Exploring SA’s online retail market: An exclusive Q&A with Mastercard SA

Gabriel Swanepoel, Country Manager at Mastercard Southern Africa, to delve into the pressing questions on South Africa's retail market.

As South Africa’s online retail market heads towards an impressive projected growth of R100 billion by 2026, industry insiders are keen to understand the dynamics shaping this sector. Despite positive forecasts and 35.5% of companies expecting to double their turnover in 2024, a sense of pessimism still lingers. What are the reasons behind this cautious outlook? How will the entry of global players like Amazon, Temu, and Shein affect the market? And what future trends can we expect to see in payment gateways and delivery models?

In this Q&A, we sit down with Gabriel Swanepoel, Country Manager at Mastercard Southern Africa, to delve into these pressing questions. Swanepoel provides insights into the economic, operational, and regulatory challenges facing the industry, the impact of international competition, and the strategic importance of trust, security, and stability in payment systems. He also shares predictions for the future of South Africa’s online retail market, highlighting the role of technology and innovation in driving growth and enhancing the consumer experience.

Join us as we explore the complexities and opportunities within South Africa’s burgeoning online retail landscape.

Despite the projected growth of South Africa’s online retail market to R100 billion by 2026, and with 35.5% of companies expecting to double their turnover in 2024, why does a sense of pessimism persist in the industry?

Despite impressive growth projections, a sense of pessimism still persists in the industry due to several key factors. Economic uncertainties, including inflation, exchange rate volatility, and global economic pressures pose substantial risks. These factors can diminish consumer spending power and escalate operating costs for businesses, prompting a more cautious outlook despite positive growth trends.

Operational challenges also contribute to this sentiment. The sector grapples with logistics complexities, high rates of cart abandonment due to payment failures, and the need for continual upgrades in technology and infrastructure. These hurdles require significant investment and diligent management, adding to the industry’s cautious stance.

Moreover, growth is unevenly distributed within the industry. While large players and new entrants like Amazon enjoy substantial turnover growth, smaller retailers face intense competition and significant barriers to scale up.

This disparity fosters uneven optimism across the sector. Additionally, as the market matures, saturation and intense competition, especially from international giants, force local businesses to continuously innovate and invest heavily in customer acquisition and retention strategies.

Regulatory and security concerns add another layer of complexity. Businesses must navigate evolving regulations and invest in secure payment technologies and compliance measures to ensure sustained growth.

However, the optimism of 35.5% of companies expecting to double their turnover reflects a strong belief in the power of advanced analytics, AI-driven pricing and promotions, and enhanced payment systems. This optimism aligns with Mastercard’s commitment to advancing seamless and secure transaction environments, which boosts consumer confidence and enhances the overall shopping experience. The transformative power of technology and innovation remains a driving force for future growth in the sector.

Do you believe that the introduction of global players like Amazon, Temu, and Shein will impact and even benefit the South African market?

The entry of Amazon, Temu, and Shein will enhance competition, leading to better prices, improved customer service, and wider product selections. These giants push local retailers to innovate and boost efficiency by introducing advanced technologies and practices, which elevate the entire e-commerce ecosystem.

Their presence also educates consumers, raising expectations and fostering a more sophisticated online shopping culture. Economically, their investment will drive job creation and infrastructure development. However, this competition may challenge small- to medium-sized enterprises (SMEs), potentially leading to market saturation.

For Mastercard, this presents an opportunity to enhance our payment infrastructure and security solutions, supporting a safe, efficient, and inclusive digital economy in South Africa.

Why do you think trust, security, and stability were prioritised over pricing when selecting a payment gateway?

Consumers prioritize trust, security, and stability over pricing because these qualities ensure a safer and more reliable online shopping experience. Trust in a payment gateway reassures users that their transactions are handled ethically and with integrity, minimizing risks of fraud and data breaches. Security is paramount, protecting personal and financial information from cyber threats, which are a growing concern.

Additionally, stability in a payment system guarantees that transactions are processed smoothly and consistently, preventing disruptions due to system failures or errors. While lower costs are appealing, the peace of mind provided by a secure, reliable, and trustworthy payment service is seen as a valuable investment, outweighing the benefits of reduced fees.

As delivery models evolve with services like Sixty60 and Amazon’s new pickup points for next-day delivery, what is the long-term impact on logistics and delivery systems?

The evolution in logistics and delivery models, driven by services like Shoprite Checkers’ Sixty60 and next-day delivery with pickup points, is profoundly reshaping the retail sector. The significant growth of these services highlights the critical role of logistics innovation and the trend towards more integrated and efficient delivery systems, reinforcing the importance of adaptability in the evolving retail environment. These changes enhance customer satisfaction by offering quicker and more convenient delivery options and increase operational efficiency by utilizing existing stores as fulfillment centers. This dual role of retail locations transforms the retail landscape, giving competitive advantages to those who adapt swiftly.

The environmental impact is mixed. On one hand, optimized delivery routes and localized fulfillment can reduce transport emissions. On the other hand, increased delivery frequencies may counteract these benefits. These shifts also influence economic and urban planning, altering employment structures in retail and affecting city traffic patterns to accommodate more delivery and pickup activities. Ultimately, these changes lead to a more resilient and responsive retail ecosystem.

Given that card declines are a major cause of cart abandonment, what steps can SA merchants take to improve conversion rates?

At Mastercard, we recognize the challenge that card declines pose in e-commerce, particularly affecting cart abandonment rates. To help merchants improve their conversion rates, we suggest for a multifaceted approach. Enhancing payment authorization with advanced fraud detection technologies can minimize false declines while ensuring security. Diversifying payment options, such as integrating digital wallets and mobile payments, can also reduce declines.

Proactive communicating with customers about potential issues like card expirations before they disrupt a transaction is highly effective. Simplifying the checkout process to reduce errors and offering real-time assistance can further decrease decline rates. Finally, maintaining payment systems with the latest security and compliance standards is crucial. By adopting these strategies, merchants can enhance customer experience, reduce card declines, and increase conversion rates, supporting a more robust and inclusive digital economy in South Africa.

Predictions for the online retail market and payment gateways in South Africa for the next two to three years?

Over the next 2-3 years, South Africa’s online retail market is set to grow significantly, potentially exceeding R100 billion by 2026. This growth will be driven by increased digital engagement and new technologies. Payment gateways will likely diversify, incorporating digital wallets, contactless payments, and Buy Now, Pay Later options to meet consumer demands for convenience and security.

Enhanced security measures like biometric authentication and encryption will be vital to protect against escalating cyber threats. Artificial intelligence and machine learning will further improve transaction processes and fraud detection. We believe that regulatory frameworks will also evolve, ensuring compliance and consumer protection in a growing digital economy. Additionally, cross-border e-commerce will expand, necessitating support for multiple currencies and international regulations. Amid these changes, a stronger focus on sustainable practices will become increasingly important, influencing various aspects from delivery methods to packaging, reflecting a broader industry shift towards environmental responsibility.

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