March 7, 2017

Digital Payment Taking Hold in South Africa

As South Africa eagerly embraces cashless alternatives, mobile payment solutions – in particular – are gaining traction across all sections of society. In this post we will look at the current South African payment market, its continued transition towards a more cashless society and why there is a need for solutions that facilitate mobile contactless payment acceptance.

An Increasingly Digital Payment Market

Digital payment is thriving in South Africa. Driven by mobile payment options and other FinTech solutions, the total transaction value of this payment segment reportedly amounts to US$9,864m – with an annual growth rate of 16.2% forecast for 2017-2021.

There is evidence of a genuine willingness among South Africans to adopt digital payment – particularly mobile payment. In fact, a 2016 MasterCard Impact of Innovation study – which surveyed 23,000 people in 23 different countries – found that 73% of South African respondents would use their mobile phone to make a payment.

The same study found that mobile payment is already used by 31% of respondents, while approximately 75% use online banking via a web browser and 66% through a mobile app. Roughly 70% already use payment applications – such as FlickPay, GustPay, SnapScan and Zapper.

The scale of the mobile payment market in South Africa shouldn’t be underestimated. At the end of 2014, First National Bank reported that their customers were making 230 million mobile payment transactions per month – eclipsing the 45 million made on the popular M-Pesa platform in Kenya.

Moving Towards Cashless Transactions

In South Africa, various factors are driving the adoption of more cashless payment solutions. Firstly, there is the cost – an issue for markets around the world – which can be significant. In fact, the cost of dealing with cash is estimated to be as much as 1.5% of GDP.

Alongside the issue of cost, consumers also appreciate the convenience of cashless payment alternatives. For example, while presenting the implementation of its MasterPass solution, MasterCard highlighted use cases that are proving successful in South Africa, including: topping up mobile phone data and removing the need to queue in person to pay monthly utility bills.

Security Concerns Associated With Cash

The issue of crime is also a major motivating factor for the transition towards a more cashless society. The South African Risk Information Centre (SABRIC) has launched campaigns with the South African Police Services (SAPS) to warn clients of the dangers of carrying cash and to reduce robberies. Speaking in August 2015, Kalyani Pillay, the CEO of SABRIC, attributed a 23% decrease in associated robberies to a collaboration between law enforcement and the banking industry, as well as bank clients, who “…have decided to heed the call not to carry large sums of cash and use alternative methods of banking.

Statistics released by SABRIC indicated that people in South Africa were most at risk after withdrawing cash from a branch. In terms of the crime landscape, these incidents represented 58% of the risk per crime type. A common method for criminals – known as ‘Spotting’ – involved bank clients being followed home and robbed after they withdrew large amounts of cash.

The Need for Mobile Contactless Payment Acceptance

As South Africa embraces digital alternatives to cash, the need for a solution that enables both merchants and individuals to accept contactless payment is becoming increasingly apparent. From the merchant side, such a solution must be affordable – as contactless payment terminals and hardware can be costly. Meeting the expense of such terminals is often impossible for small and medium-sized enterprises – which contribute a third of South Africa’s GDP and employ 60% of the population.

Despite the move towards a more cashless society, cash payments still make up over 65% of all transactions in South Africa. For this reason, individuals – including micro-merchants and independent workers – have little choice but to handle cash.

A development like Mobeewave’s mobile contactless payment acceptance solution would prove particularly useful, as it would enable both merchants and individuals to accept contactless payment anywhere, using just their phone – thereby removing the dependency on cash.

Universities: A Perfect Use Case for Mobile Contactless Payment Acceptance

Universities are one area where a digital alternative to cash would be beneficial. In fact, students at Durban University of Technology are already being encouraged to embrace cashless solutions. Promoted under the tagline: ‘Save Time. Be Safe. Don’t Use Cash. Go Cashless.’ DUT’s campaign is urging students to pay their fees online, by direct deposit or electronic transfer.

Tuition fees are, however, only one of many expenses facing students today. Accommodation, books, food and transportation are just some of the other costs students have to meet. In most cases, the source of the funds for such expenditures are the students’ parents. But by handing over cash to their children to cover these costs, parents are exposing them to the security risks associated with handling cash.

With the Mobeewave solution, parents would instead be able to provide whatever funds are needed by simply tapping their contactless card or mobile wallet to their child’s smartphone. The money would go directly into the child’s bank account – deposited onto their credit, debit or student card. The student could then in turn pay out the money they’ve received from their parents using a mobile wallet, banking app or third-party payment solution – thereby totally avoiding the need to handle cash.

Interested in a particular topic? Want to get our take on a developing issue? Let us know and we could address it in a future post.

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