The economic impact of real time payments
This month’s newsletter explores research that found that higher use of real-time payments within a country can have significant economic benefits. This socioeconomic analysis across over 40 countries, in collaboration with ACI Worldwide, assessed the benefits for businesses, for the wider economy and the potential boost to financial inclusion, of movements between paper-based transactions (i.e. cash and checks) and electronic transactions (be they instantaneous or using slower payment rails).
Why does this matter?
Most economic modelling focuses on the ‘who’, ‘how much’, ‘why’ and even ‘when’ of transactions, rather than the ‘how’. For example, if considering the economic impact of a policy change designed to increase consumer spending, consideration of how this money moves from consumers to vendors is typically ignored.
Cebr is not immune to this. We have significant expertise in policy analysis and a variety of sophisticated modelling techniques to help clients understand the impacts of policy changes. However, at times, we have been guilty of ignoring the precise way transactions are made, along with the subsequent economic connotations of this.
Therefore, our research with ACI Worldwide has incredible value. Through a novel modelling approach, designed specifically to meet the needs of the client, we created a framework to assess the implications of movements between three payment mechanisms: paper-based transactions, real-time payments and other non-instant electronic payments.
Real-time payments can improve the overall efficiency of payments in a country, by allowing the transfer of funds between consumers and businesses within seconds. This has efficiency-related advantages over both cash and slower electronic transactions.
Consider, for example, the time that bank tellers spend counting spare change compared to the efficiency of a precise mobile payment. This time freed up can then be spent on other productive activities. Now, instead, think about the ability of a business to send and receive funds instantaneously internationally rather than waiting an uncertain number of days for the same payments to clear. If this allows better cash-flow management, perhaps this facilitates a capital investment that would otherwise have not occurred.
Across 40 countries assessed, we find payment systems generated $116.9 billion in net savings for consumers and businesses in 2023, a figure that could more than double to $245.8 billion by 2028.
The economic benefits of real-time payments
The advantages of real-time payments are numerous, including lowering transaction costs (banking fees or time cost), lowering the time for which funds are ‘locked away’ and inaccessible to both parties and reducing the probability of failed payments. All of these bring benefits to the maker and recipient of payments, along with having a broader macroeconomic impact.
Our research estimated the distinct impacts of varying the payment mix in 40 different markets, assessing both the current impact of real-time payments and the potential impacts in 2028, utilising forecasts for adoption levels over the next five years.
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We estimate real-time payments increased global GDP by an impressive $164 billion in 2023 alone, an amount equivalent to the output of 12 million workers across the countries studied. Looking ahead, this contribution could increase to $285.8 billion by 2028 (74% growth).
Interestingly, we also found that the leading adopters of real-time payments, and therefore where the greatest economic impacts manifest, are not always the traditional economic powerhouses. The greatest economic impacts are experienced by India, Brazil, China, Thailand and Mexico, with a combined $114.6 billion of GDP supported across the five countries in 2023.
Supporting financial inclusion
By reducing transaction costs and making financial services more affordable and accessible, the potential for better cash flow and liquidity control, and the reduction of the risk of transactions failing, real-time payment systems increase the incentive for individuals to engage with financial institutions.
Through a fixed effects regression, we were able to identify for the first time a link between real-time payments and the share of the population with a bank account. For ACI Worldwide, this was a key objective, statistically corroborating a hypothesis they had theorised was the case through their experience in individual countries.
Utilising our regression and considering anticipated changes in the payment mix, we find that by 2028, an estimated 167.2 million people could additionally gain access to banking in 28 studied countries. Pakistan, India, the Philippines, Nigeria, and China are expected to see the greatest increases in the share of the population with bank accounts, enhancing economic stability and access to essential financial services. Interestingly, these trends are particularly pronounced amongst young adults, women, and low-income individuals.
By providing results aggregated at a global level and also broken down by nation, our report allowed ACI Worldwide to design both a global coverage plan and utilise the findings for specific strategic purposes in individual target countries. As a key provider of real-time payments software, they are now also equipped with a comprehensive economic evidence base to engage with key stakeholders, demonstrating the value of their services.
If you are interested in undertaking an economic impact analysis or learning more about it, click here.
Other key news from Cebr this month: