I am still amazed by the drastic change in the content of my wallet when I first hit mainland American soil in 2007. All of a sudden, the majority of the paper bills seemed to evaporate. And this was not a big deal either – I found myself not touching the remaining few for weeks at times. I have a habit of ordering my paper bills in the order of cleanness so I always get rid of the dirty ones first. My paper bills remained fresh for a long time. But this doesn’t mean I became poorer – the whole stack of paper was replaced by my only debit card at the time. I would have carried a credit card if I had owned one.
To illustrate the benefits of payment cards, let me tell you two real-life stories.
Andy is a Vietnamese living in Cashenovia, Vietnam. He goes to a computer store to buy a Macbook Pro which costs about 40 million Vietnamese Dongs. The highest denomination of Vietnamese paper bills is 500,000 dongs, so Andy carries with him 80 paper bills just in order to buy this laptop. He can’t fit all these bills in his stylish Gucci wallet, so he wraps the stack in a newspaper and puts the whole thing in the trunk of his scooter. Arriving at the store, Andy nervously looks around for any potential robber – after all, that’s a big chunk of money; he sees none. Confidently, he walks into the store, asks the salesperson for the Macbook Pro he’s been saving money to buy. Unfortunately, the store just raised the price an hour ago to 41 million dongs.
The price change itself is not a big deal for Andy who is an avid fan of Apple, and particularly of the Macbook Pro product. But the problem is, he did not carry with him that extra 1 million dongs. He quickly runs home to get the 1 million dongs that separate him from the long-dreamed Macbook Pro. When he comes back to the store, he is notified that the store just sold the last unit to another customer. So Andy ends up empty-handed. Well, actually, he still has the 41 million dongs in cash. Had the money been robbed away from him on the way to the store, he’d be really empty-handed. Lucky Andy.
Billy is a manager of a grocery store in Foolhampton, Oklahoma. One Sunday, a customer purchases 125 dollars’ worth of groceries and pays for that with a check from Booverty Bank. Bill deposits the check to the store’s bank which then passes the check to the Federal Reserve to clear. Unfortunately, the customer only has 25 dollars left in his bank account. So the check bounces, and Billy’s store is down by 125 dollars. Angry, Billy decided that his store would no longer accept checks.
But Billy is having an odd month. The next day, a different customer uses a $100 bill to pay for his $70 grocery bill. It turns out that the paper bill is counterfeit money. Billy’s store is down by another 70 bucks. These two incidents alone caused a loss of 195 dollars to the grocery store.
If you stopped reading the stories at some point, I know, I know, I’m sorry, the stories are made up, and the locations and characters are fictional. But the point is, anyone of us could be in a situation like Andy or Billy, if we didn’t have a thing called electronic payment. If the computer store accepted credit card payments and Andy brought his credit card with a sufficient credit limit, he’d be able to pay for the laptop on the first visit. If Billy’s grocery store only accepted credit cards and debit cards, the payments would clear (or not) right away, and he would not have the problem of bounced checks or counterfeit money.
It is easy to forget just how much the advent of electronic payments has altered our consumption behavior, just because we were born in an era where credit/debit card use is a given. Moody’s Analytics recently performed a research on the impact of payment cards on consumption behavior and economic growth from 2008 to 2012. The results are quite astounding.
According to the study, card usage in the US increased economic growth by 0.3%, or approximately $127 billion. In some countries, card usage increased consumption significantly: in China, the increase was almost 5%. Across emerging markets, card usage added 0.8% to GDP. These numbers were derived through statistical analysis, as you can see in the white paper: http://corporate.visa.com/_media/moodys-economy-white-paper.pdf
There are many benefits to using and accepting debit cards. Andy would have access to all his available funds, and Billy would be guaranteed payment. The Vietnamese and American economies would benefit from not having to physically process tons and tons of paper bills and coins, and from saving trees and minting costs. These two economies would also have to deal with a lot less money laundering if all the money would flow through an electronic payment network.
Using credit cards would benefit consumers even further: in addition to available funds, Andy would also have access to all his credit lines, and would be 100% protected from fraudulent transactions.
For more information about this study, you can read either:
The facts sheet: http://corporate.visa.com/_media/moodys-economy-fact-sheet.pdf , or
The white paper: http://corporate.visa.com/_media/moodys-economy-white-paper.pdf
In conclusion, electronic payment is an integral part of our present and future, and it is no wonder that Visa, Mastercard, Discover, and American Express have seen their stock prices grow so much in the last 5 years.
What do you think of the impact of debit card and credit card usage on our economic life? Would you rather have a financial system without the presence of payment cards? Do you have personal stories to share? Feel free to post in the Comments section below.
Hope you enjoyed your weekend and look forward to a great week ahead.
Richard (Hiep Tran)