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The electronic payments industry has revolutionized worldwide markets, making services like Amazon, Uber, Airbnb, and touch and pay systems possible. As the industry grows and innovates, consider the effects of this technology on the US economy.
According to a new study, the economic efficiencies produced from using payment cards create over 23 million permanent jobs and add 12 percent to the gross domestic product.
The history of market exchange has seen an evolution from barter, to primitive forms of currency, to minted coins, to bank notes, to nationally backed currencies, to personal checks, to what is now an international system of electronic exchange that moves money safely and accurately at the speed of light.
Two factors lead to electronic payments increasing the size of the economy. First, the easier and cheaper it becomes to complete transactions, the more willing people are to engage in those transactions. In more technical terms, when transaction costs go down, GDP goes up. Secondly, when economists calculate the size of the money supply, and then how rapid the turnover rate of that money (its velocity), the greater the amount of economic activity that money can support.
This is how the electronic payment system has increased the size of the U.S. economy – increasing personal-consumption expenditures by 17 percent, and increasing employment by 20 percent.
A new study by The Perryman Group, an economic and financial analysis firm headquartered in Waco, Texas, found that electronic payments systems generated business activity in the United States (compared to the results if no such system existed) of an estimated $1.7 trillion in annual gross domestic product and 23,166,000 permanent jobs in 2014. The cumulative impact from 1970 to 2014 indicates an increase in gross domestic product of $34 trillion and 387 million person-years of employment. It also found that increased electronic payments since 2004 resulted in an estimated gain of $432.927 billion in annual gross product and 5,652,464 permanent jobs as of 2014.
If you were to consider how inefficient it would be to mail a check to a retailer across the country, wait for the mail to deliver it, for the mailroom to process it, and for the bank to clear it before mailing you your purchase, you can begin to see just how remarkable our present system of instantaneous transactions really is.
What’s more, the ease of these electronic transactions give rise to even relatively small businesses marketing themselves worldwide, since they can be assured of rapid and accurate payment in their home currency.
And because consumers have so many options with payment cards, our decisions to purchase have been expanded considerably. We can use prepaid cards, which are electronic cash, debit cards, which are electronic checks, or credit cards which amount to instant electronic loans. The increased ease of transactions has increased consumer spending, an important factor in economic growth.
And with those choices, consumers’ use of electronic payments is exploding. In its latest analysis, Juniper Research predicts a 20 percent increase in the value of mobile, contactless and online payments this year, rising from $3 trillion in 2015 to $3.6 trillion in 2016.
For those of us who remember the introduction of Automatic Teller Machines (ATMs), they were an alternative to standing in line at a bank for cash. The payment card networks are a giant leap past that technology, whereby we don’t have to travel or wait to make almost any payments anymore.
While we may have begun to take our worldwide electronic payment networks for granted, consider just how convenient and efficient they have made our lives, and how much our economy has come to depend on them.
Peter J. Ferrara is a member of the Committee to Unleash Prosperity, a Senior Fellow for Entitlement Reform and Budget Policy at the Heartland Institute, and a Senior Policy Advisor to the National Tax Limitation Foundation.