A surge in e-payments can only be a good thing

The year 2020 is going to be astounding. Dubai is already looking forward to the World Expo being a game changer and welcoming 20 million tourists and Dh300 billion in tourism revenues.

Also, close to my heart is the fact that in the global financial services industry, 2020 will herald the culmination of the World Bank’s UFA2020 goal. UFA, or “Universal Financial Access”, envisions all adults in the world, including the two billion who currently do not use formal financial services, having access to a transaction account or electronic instrument to store money and send and receive payments.

The World Bank calls UFA “the basic building block to manage financial lives” focusing on 25 countries where 73 per cent of all financially excluded people live.

In the UAE, we take it one step ahead and say that financial inclusion is a tool for building a nation. We know that countries and economies benefit from electronic payments in a myriad of ways — they minimise the impact of the “grey economy”, creating a higher potential for a tax base (remember that VAT is coming in 2018); they result in lower cash handling costs for merchants and other stakeholders; and they provide small businesses a guarantee of payment.

UAE figures

A strong correlation exists between inclusion and a country’s progress. According to the World Bank’s Global Financial Inclusion Database (or Findex), 94 per cent adults in the High Income OECD group have at least a bank account, followed by 73 per cent of population in the High Income Non-OECD countries, under which the UAE is classified. We pride ourselves on the fact that the Findex found that 84 per cent of the UAE population over 15 years of age had a bank account in 2014.

A recent study by Moody’s Analytics, commissioned by Visa, analysed macroeconomic data for 70 countries between 2011 and 2015. By calculating the impact of card usage on per capita consumption, the study was able to extrapolate the effect that the increase in electronic spending on goods and services has on consumption and GDP.

Cumulatively, an additional $296 billion (Dh1.08 trillion) was added to consumption globally simply from higher card usage between 2011 and 2015. This amounts to a 0.1 per cent cumulative increase in global GDP. Increased card use was tied to an average increase of 2.6 million jobs per year in the five-year period.

The UAE added 14,170 jobs per year. And it was second only to Hungary in card usage’s contribution to additional GDP, at an average of 0.23 per cent per annum over five years, resulting in a total increase of $3.7 billion. The increase in card usage in the UAE contributed to a 0.52 per cent increase in consumption as well.

Consumption growth

Not surprisingly, growth in electronic payments is tied to a significant positive effect on future economic growth. Consumption growth, one of the hallmarks of a healthy economy, is a by-product of improved spending habits due to an increase in electronic payments.

The study proves that access to credit helps regulate periodic income with continuous consumption. It guards the most vulnerable among us against splurging with wads of cash on payday. Electronic payments also allow a cardholder entry into the digital economy.

While consumers are happier not carrying cash, merchants benefit from not having to spend on managing cash — at the very basic level, you’re saved a daily trip from the till to the teller.

The benefits electronic payments bring to transparency are well recorded. The study tells us that reduced paper transactions contribute to lowering costs of providing and processing paper money and coins right from the central bank to corporate finance departments.

As the UAE gears its systems to introduce VAT on January 1, 2018, an audit trail that not only calculates taxes but also helps merchants plan their financial futures can only be a good thing.

The writer is CEO of Network International.