SAN FRANCISCO, July 17, 2018 /PRNewswire/ -- More than 23
percent of the world's economy operates out of sight of
governments, leaving more than US$10.7
trillion of economic activity unreported annually, according
to a new study commissioned by Visa and conducted by A.T. Kearney
with support from Professor Friedrich
Schneider at the Johannes Kepler University of Linz,
Austria.
The Digital Payments and the Global Informal Economy report, a
first-of-its-kind study, measures the size of the informal economy
across 60 countries over a 10-year period, and explores the role of
digital payments in reducing the informal economy and boosting GDP
and tax revenue in these countries.
The global informal economy - legal, income-generating
activities conducted off-the-books and outside of government
purview - is substantial, exceeding US$10.7
trillion in value of economic activity, or 23 percent of
global GDP. This in effect means governments around the world are
unable to track nearly a quarter of GDP, resulting in both
significant revenue leakage and major implications for a range of
policy-making and investment decisions.
The study finds a strong inverse relationship between digital
payments and the informal economy. In fact, increasing digital
payments by 10 percent across all markets studied for five
consecutive years can shrink the informal economy from 23 percent
of the world's economy down to 19 percent, the study finds.
Consequently, governments that rely less on cash and more on
digital payments, such as through cards and mobile payments, are
more successful in reducing the informal economy.
When the informal economy shrinks, GDP increases due to a
portion of previously unreported GDP shifting into the formal
economy. The study finds that if all 60 markets studied increased
digital payments by 10 percent each year for five consecutive
years, this could collectively add US$1.5
trillion to global GDP by 2021.
Informal transactions can range from straightforward activities
like buying a cup of coffee at a farmers' market to complex
scenarios like workers making clothing in a textile factory. The
informal economy touches every sector, from agriculture and
construction to education and professional services, to a varying
degree. A dominant trait is reliance on unreported cash-only
transactions.
Around the world, the informal economy has negative impacts on
governments, businesses, and individuals. The informal economy
limits governments' abilities to provide services, damages business
competition, fosters unfair labor practices, and leaves workers
vulnerable in an unregulated environment with a limited safety
net.
"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, Partner at A.T. Kearney.
Many governments around the world recognize the challenges posed
by the informal economy, and are increasingly embracing digital
payments as a way to reduce informal transactions. Since 2014, more
than 65 percent of government policies aiming to reduce the size of
the informal economy involved measures related to digital payments,
compared to only 33 percent in 2007, the study finds. At the same
time, the study finds a significant reduction in the number of
measures utilizing law enforcement as a means to impact the ongoing
presence of the informal economy.
"While informality remains a sizable challenge, shifting
transactions from cash to digital payments holds great promise for
individuals, businesses, and governments," said Ellen Richey, Visa's vice chairman and chief
risk officer. "Digitizing payments can bring an array of benefits,
including greater inclusion and stronger economic growth."
The study explores a number of policy strategies that have the
potential to impact the size of the informal economy, GDP and tax
income. These include:
- Encouraging government adoption of digital payments;
- Incentivizing digital payments usage by offering value-added
tax (VAT) rebates;
- Subsidizing funds that support the development and expansion of
acceptance infrastructure; and
- Accelerating the use and acceptance of contactless
payments.
METHODOLOGY
A.T. Kearney, a leading global management consulting firm, sized
the global informal economy across 60 markets that account for 94
percent of global economic output. The study uses the MIMIC
(multiple indicators, multiple causes) methodology, a
well-respected model that makes it possible to examine
relationships between outcomes that are not directly observable—the
informal economy, in this case—and observable input factors, such
as unemployment and GDP. Professor Friedrich Schneider (Johannes Kepler University
of Linz, Austria), a foremost
expert in the field, implemented the model to calculate the study's
results. In this case, the MIMIC model used 10 years of data for
the decade starting in 2007 and more than 30 variables to calculate
the size of the informal economy, including economic indicators
such as nominal and real GDP, unemployment, and taxation levels,
along with socioeconomic indicators and indicators related to
payment behaviors, such as the use of cash. Among the 60 markets in
the study, there is variation with respect to the activities deemed
legal and illegal by domestic laws (for example, gambling, tobacco
sales, or the production of certain agricultural goods). Because
the informal economy is comprised of legal income-generating
activities, the study uses a consistent definition of legality
across all markets, excluding universally illegal activities, such
as human trafficking and the production and trade of illicit drugs
and banned weapons.
About A.T. Kearney
A.T. Kearney is a leading global management consulting firm with
offices in more than 40 countries. Since 1926, we have been trusted
advisors to the world's foremost organizations. A.T. Kearney is a
partner-owned firm, committed to helping clients achieve immediate
impact and growing advantage on their most mission-critical issues.
For more information, visit www.atkearney.com.
About Visa
Visa Inc. (NYSE: V) is the world's leader in digital
payments. Our mission is to connect the world through the most
innovative, reliable and secure payment network—enabling
individuals, businesses and economies to thrive. Our advanced
global processing network, VisaNet, provides secure and reliable
payments around the world, and is capable of handling more than
65,000 transaction messages a second. The company's relentless
focus on innovation is a catalyst for the rapid growth of connected
commerce on any device, and a driving force behind the dream of a
cashless future for everyone, everywhere. As the world moves from
analog to digital, Visa is applying our brand, products, people,
network and scale to reshape the future of commerce. For more
information, visit About
Visa, visacorporate.tumblr.com and @VisaNews.
Media Contacts
Juliana Muir
A.T. Kearney
juliana.muir@atkearney.com
+44 7341 128 129
Stephanie Ferragut
Visa Inc.
sferragu@visa.com
415-319-3482
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SOURCE A.T. Kearney