The fast-moving consumer goods (FMCG) sector contributes R1 trillion to South Africa’s annual gross domestic product (roughly 20% of economic production) and employs 2,5-million people (or 16% of the country’s total formal labour force).
From a continental perspective, emerging markets account for 70% of the growth in the consumer goods market and McKinsey estimates that emerging markets will generate new consumer sales of $11-trillion by 2025. This makes emerging markets like South Africa attractive for global brand owners.
However, with only 56% of adults in South Africa having access to formal financial services, limited access to financial services is a significant challenge for FMCG companies looking to make and receive cross-border payments.
Moreover, the high transaction costs associated with cross-border payments can be a significant burden for smaller FMCG companies, which may not have the resources to absorb these costs. With a complex regulatory environment and currency fluctuations of up to 30% that can impact the cost of importing and exporting goods, the FMCG industry in South Africa urgently needs a solution for better cross-border payments to ensure long-term success and promote sustainable economic growth in the country.
Since the Covid-19 pandemic, retailers and manufacturers have had to adapt to an increasingly digital world and to changing consumer spending habits as an important part of growth. So, improving cross-border payments could help produce important results for FMCG businesses.
The current state of cross-border payments for FMCG
The cost of sending funds overseas can be a significant burden financially if using the wrong payment provider, with the World Bank estimating the average cross-border payment cost can range from 5% to 20% of the transaction value. Relying on this for daily payments can cause a significant dent in revenue growth for industries such as FMCG. Add on payment delays or lack of visibility over payment status, and the frustration and friction of this issue continues to grow.
Furthermore, operating on a global scale means being aware of regulatory requirements not only in your country, but in other jurisdictions too. This can be a complicated matter and businesses that do not keep abreast of changes or differences to the AML/CFT regulations may incur fines or penalties.
Particularly challenging for the FMCG industry is complying with currency exchange regulations and being kept aware of compliance protocols as they penetrate new markets. A study conducted by SWIFT found that 75% of businesses saw compliance with regulations to be the greatest challenge when making cross-border payments.
FMCG businesses would strongly benefit from improved risk management strategies and a payments partner which ensures their adherence to regulations to remain compliant.
A 2018 study by the World Bank found that retailers could be losing between 4% and 15% on average of their total revenue due to the costs of cash handling and leakage. Businesses dealing predominantly with cash can leave themselves vulnerable to theft and fraud, as well as wasted time and resources with cash handling and bank deposits.
This issue can grow more time-consuming if these are small retailers in rural areas with no nearby banks or choose to hire additional security when transporting cash. Missed trips to the bank or a lack of drivers or security can leave large amounts of cash in their stores or lead to unnecessary closure to attend to this matter.
Adjusting to digital
A quick switch to digital only payments is no easy feat as many customers may be accustomed to paying with cash and reluctant to switch. Cash provides anonymous purchasing with no surcharge or the need for technology, which some customers may resist.
However, sourcing a solution which drives value and ease without incurring any additional costs or charges helps for a smoother upgrade to digital. Covid-19 resulted in an influx of cashless retailers, cafes and restaurants as it meant safer touchless payments could be made to keep businesses afloat.
Digital payments help widen the net of collecting payments should customers come into the store with only a bank card or no local currency in cash.
Trend spotting
FMCG businesses can get greater oversight of their financial operations by transitioning to a centralised digital dashboard with all income and expenses in one place which allows them to monitor revenue growth, compare monthly performance, and stay on top of any payments to suppliers. It can also help identify consumer trends and help to adjust their stock accordingly, depending on the time period.
Switching from cash to digital can also help improve supplier relationships as payments can be made in their local currencies without the need to convert currencies or supply cash.
Helping big and small FMCG businesses
According to Ola Oyetayo, CEO of at Verto: “Introducing a payments partner that facilitates intelligent digital payment solutions for both collecting funds and paying out funds in multiple currencies with ease could be the step forward the industry needs.
“Smaller retailers may see this as the way to break through into new markets, reach more customers, and take greater control of their finances. Large FMCG corporations might feel ahead of the curve with cashless transactions and digital adoption, but still experience high exchange fees or lack real-time visibility over payment status.
“Overall, a digital upheaval may be the boost FMCG businesses need to capture new markets and a broader customer base.”
Once the digital transformation is underway, a key solution for improved cross-border payments is introducing global accounts and digital wallets, which provide safer, faster and more global-friendly payments. By offering greater convenience and security, businesses can adopt a better global growth strategy, reaching new customers and suppliers with less concern regarding cross-border payments.
For smaller rural retailers, it can help with garnering new business and accepting payments from cashless merchants. This has already become popular in Kenya and India when it comes to expanding reach and streamlining inefficient payments. However, there is still great opportunity for more widespread adoption of digital wallets for the FMCG industry.