Eighty-six percent of adult South Africans have access to banking of some kind, according to a FinScope survey.
South Africa has the highest level of formal banking in sub-Saharan Africa, has been a principal member of the Alliance for Financial Inclusion (AFI) since 2010, has a mobile penetration of 100% and ranks second in a recent Brookings study of 21 developing economies in Asia, Africa and South America for financial and digital inclusion.
The markers indicate a country where its citizens are banked and finance-savvy, using financial tools and technology to transfer money, make payments and shop.
But these figures belie another, perhaps more telling one: 65% of all transactions in South Africa are still done in cash, according to Mastercard’s general counsel and chief franchise officer Tim Murphy.
He believes governments need to provide institutional frameworks conducive to banking, and work with the private sector to shift behaviour towards formal banking that benefits the consumer.
Having flown from Mastercard’s headquarters in Purchase, New York, Murphy was speaking to the Mail & Guardian on his way to Mozambique to participate in the AFI’s annual landmark forum. There, among other things, he will address representatives from the 90-odd central banks in developing countries that make up the AFI’s membership, about gearing up for greater levels of cashlessness. They’ll be talking about how to cater for the roughly 2.5-billion people in the world who remain underserved or unserved by formal banking systems.
For companies such as Mastercard, traditionally yoked to formal banks, the notion of financial inclusion represents much more than a social imperative: it’s the last untapped banking frontier and will be staked by the most innovative, quickest-moving companies that best adapt to the nuances of developing markets.
Banks, mobile providers and financial institutions are clamouring for ways to get into the “cash conversion” space, as Murphy describes it.
In other words, they’re trying to find the most useful ways to provide cash transaction solutions to the unbanked.
More and more, that means relying on alternate payment sources such as mobile payments and striking up cash-equivalent partnerships with vendors, such as allowing consumers to draw cash from their local grocery store.
Seeking new ways to allow person-to-person payments to take place is the crux of where reaching the unbanked will lie.
“One of our real learnings is that electronic payments could be one of the most foundational drivers of financial inclusion,” says Murphy.
Evidence of this growing trend in sub-Saharan Africa is everywhere: last week First National Bank announced money sent to recipients through its mobile money solution “eWallet” topped the R1-billion a month mark for the first time in July.
This is an increase of 66%, from R650-million sent last July, “proving mobile money is now a real replacement for person-to-person cash payments”, the bank says.
Global digital payments make up some 10% of all card-based transactions, says Murphy. In the next 10 years, he estimates, digital payments will “grow significantly”, perhaps more than any other category of transaction. That growth is anticipated in three categories:
- Classic browser shopping, such as purchasing groceries online – where a shopper enters their credit card details to effect a payment;
- Phone-as-card transactions, where payment credentials are embedded on a phone and the device itself is used to pay. Examples include Apple Pay and apps such as Standard Bank’s Snap Scan, which now has a network of over 18?000 merchants, allowing consumers to scan a barcode on to their phones and effect payment immediately from their credit card; and
- In-app payments, which allow consumers to pay for flights, or restaurant apps where consumers can book a table and pay the bill from one point. Other innovations include chat apps such as WeChat, which aims to become a one-stop pay point for users and already-established networks in their home countries.
Payment innovation means transactions will begin to include more players than ever. Whereas a traditional card transaction may involve one agreement – between the bank and the card company – a mobile or in-app transaction needs agreement between a bank, a card company, the merchant participating and the company that owns the app.
For the card giants – such as Visa, Mastercard and American Express – this means collaborating with the right players and forging relationships with banks, mobile operators, money merchants, stores and tech companies. It’s a double-edged sword: more competition than ever before and potential for more synergy. For this reason some analysts predict the real winners in the “wallet war” will be the card giants.
Karen Webster, chief executive of analytics company Market Platform Dynamics, said on pymnts.com in April: “To even remotely stand a chance of winning the ‘war’ a mobile ‘wallet’ can’t be captive to just one mobile operating system or device and the set of customers that that particular operating system has on board its platform.
“The ‘winner’ has to work across operating systems, shopping channels, browsers and technology platforms with an app enabling the payments capabilities that consumers like and want to use at their favourite merchants, businesses and possibly even to pay their friends, and adapt to whatever connected devices come along in the years and decades to come.”
She adds: “The weapon that’s most needed to win … is enough consumers using those wallets for merchants to care enough to accept them.”
If critical mass is the X factor then the card companies are well positioned to contend. Mobile money service M-Pesa, with a well-defined network, was a resounding Kenyan success, and an under established network in South Africa was initially a failure.
The incentive, as Murphy puts it, is for each competing institution to get as many entities as possible “riding their rails” for payment.
But how much will the innovation and collaboration in the “wallet evolution” benefit the remaining percentage of South Africa’s as yet unbanked population? ,Not as much as it may assist other countries in the region, says Finmark Trust, a nonprofit organisation aimed at improving financial accessibility in Africa.
“Access in South Africa is high,” said Prega Ramsamy, the trust’s chief executive in May, noting it already takes most South Africans less than 20 minutes to reach an ATM. “The banking infrastructure in South Africa is elaborate and sophisticated – that does not necessitate mobile banking through cellphones.”
Instead, he says, South Africa may need to look past any sort of traditional offering for the answer. “The question to ask is: Would anyone be willing to invest in a cheap type of financial service to cater for the 14%, assuming the majority have access to cellphones?” The answer, it seems, could be password-protected or written in a five-digit security code.