Cash is still king in South Africa. But according to Anton van der Merwe, COO of leading pan-African fintech enablement partner, Ukheshe Technologies, its long reign is increasingly under threat as businesses and consumers begin counting the real, hidden costs behind cash transactions.
Whether its via cash, credit card, QR, crypto, or a smartphone wallet, financial transactions all take place within a complex system. Some parts of that system make use of coins, notes, or physical cards, while other parts of the system digitally move money between buyers, sellers, banks and other parties. Every payment method comes with its own set of costs. As digital payments become more convenient, cheaper, more prevalent, and ultimately, the preferred way to trade, any perceived benefits of cash will soon be outweighed by the growing number of disadvantages.
Convenience, safety, and security all affect how consumers choose to pay. There are the obvious, direct costs of cash which are incurred through legacy systems. The less obvious and often hidden costs of cash include the cost of secure transport to banks and ATMs, the cost of having to travel to and find ATMs and the time foregone to do so, loss of interest earnings, not to mention the ever-present risk of theft which is often violent in nature.
These costs are disproportionately carried by low-income earners who operate mainly in a cash economy, serving as a major barrier to full economic participation and financial inclusion. Although the number of banked adults has increased substantially, the fact that cash transactions still dominate in the way they do suggests that being formally banked is simply not enough to convince consumers to move away from cash. Cash costs South African consumers a staggering R23 billion, adding up to 4 to 5 percent of low income earner’s salary, according to a Mastercard study.
Embedded finance and the demise of cash
For the real benefits of technology and digitisation to materialise, they have to be widespread. Embedded finance is one way to get there. By integrating financial services or tools, traditionally obtained via a bank, within the products or services of a non-financial organisations, financial participation and inclusion can reach the critical mass needed for emerging markets to achieve economic growth. Traditionally cash heavy ecosystems comprising of informal traders, micro businesses, and taxi drivers on the continent have yet to reap the full benefits of cashless services including low-cost solutions that provide ways to store cash in wallets and accept cash via a mobile phone.
This requires institutions like banks, telcos, retailers, government departs, and various financial services providers to reach the real life-blood of most emerging economies – consumers and micro merchants that service them. That’s where enablement partners like Ukheshe can support the financial inclusion agendas of major mainstream organisations to drive the benefits of a cashless, and more inclusive society.
With 495 million people subscribed to mobile services in Sub-Saharan Africa, having grown by 20 million in 2019 alone, according to a recent GMSA report, the continent has the potential to lead the way in digital banking adoption, provided solutions are created with consumers in mind. Mobile solutions not only leapfrog legacy systems, they create entirely new avenues for digital banking for small and large enterprises and support the growing use of online channels by consumers. This is clear from the increase in value of digital transactions by 28 percent to US$456 billion spread over 23.8 billion transactions in 2019 alone according to a 2020 African Banker study. Cashless solutions will be built around innovative, interoperable, secure and low-cost platforms – and it will be fintechs who deliver them quickly and efficiently. Digital services are helping to fill the huge gaps in inclusion by providing access where it is needed most while saving African consumers from the hefty cost of cash.