries in the study.
- Each one percent increase in the usage of electronic payments resulted in an annual increase of $104 billion in the consumption of goods and services, providing a significant, positive effect on future economic growth.
- Electronic payments may also improve spending habits, as the study showed that consumption was higher between 2011 and 2015 than it would have been if electronic payments usage had not increased. Because emerging economies have more to gain by increasing electronic payments usage, this shows how additional card usage can speed consumption growth in both emerging and developed countries.
From the above information, it is clear that encouraging the growth of electronic payments provides both consumers and merchants with choices, allowing for competition and a level playing field, creating an environment in which both banks and consumers benefit.