Visa study links cards to fiscal, economic health

Electronic payments combined with a robust financial infrastructure can spur economic growth, according a Visa Inc. study published March 9, 2016. The Visa-commissioned study, conducted by Moody Analytics, explored the impact of electronic payments on 70 countries between 2011 and 2015 and found a direct correlation between increased debit, credit and prepaid card usage and economic prosperity.

Increased use of electronic payment products added $296 billion to gross domestic product (GDP) in the countries studied, which is equivalent to 2.6 million new jobs a year, according to the study. Additionally, average consumption increased 0.18 per household across 70 countries, Moody's analysts reported.

"Electronic payments are a major contributor to consumption, increased production, economic growth and employment creation," said Mark Zandi, Chief Economist at Moody's Analytics and co-author of the report. "Those countries which saw large increases in card usage also saw larger contributions to overall growth in their economies."

The report, titled The Impact of Electronic Payments on Economic Growth, cited government benefits from electronification of payments, including lower costs of handling cash and reduction of unreported cash activities. "At Visa we are partnering globally with governments, financial institutions, merchants and technology companies to develop innovative payment products and services that will accelerate electronic acceptance, grow commerce and bring the benefits of card payments to more people everywhere," stated Charlie W. Scharf, Chief Executive Officer at Visa.

Sources, methodology

Moody's Analytics reviewed private consumption of goods and services based on the selected 70 countries' individual disposable income, real interest rates, and spending using card usage compared to all payment types, which was defined as "card penetration." Aggregated data from all countries studied created a composite model for measuring consumption, labor growth and GDP.

While the economic impact of electronic payments on GDP and job creation was mostly positive, occurrences of decreased card use appeared to negatively impact economies, further supporting the relationship between card usage and economic growth. "These figures may suggest the degree to which GDP and employment could have been higher had card usage rates not fallen in those markets," the report authors wrote.

An interactive graphic on Visa's website provides detailed information on all countries that participated in the study. Users can click on each country's icon for an overview of how payment card usage has contributed to the country's economy.

Study highlights

In addition to providing consumers with convenient, secure access to funds, electronic payments promote financial inclusion and improve governments' ability to collect additional tax revenue, the report stated. The cumulative effect of these contributions "reduces friction in the overall economy and leads to increased spending on goods and services," the authors wrote. "That, in turn, creates a virtuous economic cycle whereby increased consumption translates into increased production, more jobs, higher incomes and greater economic prosperity."

Following are additional benefits electronic payments bring to public and private sectors, according to the study:

• Growth opportunities: Increased card usage grew an average of 2.3 percent in the study's five-year period between 2011 and 2015, significantly improving emerging countries' economies. Countries that reported the largest increase in card usage also experienced the biggest jump in growth. Examples include Hungary (0.25 percent), the United Arab Emirates (0.23 percent), Chile (0.23 percent), Ireland (0.2 percent), Poland (0.19 percent) and Australia (0.19 percent).

• Job growth: Increased card usage added the equivalent of 2.6 million jobs on average, per year, across the countries sampled between 2011 and 2015. China (427,000 jobs added) and India (336,000 jobs added) reported the greatest average job increases.

• Higher usage, higher spend: Emerging markets and developed countries reported increased consumption of goods and services due to higher card usage, adding, on average, 0.2 percent to consumption in emerging markets, and 0.14 percent in developed countries.

• Potential future growth: Moody's correlated every 1 percent increase in card usage to an annual increase of approximately $104 billion in consumption of goods and services. Assuming all future factors remain constant, this could potentially increase GDP by 0.04 percent annually.

Convenience, protection, scale

In her work with emerging markets, international mobile and card consultant Deborah Baxley has seen the transformative power of payments initiatives. "Magic is unleashed when the physical is replaced by the digital; time and space compress to become safer, real-time, ubiquitous and nearly free," she said. "Use of electronic payments versus cash is no different; it results in a doubling or tripling of basic financial activities."

Baxley further noted that developing regions have found electronic payments to be a convenience for consumers as well as a protection against theft and corruption. Electronic payment platforms also support a range of ancillary services, such as person-to-person transfer, crop insurance, bill payment, savings and salary deposits, and credit account payments, facilitating increased card usage, job growth and economic abundance, Baxley added.

A full copy of the report can be found at .

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