A Visa-Sponsored Report Lays Out the Costs of a Cash-Based Economy

Payments gurus for years have touted benefits like faster transactions, improved security, and associated rewards when it comes to mobile payments. Now a study released Tuesday indicates converting off-the-books cash payments to digital methods could also boost a nation’s gross domestic product and augment the flow of tax revenues to the government.

By raising digital payments—transactions by payment cards and mobile devices—10% globally for five straight years, governments collectively could add $1.5 trillion to GDP. In the United States alone, where this so-called informal economy totals almost $1.5 trillion, or 8% of GDP, that same increase in digital payments could drive up GDP by $206 billion, according to the report.

“Digital Payments and the Global Informal Economy,” prepared by the international research firm A.T. Kearney and commissioned by Visa Inc., argues that converting legal cash transactions to digital brings off-the-books payments into the mainstream economy, creating benefits not just for merchants and consumers but for entire economies. The report, which covers activity in 60 nations, finds that this informal economy totaled $10.7 trillion in 2016, or more than 23% of collective GDP that year. That’s down from 26.1% in 2009, a trend the report credits largely to moves so far in various nations to adopt digital-payment methods.

The people behind the report, however, don’t underestimate the challenge of chipping away at long-held cash habits. “The informal economy is one of the most pervasive challenges in modern society, yet one of the hardest to measure or understand,” said Daniela Chikova, a partner at A.T. Kearney, in a statement. Also assisting on the report was Friedrich Schneider, who was until his retirement last year professor of economics and economics department chair at the Johannes Kepler University Linz in Austria.

While legal, off-the-books activity harms societies in several ways, the report argues. Businesses pay less tax than competitors do, creating an unfair disadvantage for on-the-books companies. And governments receive less tax, leading to less investment in economic development.

The report discusses four measures it says have the potential to shrink the informal economy: government adoption of digital payments; value-added tax rebates as usage incentives; funding for acceptance infrastructure; and boosting usage and acceptance of contactless payments.