The way the world transacts is in transition. Physical cash and cards are morphing into a hybrid of mobile, digital and perhaps even crypto. This brings to the fore exciting commercial opportunity and challenge. Mostly, it offers the chance of financial inclusion.
At the recent Cashless Payments Summit, experts attempted to decipher where this transition is headed and what it means for South Africans.
The idea of going cashless, or replacing cash with digital money - largely enabled through seamless payment on our mobile devices – is being propelled into reality by governments and corporations who see the benefits.
In developed markets mobile payments are leapfrogging card and are well on their way to replacing cash. Singapore, the Netherlands, Sweden and France see almost 60% cashless transactions, according to figures from Mastercard.
The Central Bank of Nigeria is starting to drive ‘cashless’ because it sees the economic benefit. “Going cashless inevitably means you know more about your customers and trade starts to increase. Additionally, where relevant, the more you know about your customer the more you are willing to lend money, which, when done responsibly, leads to further capital available for them to invest and for the economy to grow,” says Anton Gaylard from Crossfin, a local technology investment company.
Cashless transactions are traceable and the amount of information available relating to a particular transaction gives rise to more opportunies for data management and personalisation. In the US, retailers are seeing a 10% uptake in sales from knowing your customer better.
According to Karen Nadasen, PayU South Africa CEO, getting cashless right will enable other trends, particularly in and around eCommerce. “eCommerce is often a barometer for how payment technology is progressing. It gives you an idea of where trust levels are at. As we see eCommerce steadily grow and give rise to better data collection and usage, we see richer opportunities to solve real problems like financial exclusion,” says Nadasen.
However, cash still prevails at the low end of the market. Commenting on the ‘stickiness’ of physical cash, the Centre for Financial Regulation and Inclusion’s Barry Cooper, observes that encashment, or the ability to access cash from other forms of money, will drive digital money uptake.
"You actually need more cash to take the step into digital. The current digital ecosystem is concentrated around economically active areas only and cash reticulation (the development of an accessible network) remains limited. Whereas cash is perceived to be free and universal. This leads to a disproportionate gravity towards the cash economy,” says Cooper.
It is evident that access to platforms, improved convenience and trust hold the key. From a technology provider perspective it’s all about driving the costs down. Interestingly, Cooper points out that the informal digital environment is sophisticated, more trusted than banks in informal markets and highly effective. Increasing trust in digital channels relies heavily on the reliability of the technology and the points of interaction with the real economy. This is something the informal market is getting right, according to Cooper.
At the other end of the spectrum, cashless technology is speeding things up at the point of sale for retailers. Speed through the checkout affects the bottom line directly, not to mention the added benefit of less queuing time and happier customers.
NFC technology, which allows you to tap your card for payment, has halved the time it takes to complete a traditional card payment in retail and reduced by a third the time it takes to do a traditional cash payment.
With mobile payments increasing at 23% year on year in South Africa, all eyes will be on eCommerce. “There is so much progress being made in the fintech and, to a lesser degree, eCommerce space at the moment that all point to a further penetration into cashless,” adds Nadasen. “Payment technology is going to have to move further in the background, or frictionless for mass uptake of cashless to be realised.”
It is peculiar that in a country where 10.5 million people receive their SASSA grants via a cashless system and roughly 70% of the population have accounts at financial institutions, that cash appears to be here to stay, for now.