Cash isn't king when it comes to saving already-burdened consumers a few extra bucks – and the problem is biggest in rural areas and among poor South Africans.
This is according to Paul Kent, MD of Sureswipe, a payment service provider (PSP) active in South Africa for 10 years. It has been joined by other fintech service providers like Yoco and iKhokha.
However, says Kent, the impact of such companies is limited due to a shortage of payment acceptance points. Electronic transactions are typically cheaper, but for many South Africans, access remains a problem.
Fin24 previously reported that although over 70% of South African adults have bank accounts, only 24% make more than three monthly transactions – and high fees are the biggest deterrent.
"There are around 80 million bank cards in circulation, yet usage within these cards remains low," says Kent. "Many South Africans use their bank cards once a month to draw their full salary or grant.
"In urban suburbs, bank cards are accepted for purchases almost everywhere, but as you move into peri-urban or rural areas, only one in 10 retailers accept card payments."
Hence over 60% of transactions in SA are conducted in cash, and this increases to 90% in some rural areas.
But cash is costly. A 2017 study conducted by Mastercard found that the cost of cash in SA is some R23bn or 0.53% of GDP, and it is mostly low-income earners bearing the brunt.
The cost to start-ups
Kent says the ability to access and service the informal sector at a price point that makes commercial sense has been "one of the main business challenges" for PSPs.
"In SA expensive regulatory and compliance requirements make the costs of onboarding a new retailer far greater than the revenue earned on the transactions that the retailer makes every month," he explains.
"Though this changes as the retailer moves from start-up to small business, the initial outlay is being carried by fintech providers."
Furthermore, he says, access to the national payment system (NPS) is limited, and PSPs are obliged to partner with a large financial institution in order to operate. "All this has done in SA is decrease both competition and product reliability and increase costs," he says.
Kent believes the successful introduction of card payment fintech players into the SA market would increase competition for major banks, driving merchant transaction fees downwards and putting rands back into pockets.
"Our government could step in on two fronts by introducing differentiated banking licenses and by driving more impactful public-private partnerships to quickly build a stronger SME sector," he says.
Between Sureswipe, Yoco and iKhokha there are currently some 40 000 payment devices in SA.
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