Cash is king: South Africa’s poor slow to take up digital payments

One-in-five South Africans don’t have bank accounts

Despite a surge in e-commerce and digital payments, the Covid-19 pandemic has made South Africa’s poorer citizen’s increasingly dependant on cash.

“Cash has proven to be a resilient medium of payment in uncertain times, but its increased use also indicates a need for greater inclusion in the digital payments landscape,” says Ghita Erling, CEO of the Payments Association of South Africa (Pasa).

Digital payment systems have mainly benefited the country’s higher-income and financially astute earners, who appreciate the convenience of cashless transactions and have ready access to digital payments infrastructure.

Why do many South Africans prefer cash?

According to FinMark Trust research, at least one in five South Africans do not have bank accounts, and a further one-third prefer to withdraw all their money in cash than keep it in the bank account.

This trend is more prevalent among social grant recipients. South African Social Security Agency (Sassa) statistics show that 95% of beneficiary funds are withdrawn within seven days of being deposited.

The reasons for this behaviour include fears that Sassa will repossess the money if left too long in the account and a heightened distrust in digital services and cards. There’s also the uncertainty of how to use cards and operational costs like taxi fares if recipients need to travel to ATMs every time they need to access their money.

“Another factor driving continued dependency on cash is that many South Africans live in areas where the digital payments infrastructure does not yet reach or where digital payment is simply not accepted by local vendors,” said Erling.

Most vendors are put off by transactional costs that is part and parcel of digital payments. But most of their customers also prefer paying in cash, so they see little value in implementing services where there’s no demand.

Research shows that between two and five million micro and survivalist businesses operate on a cash-only basis since a convenient digital acceptance solution is unavailable.

“Therefore, during the pandemic and subsequent lockdowns, the use of cash among those with limited transport or access to digital payment systems has increased measurably,” said Erling.

The cost of cash

It costs at least R88 billion per annum to produce, store and circulate cash – and this was even before the pandemic struck.

Pasa believes that building awareness and educating users to build trust in cashless transactions is as critical as providing good technical solutions and reliable infrastructure.

“There needs to be a collaborative effort between digital payment providers, stakeholders and communities to ensure progress is made,” said Erling.

“While cash has its place in the national payment system, speedy and ubiquitous digital payments promise financial inclusion to all South Africans,” Erling added.

Compiled by Narissa Subramoney

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