The only method of transaction that makes sense in South Africa is the introduction of Smart cards, reports Jacques Magliolo
THE 1990s has been called the electronic age by computer experts, while economists and politicians alike have excitedly hailed the coming of the global village.
Yet as much as 80 percent of all South African still use out-dated cash or savings-type cards to pay for goods and services. Despite ATM-related thefts, growing number of muggings in all our major cities and rapidly increasing fees by banks for handling cash (including insurance, administration and security), the use of notes and coins is still being carried and used by the masses.
This year has, however, seen a change in attitude towards the use of electronic equipment to speed up transactions. The proliferation of cellular phones, the increasing use of computers to send and obtain financial information and the rise in the number of shoppers who pay for goods with saving account cards has highlighted the need for an alternative to expensive credit cards.
Banking experts say: “The fact that South Africa is geographically widely dispersed and sparsely populated makes sophisticated telecommunications networks capable of handling on-line, real-time retail systems largely uneconomical.”
One alternative is the Smart card, which is simply a sophisticated debt card. It looks like any other card, except that the inclusion of a micro-chip enables the user greater security, better transaction information and contains an element of cheque and cash replacement.
Instead of drawing cash at an ATM, the user would load his Smart card with cash — effectively transferring cash from his account to the card — and then use his card for almost anything; from paying for bus fare to buying a new car.
So why is it so important for such a card to be introduced in South Africa? There are two main reasons. Firstly, the card will all but obviate the need to carry cash. Individuals pay for goods with a card, enabling the merchant to have less cash in his store, thus reducing chances of robbery.
Secondly, payment behaviour is of considerable importance in the analysis of economic development and policy. The latest Reserve Bank Quarterly Bulletin says “shifts between the different payment streams may signal structural changes in economic behaviour.”
The past few years has seen a change in attitude. In the past year there has been an increase in the use of ATMs and credit cards which, together with security considerations and a relatively stagnant economy, has caused downward pressure on the real level of notes and coins demanded by the public.
In addition, for the past six years the number of cheque transactions conducted in South Africa has remained virtually unchanged, which indicates a public preference for cards over cheques.
Clearly the public demands a structural change in the method of payment for goods and services. Cheques and cash have in real terms remained static since 1988, while the use of magnetic tape transactions (savings cards) and credit cards have radically increased.
Experts indicate that the problem with using savings and credit cards is that they are expensive. The only alternative to satisfy this demand seems to be the Smart card.
There is a pilot project in Alberton, near Johannesburg, which is being implemented by our four leading banks: ABSA, First National Bank, Nedcor and Standard Bank.