Are hard cash coming out in South Africa?
As the world turns to cashless payment methods, South Africa is gradually moving away from cash in a social and economic context of inequality and slow economic growth.
Research by Diana Bresendale, a graduate of Stellenbosch University’s business school with a master’s degree in prospective studies, found clear benefits of moving to a cashless society, but it could generate and accentuate new ones. uncertainties. “It is people with the lowest incomes who have the highest incidence of cash use and therefore bear the burden of hidden and non-hidden costs more frequently,” she warns.
The planned cashless society will be implemented in South Africa by 2030 and is supported by the recent planning and implementation strategies of the Payments Association of South Africa.
A cashless society uses plastic cards or digital transfers to make payments and eliminates physical money from the economy. “It is clear that physical money will be replaced by digital money, but will retain its function and its value will continue to be determined by monetary policy. Digital money is more profitable than physical money and these savings can be passed on to individuals and businesses, ”she says.
“Cash is not only expensive, but it limits economic growth compared to more efficient non-cash forms of payment. The economic benefits of cashless are emphasized, but the value proposition of cashless alternatives has not inspired mass adoption in South Africa. “
Bresendale further says that there are costs and access issues associated with digital currency that have not been sufficiently mitigated. “The longer it takes to disperse non-cash payment methods, the longer it will take for these benefits to materialize. There are unanswered questions regarding universal digital access for South Africans, the consequences of having money available only in digital format, and the prevailing monetary policy that will determine its value, ”she said.
During her research, she did a detailed analysis of the contextual environment and established that a cashless society in South Africa could exacerbate the socio-economic ills we are trying to solve. “Rationality is required when evaluating the benefits of moving to a cashless society. Reduce the payment menu by excluding the choice of cash limits for citizens who make it their preferred method of payment. For example, the informal sector, which is such an important part of South Africa’s economy, must be left out, ”she said.
Informal traders are reluctant to embrace cashless payments
Bresendale says the informal sector uses cash as a form of payment, and as proof, it is the only form of payment they accept. “The informal sector is underbanked and their use of financial instruments to grow their business or improve their cash flow is underutilized. “
According to a report by Stats SA, 1.8 million South Africans operate as informal traders. In terms of payment methods, eight in ten merchants did not have a bank account and 60% of those who did, used it only to process payments.
“Since cash is still the mainstay of payment offerings in South Africa, this indicates that consumers and informal traders are cautious about adopting cashless forms of payment. The challenge with adopting cashless payment methods will be to address perceptions, especially around costs, to induce a natural gravitation towards cashless payment methods, ”she said.
How technology can help convert the unbanked
Bresendale says that according to reports, the current number of South Africans who are unbanked (those without bank accounts) or underbanked (those who have bank accounts but rely on cash or non-financial institutions). formal) would be 11 million – constituting 18% of the population.
“Banking services are competitive and their profitability is highly dependent on high transaction volumes. The high costs involved in serving low-income people, small entrepreneurs and the poor have made it an unattractive segment of the market for established banks.
She says that Capitec Bank’s success in growing its customer base is attributed to offering a product that is simple and easy to understand for all consumer segments. “Their strategy and business model is based on the use of technology to simplify customer-centric processes, improve the customer experience and reduce costs. “
She says that with clear indications of consumer preferences and the ubiquity of cellphones across South Africa, mobile payments are expected to be a widely used payment alternative in a cashless society.
“The growth and support of M-Pesa (a mobile money transfer, payments and microfinance service) highlights the potential influence that mobile payments are likely to have in South Africa. South. The speed at which South Africa can achieve its economic growth will depend on how quickly payment alternatives are disseminated, ”she said.