Despite the majority (77%) of adult South Africans owning bank accounts, more than half of the total value of all consumer transactions in the country are still conducted in cash. This suggests that being formally banked may not be enough of an incentive for consumers to move away from cash. Accelerating the pace of migration from cash to digital and card payments must be a priority for catalysing economic growth.
By Mark Elliott, division president of Mastercard Southern Africa
As long as people are trapped in a cash economy, they are locked out of many economic opportunities in the financial mainstream. These consumers represent some of South Africa’s most financially vulnerable people, and yet they are disproportionately exposed to the risks and costs of cash, including high transaction fees, the risk of theft, and the inconvenience of transporting and handling physical money.
Addressing this challenge will take a concerted effort from payments companies, telcos, merchants, banks, governments, regulators, fintech companies and other stakeholders. Over the past few years, we have seen a range of compelling digital payments solutions coming to market – including simple mobile payments – yet many of those initiatives lack the scale to make a real difference.
More cashless payments for the informal sector
We believe the really exciting opportunity lies at the intersection between the informal small and micro-businesses that form the backbone of our economy and the tech-savvy youth. The small business and informal sector accounts for turnover of around R75 billion annually in South Africa alone, which we cannot ignore if the goal is to increase the number of cashless transactions.
Consumers, particularly those who have grown up with mobile phones, are eager to pay using digital channels. In South Africa, 73% of banked consumers are ready to pay with their mobile phones, according to the Mastercard Impact of Innovation study. Yet many of the places where people live and work – the spaza store, the hair salon on the corner, the neighbourhood tavern – are not enabled for acceptance of mobile and card payments.
Mastercard research shows that around 90% of South Africa’s informal enterprises run as cash-only businesses, even though 51% report they have encountered strong customer interest in paying by card. The few that have introduced card and digital payments have reaped the rewards. Merchants that introduced card acceptance reported an average increase in turnover of 50%, and those that introduced mobile payment acceptance via Quick Response (QR) codes saw their revenues climb by 10%.
Overcoming barriers to adoption
What then are the barriers to adoption of these solutions? Even though many informal enterprises see the ability to accept card payments as a step to increasing revenue, lack of access to formal banking tools and understanding of available payment options limits their opportunity for growth. These businesses also cite the perceived cost of accepting mobile and digital payments as barriers to acceptance, with many unaware of low-cost alternatives to traditional point of sale solutions.
To change this picture, payments companies should help merchants take advantage of high mobile penetration rates by offering them simple solutions to accept mobile-friendly card and digital payments.
Mastercard offers simple solutions designed to help small businesses and entrepreneurs accept digital payments through technologies like Masterpass and in partnership with innovators like iKhokha and Spazapp. Such solutions remove cost and complexity barriers from payments acceptance, including high monthly rentals and transaction costs, and the need for dedicated card payment terminals. All any merchant needs to accept and process payments is a low-cost terminal or an Android or iOS device.
We have also identified the need to educate consumers and merchants about the true cost and danger of cash to join the dots between small merchants and customers who are eager to pay using their mobile devices or cards. However, no single player, sector or government can solve these challenges on its own.
A key element of our strategy is to work closely with fintech innovators and financial services companies to introduce affordable payment and financial inclusion solutions for merchants and consumers that can solve their everyday challenges. We must build bridges between all major mobile and digital payments services in the market to deliver the seamless, on-demand experience consumers expect at every payment point. It is only through collaboration that we can deliver scalable, secure, interoperable and convenient payment systems that will bring us closer to a cashless world.
Bridging the divide between South Africa’s cash-based economy and the digital future will demand a combination of local know-how with global scale, insights and best practices. We have a rare and urgent opportunity to use today’s mobile technology to leapfrog old payment practices, in much the same way as the continent leapfrogged fixed-line infrastructure and went straight to mobile.