The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Credit card spending in The Bahamas increased by 57 percent year-over-year during the peak of the COVID-19 pandemic as consumers transitioned to digital and online payments, a survey has disclosed.

Oxford Business Group, the economic research consultancy, in a report produced in conjunction with Royal Bank of Canada (RBC) argued that The Bahamas was well-positioned to make the switch to digital payments given that “on many metrics Bahamians are on par with or even above the average for G-20 nations when measuring the population’s financial literacy”.

The report found that more Bahamians, some 93 percent of those surveyed, understood the meaning of “inflation” compared to an average 77 percent in G-20 countries. And more Bahamians, 81 percent versus 78 percent, understood the “relationship between risk and return”.

However, perhaps more revealingly, just 14 percent of Bahamians were able to estimate the interest paid on a loan compared to 80 percent of their counterparts in G-20 countries, the Oxford Business Group report added. And fewer Bahamians also understood the compounding effects of interest rates and the benefits of diversification.

Still, the Oxford Business Group report argued that The Bahamas has made “healthy progress” in transitioning to electronic payments. “Between 2020 and 2021, credit card spending increased by 57 percent while digital currencies increased three-fold in the same period,” it found. “Furthermore, 2020 saw the highest increase in real-time gross settlement (RTGS) transactions on record, signalling that digital infrastructure is increasingly prepared to handle digital payments.

“Although cheque elimination is set to take place by the end of 2024, in 2019-2020 there was a 40 percent reduction in the number of cleared cheques. This reduction has been more than offset by processing digital payments through the real time gross settlement system. Cooperation between commercial banks and financial institutions and the Government has been the cornerstone of this progress.”

The RTGS is used for clearing and settling large multi-million dollar payments. “The Government increased the planned capital expenditure for the Department of Digital Transformation four-fold in fiscal year 2021-2022, with planned spending expected to grow by 50 percent in fiscal year 2023-2024,” the Oxford Business Group report added.

“In parallel, digital currency in circulation has steadily increased since the introduction of a pilot programme in 2019 and nationwide implementation in 2020. The Sand Dollar represents a small fraction of total money in circulation (about 1 percent), and 28,000 e-wallets use the currency, some 7 percent of the population. It was launched to accelerate financial inclusion, especially in the remote Family Islands, in the aftermath of Hurricane Dorian and during the COVID-19 pandemic.”

Turning to the potential benefits to the Government’s revenues from digital payments, the report said: “Citizens do not pay income tax, so the Government is heavily dependent on VAT. More cashless transactions would boost revenue by reducing the informal economy’s size and aid the Government in reaching its budget surplus projected by 2024.

“More broadly, digital financial inclusion is found to have a positive effect on growth and is estimated to increase emerging economies’ GDP by 6 percent between 2016 and 2025..... Commercial banks and others have adapted swiftly to these new changes, facilitating the transition to a digital economy.

“Previously, these financial institutions partnered with the Bahamian government to establish the Bahamas Automated Clearing House and the Real-Time Gross Settlement system, reducing costs and bolstering security for transactions. They also provide the foundation for national identity scheme compliance and boost the investment grade of The Bahamas and its financial institutions.”