Despite the risk, cash remains the payment option in South African communities.
From a global perspective and across emerging markets, South Africa remains a unique payments market, with digital payment methods rapidly gaining ground. Yet, despite the proliferation of bank accounts and innovative payment solutions, cash remains the primary form of payment. This week, we delve into the reasons behind cash’s dominance, the vulnerabilities it presents, and the ongoing efforts to promote digital payments in the South African economy.
Bank Account Ownership vs. Cash Preference
Although eight out of ten South African adults have a bank account, cash continues to reign supreme. Even with the advent of contactless payments and e-commerce, many South Africans prefer to withdraw their salaries in cash for daily transactions. This preference for physical currency persists even for online purchases, where cash-on-delivery options are popular.
What’re the Vulnerabilities of a Cash-Based Economy?
Relying heavily on cash poses several risks and challenges. For example, people and businesses are more vulnerable to theft, payment errors, and the high transaction costs of handling cash. Additionally, the absence of digital records for cash transactions complicates budgeting, expense tracking, and financial planning for citizens and businesses alike. This lack of transparency can hinder businesses’ ability to secure financing, as it is harder to provide accurate financial records.
Research on Digital Payments in Townships
FinMark Trust, in partnership with the World Bank, the Bill & Melinda Gates Foundation, and G2Px, conducted research in Tembisa and Hammanskraal to better understand the barriers to digitalisation in township economies. The study aimed to provide critical insights into the state of the digital payments ecosystem in these areas and offer recommendations for increasing the adoption of digital payments.
The report highlights several key findings:
1. Accessibility and Trust
While digital payment methods are available, many residents lack access to the necessary infrastructure, such as reliable internet and smartphones. Trust in digital payments is also a significant barrier, as many people are more comfortable with cash.
2. Cost and Convenience
The perceived cost and inconvenience of digital transactions compared to cash withdrawals play a role in maintaining cash’s dominance. Transaction fees for digital payments can be a deterrent for low-income individuals.
3. Education and Awareness
There is a need for greater education and awareness about the benefits of digital payments. Many people are unaware of how digital transactions can enhance financial security and convenience.
The Road Ahead: Promoting Digital Payments
Since 2011, there has been an explosion in bank account ownership, leading to the growth of various payment innovations. However, cash’s enduring appeal necessitates targeted efforts to shift behaviours towards digital alternatives.
These include—in collaboration with the National Treasury and the South African Reserve Bank (SARB)—”advancing the provision of seamless, safer, more convenient, affordable, and faster digital payment offerings. These include phasing out cheques, launching the new faster payments system PayShap in March 2023, and introducing and using contactless payments and quick response (QR) codes, among other things.”
ALSO READ: Financial Inclusion in the Digital Age: The Role of Lay-By Payment Solutions
Key strategies to promote digital payments include:
1. Infrastructure Development
Improving internet access and ensuring the availability of affordable smartphones can facilitate the use of digital payment methods.
2. Reducing Transaction Costs
Lowering fees for digital transactions can make them more attractive to users, particularly in low-income areas.
3. Building Trust
Financial institutions and payment providers must build trust in digital payments through robust security measures and customer education.
4. Community Engagement
Engaging with community leaders and local businesses to promote the benefits of digital payments can help drive adoption at the grassroots level.
ALSO READ: Banking on the Dynamics of Fintech: Disruption, Competition, and Collaboration
To summarise, the payments landscape in South Africa is evolving, with digital payments gaining traction. However, cash remains a deeply entrenched part of the economy. Understanding the reasons behind cash’s dominance and addressing the barriers to digitalisation are crucial steps towards a more inclusive and efficient payment system. By focusing on infrastructure, cost reduction, trust-building, and community engagement, South Africa can pave the way for a future where digital payments play a more prominent role in the economy.
