Cash is still king in most informal and township settings, and for good reasons. It is trusted and universal, allowing anyone to easily transact no matter what phone they own or whether or not they have a bank account.
By Jonathan Thomson, executive head: commercial at Kazang
But the convenience and familiarity of cash comes with trade-offs that cause friction for informal merchants, their customers and, their suppliers alike.
Cash is expensive with Tim Masela from the South African Reserve Bank, as quoted in PASA’s Integrated Report, reporting that cash usage costs the South African economy around R30 billion a year. Many of these costs are passed down to those who can least afford them, including micro merchants and customers in townships or remote parts of rural South Africa.
For merchants that keep cash on hand, exposure to cash crime is a constant danger. Costs of managing, transporting and depositing costs can be high, especially for those that don’t have access to a nearby bank or ATM. Plus, trading in cash makes it more complex to track transactions, stay on top of cash flow, or to show a digital footprint when applying for loans and other financial services products.
To address the challenges that cash brings to informal merchants, we need to recognise that cash will not disappear from the ecosystem anytime soon. We need financial inclusion solutions that help bridge the gap between physical cash and the digital world. Modern fintech tools should reduce the costs and risks of cash for informal merchants. At the same time, these offerings must support consumers’ choice in how they pay.
Fintech solutions help traders to digitise
This all starts with the device that numerous informal merchants use to sell value added services (VAS) such as prepaid electricity, prepaid airtime and data, DSTV subscriptions, bill payments and, gaming vouchers. VAS terminals from fintechs such as Kazang can easily be enabled to accept card payments. Low transaction and free terminal hardware (no monthly rental) make them accessible to most merchants.
This allows merchants to easily accept card payments from their customers, reducing the volumes of cash they need to manage. Card payments are settled to the merchants’ digital Kazang wallet in real time, with instant access to cash when they need it. Merchants can use cash from their wallets to pay a wide range of FMCG suppliers. This reduces the need for them to keep cash on hand or withdraw money when they need to stock up.
Major FMCG manufacturers and distributors have embraced this innovation as an opportunity to improve efficiencies and reduce exposure to crime. Their drivers no longer need to collect and transport tens of thousands of rand in cash on their delivery rounds in a township. This dramatically improves safety for drivers and reduces cash losses for suppliers.
For larger merchants that manage lots of cash, an automated cash vault helps to streamline cash management further. Cash amounts dropped into the vault will reflect immediately in the digital wallet for use with immediate risk transfer. Vendors with these cash vaults can enable smaller merchants to do cash deposits onsite. These merchants can conveniently top up their wallets and buy stock for their shops in one place.
While cash usage will be with us for a long time yet, fintech solutions can help township merchants to digitise more of their transactions as well as support consumers’ choice in how they pay. By bridging cash, card and digital transaction flows, solutions like Kazang’s Vault and Wallet help to reduce cash costs and risks, improve choice and convenience, and ultimately improve financial inclusion.