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Why cash won’t be king for much longer

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Innovation is increasingly changing the way consumers engage with the world. Yet how we transact remains stagnant, with many in South Africa continuing to make use of cash as a preferred payment method, despite having access to more effective, safer methods.

Research by MasterCard Advisors’ Cashless Journey1 study showed that cash accounts for over 90% of all consumer transactions in many inception countries, under which South Africa is categorised, while only 6% of consumer payment transactions are done using non-cash methods.

Thomas Pays, CEO and co-founder of i-Pay –an online payment gateway, says that while online payments may be more common and understood in developed countries, South Africa is increasingly making inroads for more cashlessness behaviour for a number of reasons.

“Rising consumer awareness around the high costs, risks and effort required when using cash and credit cards to transact is resulting in a significant shift amongst South Africans towards more progressive digital payment options.”

The recently-released MasterCard survey revealed that physical cash usage cost consumers R23-billion in 2015. These include direct costs associated with cash, such as ATM and bank branch fees, as well as indirect costs, such as travel time and travel expenses associated with accessing ATMs and branches, interest foregone and theft.

“Online payment services, such as i-Pay, eliminates many of the costs that physical cash incurs for consumers. Generally there are no costs associated with doing an online transaction as many banks monthly fees include free online transactions, while withdrawing cash still holds a fee.

“Another primary reason for the shift towards more innovative online payment methods is the reduction of risk. “Carrying significant amount of cash in South Africa is simply not a viable option for many people, due to the financial and personal risks this presents,” says Pays.

While consumers may perceive online payments to hold risks too, such as credit card fraud, Pays says that credit cards are no longer the only way to transact online.

“Advances in certain electronic payment solutions mean that credit cards are no longer needed when transacting. For instance, i-Pay gateway allows payments to be made using the banks’ own security measures and without the need for consumers to insert credit card details, permits it to be extremely safe, and crucially, fraud-free.”

Since the gateway’s launch in 2013, not a single transaction has been fraudulent, and this from a company who has processed close to R1-billion worth of transactions since inception.

Despite online gateway payment track records, credit card payments, remain popular. The 2017 CIGI-Ipsos Global Survey on Internet Security and Trust found that among those who shop online, 39% of respondents said that electronic payments are the preferred means of paying for those goods and services. This is just slightly less than those who preferred to use credit cards to transact online.

Pays, however, believes that such traditional payment methods won’t always be suited to today’s continually-evolving customer. “In the digital age, individuals demand ease and accessibly and, subsequently, fintech payment methods have been developed to address this need.

“Most people transact while browsing the web from the comfort of their beds or in front of the television. When you make use of a credit card, it’s always an effort to find your credit card to type in the card and CVV number. By making use of an alternative payment solution, such as EFT – which sends requests for payments via SMS, QR Code or push notification – scrambling around looking for your credit card details is no longer necessary.”

He adds that the i-Pay EFT payment gateway will also come in handy for shoppers who might experience problems with credit card transaction failures.

“When there is a huge influx of online traffic paying with credit cards, sometimes the back-end system crashes. This is not the fault of the online retailers, but rather the legacy system that surrounds credit card payments. EFT does not have this problem since each bank runs its own system, allowing for payment to go through without hassle,” concludes Pay.