Electronic Payment and Economic Growth in Developing Countries

Electronic Payment and Economic Growth in Developing Countries
July 26, 2018 Web Master

Electronic payment systems apart from their convenience and safety also have a significant number of economic benefits, which include mobilising savings and ensuring that most of the cash within the economy are deposited in the banks. This will help make funds available to the deficit economic units (DEUs), especially who need business and individual loans. An electronic payment system has the capability of tracking individual spending, thus consumers can keep records of their average rate of consumption, and also be able to make spending forecasts (budgets). With such economic information systems like these, citizens and governments are able to make more efficient economic decisions.

On the side of the currency issuing bank, the reliance on electronic payment would considerably reduce the cost of printing money or minting coins as the case may be. As expected, handling of cash would be less burdensome on the both sides – the financial institutions and the consumers. Moody Analytics (2010) asserted that embracing electronic payment would increase the real global GDP by 0.2% per annum. As the transition to electronic payment systems take place, the volume of cash held outside the financial institutions , which constitutes a potential source of unproductive economic resources, because they are not being used to invest, is integrated, thereby expanding the deposit base of the money system.

Okifo Joseph (2004) opined that “while the high level of cash transactions creates an  opportunity for the e-payment industry, it also imposes a cost on local economics. Cash has to be minted, securely transported, counted and reconciled, kept secure and maintained for reuse time and time again”. Debit and credit cardholders who use their cards and also customers who pay with codes and e-wallets at the point of sales, actually contribute to the economy by –

  • Helping to retain adequate cash in the banks
  • Saving the apex bank from having to print excess cash
  • Bringing hidden transactions to the notice of the financial institutions, thereby promoting financial transparency.

Several researches have been conducted in developing nations, to determine if there is a correlation between the increase in the use of PoS terminals and increased money deposits in the banks, and the figures are positive. Automated payments provide financial institutions with a powerful engine for growth. They sweep money away from circulation, as consumers, vendors and service providers become almost mutually inundated with holding cash. The cash mopped up from the economy is in turn given out as loans for investment.

Experts believe that e-payment will continue to stimulate increased consumption. These days, consumers and bank customers are able to monitor what they are spending, and handle their daily financial transactions without having to visit their local bank branch. It does not only save one from handling cash, but also saves time and costs of transportation to the bank itself. Between 2011 and 2015, e-payment added 296 billion (U.S.) dollars to the gross domestic product (the total income that was made in those nations within a particular period) of about 70 countries. That brought about the creation of approximately 2.6 million jobs in those countries sampled. Visa USA showed us that the largest increases in card usage experienced the biggest contributions to growth. For instance developing economies and emerging markets can draw inference from the way these economies below grew between 2011 and 2015 –

Percentage growth of GDP in economies which embraced e-payments from 2011 to 2015. Source – Moody’s Analytics.


Electronic Payment could improve spending habits

Consumption rate is faster on the average, in emerging economies, and they have more to gain by increasing e-payment usage to rapidly increase consumption growth even further. Consumption growth in the areas of services and products will mostly be catalysed by the increased number of cardholders, mobile money applications, e-commerce sites and payment gateways. Consumer behaviour today reveals that  individuals are more inclined to buy things faster or make payments and transfers faster, if they have electronic means of doing so. Moody’s Analytics asserts that financial systems conducive to the growth in electronic payments include control over inflation and the money supply, a wide network of stable and readily accessible banks, insurance companies and pension funds managers, the existence of markets such as stock exchanges, and the availability of such financial infrastructure as ATMs. Increased card usage drives consumption rate and vice versa.

Benefits of e-payment to consumers and merchants from a micro and macro economic perspective.
  • There is more access to financial resources – with cash, spending may be limited, but with credit cards, consumers would be able to extend their credit, thus leading to more consumption.
  • With more consumption, the decline of inventory to its minimum level is rapid, and derived demand (the type found in B2B scenarios)
  • Producers get more requisitions to supply physical inventory.
  • There is greater income on the side of the producers and consumers, because jobs will be created, spending power will increase, greater revenue will be amassed at the merchant’s place.
  • Cards and payment platforms will enable SMEs to sell themselves in a digital economy.
Regional market GDP growth stemming from increased bank card usage.

Average weighted GDP growth of regional markets from 2011 to 2015 based on e-payment. Source – Moody Analytics.



  1. Okifo, J & Igbunu R. (2015): “Electronic Payment System in Nigeria: Its Economic Benefits and Challenges. Journal of Education and Practice. Vol.6, No.16.
  2. Sourced online at “https://usa.visa.com/dam/VCOM/download/visa-everywhere/global-impact/impact-of-electronic-payments-on-economic-growth.pdf”.