Fast-growing adoption of digital supplier payments among micro merchants and informal retailers such as spaza shops is helping to reduce security risks, costs and inefficiencies associated with cash payments right across the value chain. Digital wallets from leading fintechs are helping to catalyse this payments digitisation revolution.
That’s according to Jonathan Thomson, head of supplier payments at Kazang, the prepaid value-added services (VAS) and card acquiring business within JSE-listed fintech Lesaka Technologies. He says that digitalising supplier payments is an important element of creating financial inclusion for micro merchants in townships, peri-urban areas and rural areas.
“Most micro merchants in South Africa still pay for most of their inventory using cash,” says Thomson. “This not only exposes them to the safety and security risks associated with cash, but also increases their operating costs, and makes it more complex to track transactions and stay on top of cash flow.
“Digitisation through walleting platforms like Kazang offers them the opportunity to reduce the amount of cash they keep on hand. This allows them to mitigate the risks of losing physical cash as well as their exposure to cash crimes — an especially important benefit for those that don’t have convenient access to a bank branch to make deposits. Furthermore, they can vastly reduce bank deposit fees as the vaults and card terminals we deploy are exceptionally low-cost, in fact often costs are fully covered by alternative revenues they enable, or rewards merchants earn through them.”
The proliferation of affordable card acceptance terminals from fintechs such as Kazang is an important catalyst for the digitisation of supplier payments. Kazang has more than 90,000 VAS devices processing around 3 million transactions daily at micro merchants around South Africa.
Retailers use these terminals to sell services such as prepaid electricity, prepaid airtime and data, DSTV subscriptions, bill payments and gaming vouchers. Kazang also enables merchants to accept card payments on these terminals with a low transaction fee as well as to offer their customers cash withdrawals at the point of sale.
Affordable card terminals boost digital transactions
“With 50,000 (and counting) of our VAS terminals now enabled to accept card payments, we have seen a dramatic increase in card usage across rural areas and townships, providing the option for end-consumers to use a bank card for their daily goods at their local stores, where that was never possible before” says Thomson. “The uptick in card acceptance in these markets is greatly complemented by Kazang’s cashless payments systems that allows merchants to pay around 700+ FMCG suppliers instantly and free of charge.”
Card payments are settled into the wallets in real time, meaning that merchants have instant access to the money when they need to make a payment – this is vitally important in FMCG value chains, where making the sale or not can often depend on whether the merchants have cash on hand at point of order/delivery. At the higher end, merchants that process high volumes of cash can also get a secure vault from Kazang. Cash amounts dropped into the vault will reflect immediately in the digital wallet for use and will no longer pose risk of loss to merchants.
This means that micro merchants in informal settings can get the same convenience and safety benefits of digital transactions as large retailers in shopping malls, says Thomson. In addition to reducing cash costs and risks for the merchant, it helps them to tighten cash flow management and create a safer trading environment for their customers.
In the background, Kazang has built complex integrations with FMCG suppliers’ business systems to facilitate smooth digital payment flows. Major FMCG companies have come on board, recognising an opportunity to dramatically improve efficiency as well as vastly reduce their exposure to crime.
Says Thomson: “A driver for a major beverage manufacturer might need to collect R30,000-plus in cash on their delivery rounds in a township. This cash makes them a target for criminals, who may often use force or the threat of violence to rob them. Eliminating cash will improve safety for drivers and reduce cash losses for suppliers.
“Over and above crime risk, cash is susceptible to losses through mismanagement and pilferage. It is associated with high deposit fees and delays in settlement to a bank account. Maintaining accurate records of cash transactions and reconciling payments is an administrative burden. Going digital reduces costs, improves cash flow and enhances visibility.”
Thomson concludes: “Micro merchants and their suppliers face a range of challenges in their reliance on cash transactions. Initiatives like ours to digitise supplier payments addresses these pain points head-on, fostering a safer, more efficient, and more inclusive financial environment.”