Innovation needed in payments sector in move to cashless society
In a recent Reserve Bank report, Digital Payments Roadmap: Towards Inclusive, Accessible, Effective & Sustainable Digital Payments in SA, the institution laid out its plans to increase the incidence and security of cashless payments in SA.The Reserve Bank acknowledges that cash is still widely used in SA — particularly across the lower and middle-market segments — and has developed a road map to “to identify and break down the barriers, remove the obstacles, increase accessibility and usability, and unlock the potential of digital payments to spur economic activity and trade, enhance economic growth and uplift the lives of ordinary South Africans”. The digital payments road map, known as Project Stimela, will make the national payment system more accessible to fintechs and nonbanks, allowing for the provision of fast, low-cost innovative payment products and services. It will also expand internet access and access points among poor communities. It is a welcome development for innovators looking to disrupt the payments landscape in Southern Africa and provide more affordable, convenient and secure payment services to a broad market. We believe there is more space for competition in the financial sector in SA. We’ve begun to see the entry of new banks, but the real innovation will come from reducing the barriers to entry for small players. The costs of compliance are prohibitive for these prospective entrants to launch innovative products. It would be beneficial to see “light” type licences that would allow fintechs to play in this space without having to layer costs through various intermediaries to achieve compliance. Businesses could achieve profitability quicker, which could result in lower costs to customers and reduced time to market for new offerings. Underutilised servicesThe Bank report notes that innovation and technological advancements are rapidly accelerating the transformation, modernisation and digitisation of world economies, and cites research finding that cashless payments will have increased by more than 80% from 2020 to 2025 — from about 1-trillion transactions to almost 1.9-trillion — and to have almost tripled by 2030. The report also reads that in SA, despite great progress having been made in extending traditional financial services to broader society, those financial services are often underutilised, with just one in five banking customers using their accounts weekly. Our experience closely reflects the Bank’s identified reasons for the continued popularity of cash: 50% don’t feel they have enough money to use banking services, and 6% of banked South Africans feel their bank services are too expensive. Because we are an app-based business with low costs, we find a high level of stickiness from users. On average, our users access our app six times a week and more than 20 times a month. This is attributed to the range of functions and features we have over and above pure banking and the simplicity and ease of use. Our fees are transparent and well understood in general. But the lack of affordable mobile internet access is a big limiting factor to creating a cashless society. Internet access is a prerequisite for modern economic activity. Data is like gold dust and customers in our target market struggle to access free Wi-Fi and other data sources. Particularly on the streets in areas where our agents operate, data and signal can be an issue. As the report concludes, “Digital payments are central to this digital economic transformation, spurring economic activity, driving digital trade and unlocking new opportunities for broader society.” Innovative new financial products such as digital wallets could hold the key to a more empowering form of financial inclusion. Huge potentialA digital wallet provides a secure, convenient way to make payments, transfer money and manage financial transactions. One of the key advantages of digital wallets is its affordability compared with traditional bank accounts. Maintaining a bank account can be prohibitively expensive for the unemployed or individuals living below the poverty line. Digital wallets offer a cost-effective alternative, enabling underserved populations to access essential financial services, including payments, savings, and remittances. There is huge potential for digital payment methods to overtake cash, in rural and urban environments. A keen driver of these technologies in both areas has been immigrant populations looking for affordable, secure ways to send remittances to family back home. The Reserve Bank paper noted the particularly impactful benefit of cashless payments for women, the youth, micro-, small and medium-sized enterprises (MSMEs), government, government social grant recipients and schools. Digital wallets have the potential to empower small businesses and marginalised communities through expanded access to capital and enhanced economic growth. With low t ono transaction costs, mobile money provides a way for people in underserved areas to access formal financial services without overheads. It enables them to participate in the digital economy, establish financial identities and gain access to savings, credit, and insurance services and reduce the risk associated with dealing in cash. Initiatives such as Project Stimela, and the further rapid expansion of digital spectrum availability outlined in the presidency’s Operation Vulindlela, are key to expanding the cashless economy securely, efficiently and with a broad transformational impact. However, the remaining piece of the puzzle is the support of innovative start-ups looking to innovate and transform the industry. Holden is COO of digital wallet provider SOLmate.