Wyatt Hairdressing & Barbering, tucked away in the shade of Joburg’s 44 Stanley Avenue development, went cashless as soon as its doors reopened on June 23 with the easing of lockdown restrictions.
For owner Candice McKay the decision to dispense with coins and notes was prompted by the virus, but came with more than just hygiene considerations.
"We decided to do it because of the virus, first of all. We didn’t want our staff to handle the cash," McKay tells the FM. But with the rising incidence of crime, she says: "We didn’t want to have any cash on the property."
The decision to accept only card or digital payments has also meant the inconvenience of to-ing and fro-ing from a bank to deposit and draw cash is a thing of the past.
"From a safety point of view, I feel less vulnerable. It’s really simple to do, and our cash-up is much easier," she says.
And it was the online payment system, put in place by card machine provider Yoco during the crisis, that allowed her customers to prepurchase haircuts and treatments during the lockdown, which "saved our business", she says.
With an update to the Yoco app, the business was able to create payment requests via a link that could be shared with customers over platforms such as WhatsApp.
"We got so much support from clients it was unbelievable; it actually kept the business afloat," says McKay.
The salon’s move to cashless operations is part of a marked uptick in the number of small businesses that have opted to ditch cash altogether, according to research Yoco recently carried out among its client base.
The card machine and digital payments provider surveyed more than 4,300 of the businesses it serves in March and then again in July. In March, the number of small companies surveyed that did not accept cash stood at 8%; by July this had risen to 32%, says Yoco co-founder and chief business officer Carl Wazen.
He believes the pandemic has been "a huge catalyst" for the shift to a reduced reliance on cash, "[accelerating] a trend that was already happening".
The benefits of businesses going cashless are manifold, Wazen argues, acknowledging that Yoco is a direct beneficiary of this trend.
There is the safety aspect. "Theft costs SMEs billions annually, and a lot of those businesses are quite vulnerable because they cannot invest in things like security and that kind of infrastructure," he says.
It’s just a lot faster to get money into a bank account through digital means than through cash
— Carl Wazen
And for many, cash costs both money and time. On top of having to transport it, business owners must reconcile it, protect it and pay to deposit it. "It’s just a lot faster to get money into a bank account through digital means than through cash," says Wazen.
One of the biggest advantages of going cashless, for small businesses in particular, is that it creates "a digital footprint" — a verifiable transaction history can help companies access credit, he says.
This is particularly important for SA’s credit-starved SME sector, which battles to access finance and working capital from traditional lenders.
A study by the International Finance Corp estimates the funding gap for SA’s SME sector stood at more than R500bn in 2019.
Going cashless has the added advantage of bringing more business into the tax net and boosting government revenue.
Though many business owners may want to stay " invisible", advantages such as greater access to credit, and the boost in payments that comes with digital transactions, make the arguments around avoiding tax "a whole lot weaker", says Wazen.
Ditching cash seems a natural consequence of a pandemic, as ideas about "dirty" money that changes hands stoke fears of contagion. But a paper from the Bank for International Settlements in April notes that scientific evidence suggests the probability of transmission via bank notes is low when compared with other frequently touched objects.
Nonetheless, the crisis could speed up the shift towards digital payments and widen the divide in access to payment instruments, which could negatively affect unbanked and older consumers, the bank says.
For all the talk of jettisoning cash in the crisis, Reserve Bank data shows that cash and coins in circulation have spiked with the advent of the pandemic and lockdown.
Notes and coins in circulation leapt more than 16% in March, before jumping more than 16% in July, and again more than 15% in August.
Broader M1 money supply — which includes notes and coins in circulation, as well as various kinds of demand deposits with banking institutions — rose more than 18% to reach more than R2.1-trillion in August. It has recorded a double-digit increase every month since March, when it rose more than 15%.
Information from economist Mike Schüssler, who’s examined transaction data from BankservAfrica, also points to a decline in the value of transactions using credit or debit cards through the worst of the lockdown.
By August the value of transactions by card, compared with a year ago, had declined steadily for six consecutive months, says Schüssler. Meanwhile, ATM cash withdrawals have remained resilient, growing steadily every month since March — except for April, during the worst of the lockdown and, critically, before the bulk of the government’s additional Covid-19 support grants kicked in.
And it is this extra grant support — budgeted at R50bn in additional payments — that Schüssler believes is the main driver behind the rise in cash during the crisis.
To help support the vulnerable, the state increased all grants temporarily and introduced a temporary R350 social relief of distress grant.
"Right now cash is still king, due to the Sassa [SA Social Security Agency] grants," Schüssler says — though he thinks the illicit trade in cigarettes and alcohol when these were banned may also account for increased cash in the system. Cash payments for prohibited tobacco and alcohol sales would leave no trace.
SBV — the cash transportation company that distributes bulk cash for the Reserve Bank, and provides cash processing and transportation for the country’s major banks — has also noted "a significant jump" in cash in circulation since Covid-19 started, says chief commercial officer David Little.
Where historically SBV has seen a "relative balance or equitable outflows versus inflows from an industry perspective, that dynamic has shifted to a significantly higher portion paid out than coming back", Little says.
This is not unique to SA, and can in part be explained by "a secondary savings effort" during the pandemic that resulted in people keeping cash in their households rather than in the bank, he says.
The Reserve Bank tells the FM the general uncertainty has likely spurred "cash hoarding" by the public. Initial indications suggest that, along with this "precautionary stance" by the public, the increase can also be explained by the additional social grants and allowances by the government.
Little adds that the rise of illicit trade during lockdown "can’t be discounted", but the extent to which it may have contributed to increased cash use is "too difficult to see and comprehend at this point".
SA remains a cash-reliant economy. Research from the Payments Association of SA released in 2019 suggests that more than half of the value of consumer transactions is completed with notes and coins.
Meanwhile, research from FinMark Trust shows that while about 80% of SA’s population was banked in 2018, about half of all bank accounts were dormant or "mailbox" accounts — meaning all money is withdrawn as soon as it comes into the account.
In other parts of the world, the debate has focused on how to keep cash a part of the payment system.
Sweden — the country that has arguably come closest to becoming a cashless society — has adopted laws that require the nation’s six largest banks to provide certain cash services across the country from January 2021. This is to protect communities such as the elderly, or those in rural areas who may still need access to cash.
In the UK, similar fears about locking vulnerable groups out of the payment architecture have also grown, after a 2019 report found that "sleepwalking into a cashless society" would leave more than 8-million people behind.
Nevertheless, back at home large banks such as FNB have reported an increase in the use of their digital payment offerings under the lockdown.
FNB did, however, process fewer overall transactions, because of lower economic activity, with people losing jobs or having their pay cut, and businesses closing due to the lockdown, says FNB retail CEO Raj Makanjee.
Though the bank saw a decline in personal banking card transactions under the lockdown, its digital platforms made larger contributions to customer transactions across all income segments, says Makanjee.
In the three months after the lockdown started, digital registrations rose 11% and e-commerce spend values rose 30%, while scan-to-pay methods — using a QR code — rose "exponentially", he says.
"As the country progressed through different stages of lockdown and more sectors of the economy opened, we saw recovery across all payment types, including cash."
For his part, Little believes that in SA "the physical and digital worlds need to find an equilibrium, at which point there will be less cash in circulation, and card and digital payments will take more prominence".
But it’s unlikely that SA will be cashless any time soon, he argues. As the country aims for greater financial inclusion and greater digital adoption, it has to ensure "we don’t leave anybody behind".
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