Between electronic payments and economic growth
Moody’s notes that in the half-century since their introduction, payment cards -credit and debit - have changed how, when and where consumers pay for goods and services.
Moody’s analytics measured the effects of this shift from paper to electronic forms of payment and found that credit and debit cards stimulate economic growth.
The study calculates that, for the 51 countries in the sample (including Egypt and South Africa), which collectively account for 93 percent of the world’s gross domestic product - electronic card usage added $1.1 trillion in real dollars to private consumption and Gross Domestic Product (GDP) from 2003 to 2008.
This suggests that real global GDP grew an extra 0.2 percent a year on average beyond what it would have without card usage. In other words, if not for card usage, global GDP would have grown by an average of only 3 percent a year, instead of actual growth of 3.2 percent.
Cards grease the global economic engine, making transactions flow more smoothly and creating efficiencies in commerce.
This efficiency increases consumption and in turn expands economic growth as inventories decline, production increases, and jobs are created, thereby expanding personal incomes and supporting more consumption.
Moody’s’ notes further that while more access to credit is one contributing factor in increased consumption, it should not be overemphasised.
In fact, the study found out that countries with almost no revolving credit card products - including Norway, Sweden and Denmark - experienced card-related increases in consumption and GDP similar to or higher than the increases in those countries with significant credit volumes.
This will be of particular comfort and interest to Nigeria and its banking regulators who are trying to push through a cashless policy initiative, and where the majority of cards in circulation are debit cards, with negligible credit card usage.
Interestingly, the study finds that increased usage of debit cards generates many of the same benefits as do the usage of credit cards.
When looking at the effect that card penetration - defined as the value of transactions using credit and debit cards as a percentage of total consumer spending - has had on GDP growth, Moody’s says it points to the real-world issues facing policymakers.
For example, the impact of card usage on GDP resulted in the creation of 4.9 million jobs, among the 51 countries cumulatively from 2003 to 2008.
This research looked at the inherent value of cards for various parties, the ongoing effects of greater card penetration on personal consumption, and the elasticity of that greater card penetration in specific markets, as well as a breakdown of the effect on individual countries’ GDP over the six-year period.
The research also provides analysis of the macroeconomic benefits of card usage and penetration for specific countries, in particular, the paper explores the differing effects that card penetration had in developed versus emerging economies.
For example, the relatively high growth rate (yet low starting point) for card penetration seems to have driven card usage’s contribution to GDP in emerging economies such as China.
Conversely, the high starting penetration rate (yet relatively low growth rate) in more developed economies such as Canada and the US drove the contribution to GDP growth there.
The study also analysed the impact that future card usage will have on economic growth and found out that a 1 percent increase in card transaction volume would increase consumption each year by 0.039 percent and increase GDP growth by 0.024 percent.
Moody’s notes further that analysing the impact of future card usage on GDP is not simply an academic exercise, because as more consumers around the world shift their spending from paper to electronic payments, the results quantify the positive macroeconomic impact.
The study and its findings highlight the imperative of getting the Central Bank of Nigeria’s cashless and mobile money policies right.
Moody’s concludes that the results demonstrate that the migration from paper to electronic payments is a positive phenomenon, and the study supports the adoption of policies that encourage and accelerate this shift.
