Business Day Exclusive: Innovation in the Payment Space Essential for Financial Inclusion
Despite being Africa’s second largest economy, South Africa has the seventh highest unemployment rate on the continent, an education system that has been dubbed ‘broken and unequal’ and a highly skewed income distribution that sees the top 20% of the population holding over 68% of the income (compared to a median of 47% for similar emerging markets). “All of these factors contribute to the country’s lack of financial inclusion. However, innovation in the payment space is crucial to begin addressing this social ill that is perpetuating poverty and inequality,” says Andrew Hardie, Chief Executive Officer at Pay@ – a leading payment aggregator and provider of secure payment solutions.
Financial inclusion refers to the ability of individuals and businesses to have access to useful and affordable financial products and services that meet their needs for transactions, payments, savings, credit and insurance. “It is estimated that 23.5% of South Africans are unbanked, meaning that these individuals tend to rely on cash to transact. Even during levels 5 and 4 of last year’s lockdown, this population was still making payments in person at retailers using cash,” shares Hardie.
However, at the same time, MTN, First National Bank and Absa all noted an uptick in digital wallet use as more people saw this as a safer way to transact and pay for services during the lockdown. “Looking to the future, wallets will become more commonly used. Not only will this be driven by players like banks, but as we are already starting to see, Mobile Network Operators are already becoming entrenched in this space. I believe that, given their significant marketing and call-to-action capability to a vast client base, they will be able to influence the shift away from cash to digital.”
That said, Hardie believes that cash will remain king for the foreseeable future. “Out of all the payments that we process, 60% to 70% of these are cash payments at retailers. What’s more, cash usage in South Africa continues to grow at a rate of 6% to 10% per annum, ahead of inflation. This is because cash offers consumers many benefits that digital payment alternatives cannot currently. During lockdown, people were still going to retailers to pay their bills because they still wanted the slip in their hands, to look the cashier in the eyes and to see the transaction going through.”
Despite this, a recent study has found that the use of cash costs South African consumers R23 billion a year, with low-income earners carrying the highest burden – forfeiting 4% of their earnings compared to the national average of 1.1%. These costs are derived from travelling to and from places to make payments, billable time lost doing so and the risk of theft. “Perhaps this might be the motivation consumers need to start exploring the blockchain space?”
Blockchain has been hailed as an accelerator for financial inclusion. This sentiment is echoed by IBM in a blog post titled ‘Blockchain and the unbanked: Changes coming to global finance’ which adds that the immutable structure of the privacy blockchain can provide to customers ensures safety while making or receiving payments. Additionally, the post notes that as long as a customer can access a device that has the power to access eWallets, there are minimal costs attached to operating the technology. “These attributes do well to address the issues that keep many people financially excluded such as cost, trust and safety concerns,” says Hardie.
He shares that new payment types such as loyalty points from retailers and medical aids are also circumventing these issues by enabling the conversion of points to bill payments.
“Innovations like these are essential if South Africa is to become more financially inclusive. I look forward to seeing what other solutions will be developed in the payment space to enable more people to participate in the economy,” concludes Hardie.