In the heart of South Africa’s vibrant township economy, valued at an estimated R750-billion, a transformative shift is taking place. Small to medium-sized businesses are flourishing as the adoption of cashless transactions grows. Despite the widespread availability of banking services, with eight out of ten South African adults having a bank account, cash remains the dominant form of payment. According to Statista, 73% of point-of-sale transactions are still conducted in cash, highlighting the need for a significant push towards digital payments.
The reliance on cash is particularly evident in the bustling township economy, where more than 1.8-million informal traders operate. This reliance on cash is driven by several factors, including the immediacy and ease of use that cash provides. Its inclusive nature allows everyone to participate in the economy irrespective of financial standing or status.
The benefits of transitioning to a cashless society are manifold. Digital payments can significantly enhance safety by reducing the risks associated with carrying and storing large amounts of cash. They also offer greater convenience and efficiency, allowing for faster transactions and 24/7 accessibility. Moreover, digital payments can lead to substantial cost savings for businesses by lowering the operational expenses related to cash handling, such as storage, security, and transportation.
In addition to these benefits, digital transactions improve financial transparency and inclusion. Digital payment histories help informal businesses build credit profiles, making it easier for them to access loans and financial services. This, in turn, can drive economic growth by supporting local entrepreneurs and cultivating a safer, cashless society.
As we aim to migrate to a more cashless society, several steps need to be taken:
Address cost and perception issues
Developing affordable digital payment solutions and launching education literacy campaigns can help dispel misconceptions about digital payments. Improving financial and digital literacy through training programs and community outreach is also essential to ensure that all segments of the population can benefit from digital payment systems.
Enhance digital infrastructure
Expanding internet and mobile network coverage, especially in underserved areas, and modernising payment systems to support real-time, low-cost transactions will make digital payments more attractive and accessible. Building trust in digital payments is equally important. Ensuring robust security measures and promoting transparency in digital payment fees and processes can help build confidence among users.
Regulatory support and incentives play a key role
Creating a supportive regulatory environment for digital payment adoption and providing incentives for businesses to adopt digital payment methods will encourage the transition to a cashless society. Finally, promoting collaboration between government, financial institutions, technology providers, and community organisations is essential for developing and implementing comprehensive digital payment solutions.
Despite the dominance of cash, the transition to digital payments is gaining momentum for small to micro businesses. Firms like Yoco, Shop2Shop, Flash and iKhokha are at the forefront of this revolution, providing the tools and technologies needed to pave the way for a safer, more efficient, and inclusive economic environment.
Specifically within the informal market Shop2Shop, Kazang and Flash are the three major players. Each of them offers customers a safer and more convenient way of doing business through card payment machines, reducing the need for consumers to travel in order to get cash.
Traditionally, people living in townships had to catch a taxi or a bus to the closest mall to withdraw cash. Now, thanks to the widespread availability of these card payment options at local community stores, residents can purchase goods directly from nearby shops. This not only supports small entrepreneurs but also saves customers money on transportation costs.
The convenience of cashless transactions has led to a notable boom in the informal economy. More and more people in townships and informal areas prefer to spend small amounts at local shops rather than withdraw large sums of cash. This trend, accelerated by the COVID-19 pandemic, has made shopping safer and more convenient, reducing the need to queue at malls and ATMs.
The success of cashless payments has also benefited South African banks like Capitec and TymeBank. As more customers use their bank cards for transactions, banks are reducing ATM costs and focusing on enhancing digital payment infrastructures. This shift supports the broader goal of financial inclusion, ensuring that all South Africans can participate in the digital economy.
Seemingly ahead of the curve in this cashless transformation is Shop2Shop, whose innovative solutions and agile methods are making a significant impact on small businesses in the informal economy. Their efforts highlight the potential for a broader transition to a cashless society, which additionally reduces the cost and risks of handling cash.
Although a fully cashless society is not necessarily the end goal, by taking these steps, South Africa can make significant strides towards creating more inclusive opportunities for small and micro businesses which are the lifeblood of the country’s economy. Furthermore it bridges the divide between the informal and formal market which stimulates economic growth within the country.