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Effect of e-Money to Economic Performance (A Comparative Study of Selected

Countries)

Conference Paper · March 2016

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 EFFECT OF E-MONEY TO ECONOMIC PERFORMANCE
(A COMPARATIVE STUDY OF SELECTED COUNTRIES)
Thomas Soseco

Department of Development Economics Universitas Negeri Malang

([email protected])

ABSTRACT

E-money is one way of transactionsin a cashless society. Altogether with credit and debit cards, emoney seemed as the
future of money. Comparing to credit and debit card, emoney offers better features in transaction speed and
comfortness. Thus, many countries hardly influence its citizen to use emoney. By reducing the use of banknotes,
transaction will run faster and bigger. Therefore it is important to explore how emoney influence economic performance
in one country.

This research compares the use of emoney and its influence among several countries by using data published by
international agencies. The research found that emoney plays bigger role in relatively small countries, in the economic
term. On the other hand, in big economy countries, emoney show little significance.

The conclusion is it is urgent to developing countries to implement cashless society especially emoney to boost their
economic performance.

Keywords: cashless society, e-money, economic performance

1. INTRODUCTION 1997. In both countries, e-money serve well in public

transportation services.
Comparing to other countries, the use of non-
cash payment system in Indonesia is relatively low In Indonesia, since 2008, Bank Indonesia
(Gerai Info BI, 2014). In 2014, cash transactions in counted that there were an increase in nominal
Indonesia counted 99.4% of total national transactions. transaction using e-money. From 76.675 billion rupiah
This figure is higher than other countries, for example in 2008 to 3.319 trillion rupiah in 2014. This
Thailand (97.2%), Malaysia (92.3%), and Singapore incremental is cannot be separated by the increase
(55.5%). number of e-money providers as well as wider use of e-
money. Currently, there are 17 e-money providers,
From credit cards and ATM/debit cards including banks, cellular providers, and other financial
ownership, the number of credit cards and ATM/debit firms. E-money is used in parking services, highway
cards in Indonesia is relatively low. Bank Indonesia payments, train services, and purchasing goods and
noted that in 2014, only 15,124,109 outstanding credit services. E-money also integrated with campus’ or
cards and 83,765,345 ATM/debit cards in Indonesia. firms’ ID cards.
This is relative small number, especially comparing to
Indonesian population. Furthermore, it is possible that Those conditions are attractive incentives to
one person could own more than one credit card and use e-money. By lowering level of the use of
ATM/debit card. banknotes, government can save expenditure. Others,
there is a dramatic increase in transactions’
E-money in Indonesia is a complement for comfortability. Thus, wider use of e-money could
previous credit cards and ATM/debit cards. E-money enhance economic performance.
can be in form of prepaid cards (e.g. BCA Flazz,
Indomaret Card from Bank Mandiri, and BRIZZI) and
electronic wallet )e.g. Dompetku from Indosat, and XL 2. THEORITICAL FRAMEWORK
Tunai from XL Axiata). Those providers claimed that
their product have benefits in easiness, speed, and 2.1. Definition of E-money
eficiency. There is no minimum amount of transaction
and no security verification (whether use PIN or E-money is popular because its ability to
signature). overcome transactions in small amount and frequent.
Several studies show that e-money is is useful to pay
In other countries, e-money is popular for public transport costs, cinemas, restaurants, and to pay
decades. In Singapore, e-money is widely used since fine and taxes. E-money is also useful in purchase
1996. Hongkong also implemented e-money since goods from online shops (Riel, et al. 2002).

The 2016 International Conference of Management Sciences (ICoMS 2016), March 10, UMY, Indonesia 9
 Besides that, there is a worry of e-money. The basic approach to measure one nation’s
Hespeler (2008) found that several countries are affraid economy is gross domestic product (GDP). GDP is the
of uncontrollable e-money emition. Others, they found value of output produced within the country over a 12-
bigger potency in fraud. Humphrey, et al (1996) stated month period (Sloman, 2006). The first method of
that security and consumer’s protection are the two measuring GDP is to add up thevalue of all the goods
main issue in e-money. This occurs for example and services produced in the country,industry by
consumer lost his e-money. Other people are easy to industry. In other words, we focus on firms andadd up
use that e-money because of no security authorization all their production. This first method is known asthe
like in credit cards or ATM/debit cards. product method.The production of goods and services
generates incomesfor households in the form of wages
2.2. Key Features of E-Money Schemes and salaries, profits,rent and interest. The second
method of measuring GDP, therefore, is to add up all
Typically, e-money schemes have various these incomes. This is known asthe income method.The
features (Al-Laham, 2009). Firstly, e-money products third method focuses on the expenditures necessaryto
differin their technical implementation. To store the purchase the nation’s production. In this simple
prepaid value, card-based schemes involve a modelof the circular flow of income, with no injections
specializedand portable computer hardware device, or withdrawals,whatever is produced is sold. The value
typically a microprocessor chip embedded in aplastic of what issold must therefore be the value of what is
card, while software-based schemes use specialized produced. Theexpenditure method measures this sales
software installed on a standard value.
personalcomputer.Secondly, institutional arrangements
may vary. Typically, four types of service provider will
beinvolved in the operation of an e-money scheme: the 3. RESEARCH METHOD
issuers of the e-money value, the networkoperators, the
vendors of specialized hardware and software and the This research compares the use of e-money
clearers of e-money transactions. and its influence on economic among selected
Thirdly, products differ in the way in which countries. The countries are Australia, Belgium, Brazil,
value is transferred. Some e-money schemes Canada, China, France, Germany, India, Indonesia,
allowtransfers of electronic balances directly from one Italy, Korea, Mexico, Netherlands, Russia, Saudi
consumer to another without any involvementof a third Arabia, Singapore, South Africa, Sweden, Switzerland,
party such as the issuer of the electronic value. Turkey, United Kingdom, and United States .
Fourthly, related to transferability is theextent to which
transactions are recorded. Most schemes register some 4. FINDINGS
details of transactions betweenconsumers and
merchants in a central database, which could then be The research found that there is a positive and
monitored. In caseswhere direct consumer-to-consumer medium relationship (0,357277) between economic
transactions are allowed, these can only be recorded on condition and e-money as seen in table 1.It implies that
consumers'own storage devices and can be monitored e-money is more widely used as the economic grows.
centrally only when the consumer contacts thee-money Many transactions are use e-money.
scheme operator.Finally, in most e-money schemes
currently being developed or pilot-tested, the "value" This researchs also found that cheques are no
stored onthe devices is denominated only in the longer as favorite payments method. This showed by
national currency. It is possible, however, for balances negative value of correlation between cheques and
tobe held and payments to be made in several different economic growth (-0,20915). Others, debit cards
national currencies. paymenthave positive relationship to economic growth,
while credit cards have negative one.

2.3. Economic Growth In upper medium income countries like Brazil,

China and South Africa, e-money is a rising star. E-
One way to evaluate one nation’s money has strong relationship to economic growth
development is economic growth. Todaro (2006) stated (0,543539). The use of debit cards and credit cards also
that economic growth is the long run incremental have positive and medium correlation with economic
capacity of one nation to provide goods and services to growth. It means that in developing countries, non cash
its citizen. Those higher capacity is determined by payment systems, including e-money, debit cards, and
technological advances, better institutional and credit cards show an increase.
ideology which well-adjusted to recent condition.Van
den Berg (2005) stated that economic growth is growth This is relevant to Fung (2014) which stated
in citizen’s welfare, which measured in per capita that e-money success in cash-intensive economies,
output. Economic growth also can be measured from especially those in East Asia, Africa, and Europe.
per capita income, longevity, mean years of education, Many of these e-money schemes were introduced to fill
infant mortality, or nutrition condition. a particular gap in the retail space, such as paying for

The 2016 International Conference of Management Sciences (ICoMS 2016), March 10, UMY, Indonesia 10
public transportation, serving the unbanked population Figure 2. E-purses in EU, 1998.
or facilitating payments for online purchases.

In East Asia, the scheme was originated by a

public transportation company as a means of
developing a more efficient and convenient means of
payment for public transport usage. In some African
countries, the lack of infrastructure such as landline
phones and limited access to banking has encouraged
the development of mobile money systems, where
monetary value is stored in an account accessible by a
mobile handset, a relatively low-cost
telecommunication device (Fung, 2014).

Table 1. Relationship Between Several Payment

Methods to Economic Growth.

Debit Credit Source: Godschalk (2000)

Cheques E-money
cards cards
All
countries -0,20 0,35 0,07 -0,12
Figure 2 shows that Belgium, Germany,
UMC -0,73 0,54 0,54 0,54
Austria, and Netherlands has relatively high number of
HIC 0,03 0,40 -0,03 -0,44 electronic purse per ten inhabitants comparing those in
Note: UMC=upper medium income countries (Brazil, Portugal, Finland, Denmark, and Spain. But the usage
China, South Africa), HIC=high income countries of e-purse in the Germany, Austria, and Netherlands
(Australia, Belgium, Canada, France, Germany, Italy, are very low (less than 0,5 transactions per card). In
Korea, Mexico, Netherlands, Russia, Saudi Arabia, Portugal and Denmark, the usage per card is relatively
Singapore, Sweden, Switzerland, Turkey, United high (in Denmark more than 10 transactions per card),
Kingdom, and United States) but the market penetration is very low. It implies that e-
purse is considered succes if reach high usage per card,
In high income countries, for example not high market penetration.
Australia, Belgium, and Singapore, e-money has
positive and medium relationship to economic growth. In low income countries like India and Indonesia, e-
The value (0,402065) is less than in upper medium money has positive and strong relationship to economic
countries. This means that e-money in developed scale. It means that e-money can be bigger as the
countries is less popular than in developing countries. economy growth. There is still wide potential market
Fung (2014) found that in Europe, many e-money share in low income countries. Therefore, the e-money
schemes that run for up to 20 years that typically grow well in those countries. Indonesia is an example.
involved a prepaid anonymous card that serve small- Bank Indonesia found that there was an increase in
value transactions such as public transport, car parking, value of transaction using e-money from 76.675 billion
vending machines, and payphones. In general, these rupiah in 2008 to 3.319 trillion rupiah in 2014.
card systems have been less successful than those in
East Asia. For example Danmount and Mondex in Conclusions
Denmark, which failed to find competitive market.
Others, Germany’s GeldKarte that losing market share It is bright future for e-money in low income countries
to conventional debit card systems. and medium income countries. E-money can grow well
as the economy rises. On the other side, e-money faced
It seemed a market failure for e-money in high gloomy condition in high income countries.
income countries. As Godschalk (2000) found that e-
money (in form of electronic purse on chipcards) has It is an oppportunity for government in low and
high penetration in several European countries, but medium income countries to boost the penetration and
very low usage, as in figure 2. usage of e-money. While at the same time build better
and more distributable infrastructure.

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