Innovationen im Zahlungsverkehr und Wirtschaftsentwicklung: Der Fall Nachkriegsdeutschlands

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1 Innovationen im Zahlungsverkehr und Wirtschaftsentwicklung: Der Fall Nachkriegsdeutschlands Internationale Fachtagung : Perspektiven einer langfristig nachhaltigen Wirtschaftsentwicklung in Deutschland 10. bis 12. Juni 2015, Nürnberg und Weiden Malte Krüger Hochschule Aschaffenburg 1 Cashless payments and growth Payments and growth has become a popular topic. Related is the topic of payment system efficiency. A recurring theme is the supposed overuse of cash and the resulting ineffciency. Most studies focus on the period starting in the late 1980s / early 1990s when card payments took off. 2 1

2 Cashless payments and growth Cashless payments and growth 2003 Electronic payments* Consumer spending Credit creation Economic growth *: in particular card payments 4 2

3 Cashless payments and growth Cashless payments and growth Based on retail payments data, from all 27 European Member States over the period , evidence confirms that migration to efficient electronic retail payments has a positive impact on GDP, consumption and trade., this relationship is strongest for card payments. 6 3

4 Cashless payments and growth According to Hasan, De Renzis and Schmiedel: What are the drivers? payment systems have a significant impact on bank performance and efficiency, increasing the availability of resources and ultimately favouring lending, investments and growth. Plus reference to Visa/Global Insights: Card use Consumption Growth 7 Cashless payments and growth According to Hasan, De Renzis and Schmiedel: What are the drivers? In fact, by eliminating or reducing market frictions and costs, an efficient payment infrastructure helps trade, services, transfers of funds, fostering economic interactions. Consumption and trade increase, in turn supporting production and so overall growth. transaction costs 8 4

5 Cashless payments and growth Policy conclusions From a policy perspective, our paper supports the adoption of policies that encourage the usage and adoption of electronic retail payment instruments. Initiatives and policies aimed at fostering an integrated and harmonised single retail payments area can be expected to lead to positive macroeconomic effects, increased trade and consumer consumption. A SEPA success story? 9 Cashless payments and growth In the end, what do we find? positive correlation between retail payments and economic growth (Hasan, De Renzis and Schmiedel, p. 21) But even if a significant relation is found to be in place; causality may run in both directions (Hasan, De Renzis and Schmiedel, p.11) 5

6 Cashless payments and growth In my presentation today: A look at the 1950s and 1960s. Focus: Germany. 25% 20% The International Evolution of Cash/GDP Ratios 15% 10% AUSTRIA BELGIUM FINLAND FRANCE GERMANY JAPAN NETHERLANDS UNITED STATES UNITED KINGDOM 5% 0% Source: IMF: IFS and own calculations. 12 6

7 The International Evolution of Cash/GDP Ratios Source: IMF: IFS and own calculations. The International Evolution of Cash/GDP Ratios Source: IMF: IFS and own calculations. 7

8 Cash-to-GDP ratios So, there has been a period when cash-to-gdp ratios went down in all countries. However, since the 1980s, there is no uniform movement. Thus, interestingly, the rise of card payments has not led to lower cash-to-gdp ratios in all of the countries concerned. In fact, cash-to-gdp ratios suggest that the main transformation of the payment system has taken place before the mid-1970s. The International Evolution of Cash/GDP Ratios 12% 10% 8% 6% Australia Canada Denmark New Zealand United Kingdom Switzerland 4% 2% 0% 8

9 20% 18% 16% 14% 12% 10% 8% 6% The International Evolution of Cash/GDP Ratios 6% United States Norway Euroarea 5% Sweden Japan 4% 3% 2% 4% 2% 0% % 0% Cash-to-GDP ratios Thus, when looking for a link between changes in the payment system and growth, the 1950s and 1960s might be the period to look at. Indeed, in this period, a small revolution took place. 9

10 Revolutionary at First: Retail Banking in Germany* In the 1950s Germany was basically a cash-society. Wages were mainly paid in cash. Few households had an account with a bank. Banking services were mostly reserved for firms and rich individuals. Even though savings accounts were common a large portion of the population used cash not only as a medium of payments but also as a store of wealth. For transfers to more distant recipients, households used the transfer system of the German postal service. *: This headline goes back to Büschgen. 19 The Number of Giro Accounts at Savings Banks: units million Households Firms Source: Deutscher Sparkassen- und Giroverband and Trurnit (1969) 20 10

11 Changes in the payments system since the late 1950s: cashless wage payments extension of the branch network improvements in the use of cheques increased use of giro transfers introduction of direct debits Later on: introduction of cheque cards and payment cards introduction of ATMs 21 The Number of Bank Offices: s 50,0 45,0 40,0 35,0 30,0 25,0 20,0 15,0 10,0 5,0 0,0 Bank offices Bank branches Bank HQs Source: Deutsche Bundesbank and own calculations based on Ashauer (1983). 11

12 The main element: Shift from wage payments in cash to cashless wage payments. An important additional change: In nearly all cases, the switch to giro transfers of wages was immediately followed by a switch to monthly payments (Röthel 1960, 300). The transition to cashless wage payments stretched out over a long period ranging from the late 1950s to the mid-1970s. It has changed the banking and payments system more fundamentally than any of the newer innovations such as credit cards, EFTPOS-systems or online banking. Expected costs and benefits of the new regime Households Costs trips to the bank periodic charges and set-up costs shift to monthly wage payments Benefits new payment options access to consumer credits access to savings instruments Overall, not such a clear case for change

13 Expected costs and benefits of the new regime Households Costs And there was an extra cost that is hard to measure! 25 Not everyone was happy! Der Mann vermutet, daß er mit seiner Familie, vor allem mit seiner Frau, Schwierigkeiten wegen seines Taschengeldes bekommt. Schaefer (1961),

14 Expected costs and benefits of the new regime The banks Costs large up-front investments higher variable costs Benefits acquisition of new customers cross selling float fees Initially, the business case seemed doubtful. 27 Expected costs and benefits of the new regime Companies Benefits no working time lost on cash payments extended workers credit Costs bank fees For companies there was a strong case for change

15 Other drivers of change Regulation Until 1958 restrictions on branching Until 1967 regulation of interest rates Branch expansion as non-price competition. Rising wages : 7,9% : 8,6% (average annual increase). Reversed causation? (Mis-guided)Regulation as a driver? Rising costs of wage payments in cash. Wage earners are getting increasingly interesting for banks. 29 What about payments as driver of growth? availability of resources favouring lending, investments and growth 15

16 Not an awful lot of change Once a week: Cash Once a week: Wage office Cash Payments during the week Cash Bank branch 31 But Income and Wealth: Major Trends in Germany Population GDP Real GDP Net Liq. A. Cash (million) (DM billion) (1990 prices) (DM billion) (DM billion) % +590% +252% +2100% +388% % +262% +65% +470% +308% Net Liq. A.: net liquid assets of households Source: Deutsche Bundesbank, Sachverständigenrat, own calculations 32 16

17 7,50% 7,00% Decline of the cash/gdp ratio ,50% 6,00% 5,50% s 5,00% Cash/GDP Bank Offices Hoarding becomes less important? What about payments as driver of growth? Availability of resources Money flows into the banking system - what does that imply? but In the aggregate financial accounting of the Bundesbank we do not see any long run effects

18 Internal and external financing of net investments 250% 25,00% 200% 20,00% 150% 15,00% 100% 10,00% 50% 5,00% 0% ,00% Ext. Fi I net/gdp Inv. Netto Int. Fin. Ext. Fin. Share ext. 1950s 156,35 97,46 58,89 0, s 333,67 192,33 141,34 0, s 429,03 188,26 301,54 0,703 What about payments as driver of growth? Availability of resources -> workers credit Since workers are paid at the end of a pre-defined period They effectively loan their work to employers. This workers loan increases with the size of the payment period. Thus, the shift from weekly to monthly payments implied an increased workers loan to companies

19 Benefits for companies: savings of interest EUR mn credit_new Int._week credit_old Int._month time Interest savings due to the fact that wages are paid with a delay. What about payments as driver of growth? Lower costs of wages payments Rising wages would have led to rising costs of wage payments

20 Benefits for companies: savings of time EUR mn Rising wages would have substantially increased the costs of weekly cash payments credit_new Int._week credit_old Int._month time assuming an average of 15 minutes per worker What about payments as driver of growth? Companies benefited. Less resources were used for wage payments. But at the same time banks had to devote more resources to payments

21 What about payments as driver of growth? Cashless wage payments only gradually led to further substitution of cash payments. Only after a certain adjustment period: cashless payments (giro transfers, standing orders, direct debits) were used more often giro accounts were supplemented by a savings account. By 1965, only half of the accounts of white-collar workers and a third of the accounts of blue-collar workers at savings banks were used for standing orders (Pfisterer 1967, 385). The average number of transactions per account in this year was 61. This is equal to 5 per month. 41 What about payments as driver of growth? 5 transactions per month - such a figure shows that the overwhelming amount of transactions still must have been made in cash. Still, the utilisation of the new accounts was higher than had been expected. Costs rose faster than anticipated by the banks (Büschgen 1995, 710)

22 What about payments as driver of growth? The switch to cashless payments required large-scale investments and technical and organisational improvements of transfer processing. Enlargement of the branch network. Technical and organisational improvements. The transfer of deposits was simplified and standardised. Standardisation of giro-transfers. Agreement on direct debits Cheque cards What about payments as driver of growth? Companies Cash distribution (offices, labour) Lost labour There is a trade-off. Banks Branch system (bank clerks, payment experts) Rising wages seem to have been a strong driver for change. Some of the gains also could have been had with a switch to monthly cash payments. 22

23 Scenario: monthly cash payments EUR mn credit_new credit_old time time/4 Costs of monthly wage payments cashless payments effect effect of shift to monthly payments What about payments as driver of growth? Overall assessment: The payment system was changed in a fundamental way. But it is hard to substantiate a strong effect on growth. The external/internal finance mix was initially little affected. Causality may run the other way. The change from weekly to monthly wage payments may have been at least as important as the change to cashless payments. 23

24 Some questions 1000s 50,0 45,0 40,0 35,0 30,0 25,0 20,0 15,0 10,0 5,0 The Number of Bank Offices: How 0,0 can we treat this? 15 data points: Or Bank offices Bank branches Bank HQs Just 2 or 3 data points: before, during the change and after? 47 Some questions How to deal with variables that change their meaning? Increase of banking 1000 units Increase of ATMs and online banking Branches Banks 24

25 Some questions What are the policy implications of correlation? If cashless payments are correlated with growth does that mean economic policy should push cashless payments? 49 Und was sagt der Praktiker? 50 25

26 Vielen Dank! Malte Krüger Hochschule Aschaffenburg Würzburger Str. 45 D Aschaffenburg Tel.: