When Busi Radebe visits his family on Joburg’s West Rand, he first stops at an ATM: “Most local businesses only take cash.”
Some spaza shops have a point-of-sale device, but card-paying customers have to spend at least R50.
Even though credit card transaction costs are capped by the financial regulator, “a surcharge of R55 is often also added”, bringing it to R105, said Radebe. “A guy selling a loaf of bread doesn’t care about industry rules.”
Radebe, head of card and electronic payments at Capitec, was speaking at an industry event organised by payments firm Ozow, explaining the obstacles to cash alternatives.
Running a point-of-sale device that accepts credit card transactions is still expensive for many small businesses, especially pavement vendors. These devices also need to be kept charged.
“Unless we get to the point where we have enabled the ordinary guy who runs a spaza shop in Gugs, in a manner that is affordable, we’re going nowhere,” he said, referring to Cape Town’s Gugulethu township.
The payments infrastructure is not sufficient to drive inclusion in the informal market in South Africa
— Gabriel Swanepoel, Mastercard
It’s a widely held ambition in the payments industry, where fintech companies are trying to digitise transactions now conducted with cash.
“The common enemy in the room is cash,” said Radebe. “The problem is not going away.”
Gabriel Swanepoel, country manager for Mastercard Southern Africa, said most sales are “90% cash” in the informal economy.
“The payments infrastructure is not necessarily sufficient to drive inclusion in the informal market in South Africa,” Swanepoel told the conference. Payment devices have a cost to buy and to run, while people don’t necessarily trust card payments.
He said the financial industry needs to see what the pain points are for shoppers and merchants, and “hopefully provide something useful for people”. Such obstacles could be as simple as a buyer not having a credit card and/or the seller not having a card payment device.
A user-friendly mechanism has been launched by BankservAfrica, the automated clearing house that processes transactions between financial institutions.
Called PayShap, this new service allows for payments using just a recipient’s phone number. PayShap works with the big four banks; others will come online later this year. To make or receive a payment, users need to have an account with one of the participating banks and have the bank’s app on their phone. Their cellphone number becomes their “ShapID” for transactions.
Lyle Eckstein, Ozow’s co-founder and chief product officer, said though 80% of South Africans have a bank account, at least 40% of all transactions are still in cash.
That is a big opportunity for the financial services industry, which aims to convert them all into digital transactions. “I don’t think we understand how much cash changes hands,” he said.
Ozow, which also operates in Nambia, provides transaction services to Uber, Takealot, FlySafair, MTN, Vodacom, Makro and Netflorist. BankservAfrica’s new rapid payments programme (RPP), enables such services as PayShap. Payments up to R3,000 can be made with PayShap and will clear within 60 seconds.
Eckstein said this will allow people to send and receive money with only their mobile phone numbers.
Said Swanepoel: “The answer lies in the democratisation of banks and the recognition that for businesses to thrive, we have to meet the consumer where he wants to be met. At the same time, a R10,000 [point-of-sale] device in a spaza shop is not going to work.” But, he said, a QR code-based system would.
Unless we get to the point where we have enabled the ordinary guy who runs a spaza shop in Gugs, in a manner that is affordable to them, we’re going nowhere
— Busi Radebe
Mastercard has set a target of bringing 1-billion excluded people around the world into the digital economy by 2025, along with 50-million small businesses.
Mpho Sadiki, the head of realtime payments at BankservAfrica, said cash, despite its problems, is a useful way of paying.
“Cash is not the enemy, cash is the opportunity,” he said. To pay with cash, you just need the bank notes or coins; a digital payment requires both parties to have at least a smartphone and internet connectivity.
But cash has hidden costs, not the least of which is theft.
Sadiki, who calls PayShap a “game changer”, said the “formal payments system captures only 11% of addressable payment volumes”. That means the rest is in cash or other means. M-Pesa — which is the de facto digital payment method in Kenya — has created an innovative way to make micropayments.
In South Africa in 2018, for instance, total payments in the formal and informal economy amounted to trillions. But of that, the mainstream financial system processed only R63bn, Sadiki said.
There has been 300% year-on-year growth in digital payment volumes. “We’re capturing all of those cash transactions.”
As Ozow’s Eckstein said, South Africa’s fintech industry is “living in exciting times”.
PayShap and RPP will help grow digital financial services, he believes. “This is going to help people … It will be good for fintechs to innovate on top of the platforms provided by BankservAfrica and the banks.”
But, most importantly, he said, rapid payments make it possible to “solve the needs of all South Africans”. Exciting times indeed.
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