Electronic payment systems grow economy

According to the research, commissioned by Visa International, electronic payments could have contributed R2 billion to the South African GDP in 2003, says Tony Twine, co-author of the recently-released, "Playing Your Cards Right for Economic Growth".

Economist, Twine, executive director at Econometrix, noted: "This study found a positive correlation between the increase in electronic and card payment usage, and economic growth in South Africa. Furthermore, the domestic case is similar to patterns found elsewhere in the world, including developing economies."

Twine referred to a study by Valverde, Del Paso and Fernandez in Spain and other countries in that region. The study concluded that, after all other positive and negative factors had been accounted for (such as the level of schooling, the importance of the industrial sector, the capital invested in the economy, and the ageing and inflation rates), the positive contribution from banking innovations contributed 0,176% to the Gross Domestic Product (GDP). Applying this conclusion to South Africa, it means that the still relatively low card and electronic payment usage rate in South Africa could have contributed R2billion to the GDP in 2003.

Chris Winter, general manager and senior vice-president for sub-Saharan Africa at Visa International, says that with new banking initiatives, such as the launch of the new national bank account Mzansi at the end of October to bring South Africa's 13 million unbanked individuals into the formal banking system, the contribution to GDP is likely to show strong growth.

Twine says that numerous studies around the world have shown that card and electronic payments help merchants and financial institutions process and settle transactions more efficiently, reliably, and securely thanks to lower payment system costs and greater economies of scale. Other international studies have shown that electronic payment systems, which are generally from a third to a half as expensive as paper-based transactions, also carry fewer risks than holding cash.

"The study highlights the importance of both debit and credit cards to transactions in the South African economy," says Winter.

The Econometrix research also highlights the increasing preference for card and electronic payment usage in SA, over other forms of payment. "From 1989 to 2003, the value of cheque payments declined from 97% to 36.5% of the total value of all transactions. Over the same period, the value of credit card payments increased from 0.2% to 2.1%. The value of electronic payments for the same period rose 28% to 61.4%.

Through electronic payments, purchases can now be made any time, anywhere, using any type of device. Electronic payments also allow international travellers or online shoppers to purchase goods from South African businesses.

The study shows that between 2000 and 2003, the average growth rate in the number of debit cards in issue was 137% per annum, while the growth rate of debit card spend at the point-of-sale over the same period was 69 percent per annum. In 2003, South African credit and debit card holders from all payment systems made point-of-sale purchases of R64 bn, representing 12% of the total R548bn paid to employees in the same year. Twine believes that the reasons cards are not being used more frequently at point-of-sale could be inadequate education about how to use them properly, insufficient sales terminals, and preferring traditional payment forms (such as cash and cheques).

The electronic payment system is vital for promoting growth in today's global digital economy. This positive economic impact can best be sustained by bringing innovative new payment technologies into the mainstream marketplace, including payment cards with chip technology, secure wireless payment technologies, and alternative payment devices like mobile phones.

As all the evidence above indicates, there are many advantages to the economy for promoting the use of electronic payments. This can be done three ways, says Winter. "We can bring previously excluded individuals - the so-called "unbanked' - into the banking net; we can better educate card holders how to use their cards at the point-of-sale; and just as importantly, the number of terminals for available for electronic transactions could be increased."