Recent research shows 86% of South Africans regularly use cash, with 95% withdrawing money from ATMs at least once a month, which serves as a reminder that cash plays a key role in how citizens transact in the country, despite the growth of digital options. The research, conducted by Boston Consulting Group, found that just 14% of South Africans would be prepared to go cashless.
But despite that, the adoption of a broad range of digital payment methods is accelerating. In addition to solutions like cryptocurrency, digital cards, biometric payments and open banking, consumers in SA are increasingly and actively adopting these solutions for various financial transactions in their everyday lives.
I attended an open banking event at the Ozow, an instant paying platform, offices in Cape Town this week, where Lyle Eckstein, the co-founder and chief product officer said the fact cash accounted for nearly 40% of all transactions had serious consequences for the economy, with theft, inefficiencies and economic exclusions, resulting in hundreds of millions of rand added to the cost of cash each year.
Other key players at the event, who included Busi Radebe, the head of card and electronic payments at Capitec; Mpho Sadiki, the head of real-time payments at BankservAfrica; and Gabriel Swanepoel, the country manager for Mastercard, all discussed how the SA Reserve Bank’s Vision 2025 for modernising SA’s payment system, the impact and implementation of open banking including bank application programming interfaces (APIs) and the Rapid Payment Programme – like PayShap and Capitec Pay in South Africa – can change the world as we know it, in increasing accessibility by ensuring many of the unbanked and underbanked are financially included.
And if you didn’t know, because I had to Google it too, APIs are tools that enable software to communicate and perform tasks. In banking terms, it grants secured access to financial services to third-party platforms, helping companies like Ozow build products around banking services.
But despite the goals of Vision 2025 being aligned with the National Development Plan, and intentions to achieve broader societal objectives such as financial inclusion, the problem with open banking and new payment solutions, in reducing cash reliance is the personal will to adopt new technologies and the mere commitment to a cashless future. And it’s not particularly prevalent in many informal communities and with undocumented migrant workers.
Even for the more sophisticated consumer segments, participation in a cashless society presumes a level of financial stability and enmeshment in bureaucratic financial systems that many people do not possess. There are also many concerns about the privacy of personal data. Research shows that some 11 million citizens remain unbanked or underbanked.
But if SA’s BRICS brother, Brazil, is anything to go by, it is the one of the country’s biggest social failures that might lead to greater adoption – crime. To put into context, the Cash-In-Transit Association of SA revealed last month that cash-in-transit heists increased by 19% in the first two months of this year compared with the same period last year. My domestic worker was robbed of her cash wage after she visited an ATM a few days ago after I paid her via FNB’s e-wallet. The struggle is real.
It’s for this reason, and due to Covid-19 lockdown restrictions that around 16 million people have been enfranchised into the Brazilian financial system since the start of the pandemic. In fact, according to the World Economic Forum, the increased migration to online services during this period means 85% of Brazilians have access to financial services. This represents one of the highest increases in the global banked population in decades.
Nubank, founded in São Paulo in 2013, is today one of the largest digital banking platforms in the world, offering financial products to more than 53 million customers. More importantly, recent data shows that Nubank has opened access to the financial system for 5.6 million people who had never previously had access to banking services.
But innovation alone cannot carry the mantle of financial inclusion, especially in South Africa, and the government needs to come to the party and assist in this effort, particularly in terms of the cost of data and access to the internet, not to mention the provision of sufficient financial protection measures. We don’t need another VBS or Mirror Trading International on our hands.
PERSONAL FINANCE