Electronic payments stimulate economic growth in Malaysia: Visa

By Digital News Asia June 19, 2013

Electronic payment products added US$4.2 billion to Malaysia's GDP
Study found that a 1% increase in card usage produces an annual increase of 0.056% in consumption

Electronic payments stimulate economic growth in Malaysia: Visa THE growth in the use of electronic payment products, such as credit and debit cards, added US$4.2 billion (RM13.17 billion) to the Gross Domestic Product (GDP) of Malaysia, according to a study conducted for Visa by Moody’s Analytics, an independent provider of economic forecasting.

Stuart Tomlinson, Visa country manager for Malaysia, said that with growing card usage contributing 0.49%, or US$4.2 billion (RM13.17 billion) to Malaysia’s GDP, there’s no denying the benefits of electronic payments here, nor the importance of maintaining an open marketplace to encourage competition and innovation within the industry.

“We can see from the data that the positive impact in economic growth is a direct result of card usage and is tied to the benefits electronic payments offer, including enhanced security, convenience of operating without cash or checks, increased efficiency at checkout and a reduction in the grey economy,” he added.

The study of 56 countries, including Malaysia, representing 93% of the global GDP, concluded that “card usage makes the economy more efficient, yielding a meaningful boost to economic growth.”

Globally, electronic payments contributed $983 billion (RM3.08 trillion) to the GDP of the 56 countries examined between 2008 and 2012. Over the same time period, GDP in those countries grew by an average of 1.8 percentage points.

Mark Zandi, chief economist of Moody’s Analytics, noted that despite a challenging global economic landscape, the increasing penetration of payment cards helped increase consumer consumption and, on average, added to GDP.

“The increase in consumption parallels the growing popularity and accessibility of electronic payments among global consumers. At the same time, these findings point to the need for governments to adopt policies that encourage the shift to efficient and secure electronic forms of payments,” he added.

Tomlinson pointed out that while this news is encouraging, Euromonitor data revealed that more than 66.2% of all transactions in 2012 were in cash.

“In addition, according to World Bank data, 34% of Malaysians do not currently have access to formal financial services. Imagine the benefits to the economy if we could connect them with electronic payments, such as mobile branchless banking,” he said.

“We are excited about the prospects of increasing electronic payments in Malaysia through new, innovative solutions, and we look forward to working with local businesses, governments and industry stakeholders to continue to expand and support local economic growth.”

Other findings from the study include:

Regional economic growth: Across Asia Pacific, the adoption of electronic payments increased GDP. In China, GDP rose by nearly US$375 billion (RM1.17 trillion). In Singapore, it rose by US$3 billion (RM9.41 billion). In India, increased card usage contributed US$2 billion (RM6.27 billion) to the country’s GDP.

Value of electronic payments: The study concluded that increased credit and debit card usage contributes to economic activity by reducing transaction costs and improving efficiency in the flow of goods and services. The advent of credit and debit cards has greatly aided consumers’ ability to optimise consumption decisions by giving them secure and immediate access to all of their funds on deposit or a line of credit. Merchants also benefit because there is less cash and cheque-handling in the system, eliminating the burdens and risks associated with holding cash. In addition, the dramatic growth of e-commerce and mobile payment methods would not be possible without global electronic payment systems which allow the safe and easy transfer of funds and guaranteed payment to merchants.

Supporting government: Electronic payments lead to a reduction in the grey economy by increasing transparency and generating additional tax revenue.

Impact of future card growth: Moody’s Analytics found that a 1% increase in card usage across the 56 countries in the study produces an annual increase of 0.056% in consumption. Given recent card penetration growth rates and the additive effects calculated on future GDP, Moody’s Analytics estimates a meaningful 0.25% addition to consumption and 0.16% additional GDP.

Card growth boosts recovery: From 2008 to 2012, global real GDP was only 1.8% per annum. Without increased card usage, that growth would have been 1.6%. Card penetration and usage provided an important boost to economies, helping to mitigate what would otherwise have been an even slower recovery from the global recession.

This survey is the second iteration, following a study conducted by Moody’s Analytics from 2003 to 2008. For the full study and an accompanying white paper, click here.