It may be somewhat hard to believe but worldwide, cash is still the preferred method of payment – and South Africa is no exception. Recent research by Mastercard found that a massive 94% of transactions in the country are cash-based, and the majority of these take place in townships, where spaza shops and informal SMEs are the order of the day.

According to a paper presented at the 2011 South African City Studies conference, there are more than 100 000 spazas, with a total turnover exceeding ZAR7 billion. Those, and hundreds of thousands of informal SMEs, play a hefty role in fuelling the country’s economy.

Bearing in mind World Bank Group estimates that more than half of South Africa’s population lives in townships and informal settlements, it’s little wonder that financial services providers are looking to gain a foothold in these areas, where financial inclusion is somewhat lacking.

Service providers are tapping into this market through the roll-out of hand-held point-of-sale (POS) payments solutions to spaza shops and SMEs. These devices often serve as the first interaction with the non-cash payments sector and provide a stepping stone into the formalised financial-services arena.

Mastercard, in collaboration with Blue Label Telecoms, was one of the first to enter the market in 2013 when it began rolling out 22 000 POS devices to small traders and rural businesses in South Africa. That same year, local bank Nedbank also launched its mobile POS device, aimed at small businesses.

Meanwhile, First National Bank (FNB) has raised the bar with an offering that ranges from stand-alone solutions for single outlet or small-scale merchants, to integrated solutions tailor-made for multi-lane retail environments.

According to Alan Scoular, CEO of FNB merchant services, South Africa’s payments ecosystem is progressing in leaps and bounds. And with it, the demand for POS solutions is growing steadily.

‘Over the years, South Africa has made great strides in enabling the usage of advanced payments systems,’ he says.

‘We continue to see sustained demand for POS devices and actively encourage our business clients to consider using such devices as an alternative payments method for customers who prefer to use cards over cash.’

While Scoular concedes that many spaza shops and small businesses still rely on cash transactions, he argues that POS solutions offer substantial benefits. ‘POS devices could significantly improve cash-management systems for spaza shops because every transaction is recorded and the money is immediately transferred into the business’ account,’ he says.

‘However, it is important to note that in South Africa, spaza shops predominantly service township and rural communities, which largely prefer to pay by cash. But we expect demand for POS devices to rise within the next few years.’

Scoular believes POS devices can also make significant headway in improving financial inclusion and help establish a card-payments culture in rural areas. He adds, however, that demand for POS devices from merchants is somewhat restricted.

‘Rural areas have been central to South Africa’s plan to broaden financial inclusion, so a lot of customers do have the option of paying by card, and select retail outlets have POS devices for customers. However, at this stage, demand for POS devices in rural areas cannot be compared to that of established urban markets.’

FNB has faith that the country’s payments market will keep up with technological developments, and as such, continues to expand and improve its services. As Scoular explains, the bank is tapping into new payments channels – including mobile, contactless and digital wallet acceptance – and projects geared towards advanced payments security.

‘African countries are increasingly promoting the development of small businesses, contributing to the growing need for better payments solutions’

He accepts, however, that for the short term, cash will remain critical to the payments sector. ‘The payments space has been rapidly advancing in South Africa as well as many other countries around the African continent. We expect payments systems to continue evolving in line with the development of new technologies. However, we are a long way away from seeing complete departure from using cash.’

South African company Nomanini specialises in bridging this divide with its portable POS platform. Designed for the informal retail sector, it focuses on prepaid and cash payments and offers customisation across several verticals, including the vending of airtime, electricity and tickets. It also serves as a cash-in collection method for mobile money, microloans and insurance premiums.

As Nomanini CEO Vahid Monadjem explains, cashless payments are beginning to take off in South Africa even though the services currently being offered by financial institutions are generally angled at higher-end consumers, and as such, do not benefit or impact the country’s mass of informal traders and small businesses.

He argues, however, that POS solutions have substantial benefits and ultimately provide a way of increasing financial inclusion.

‘POS devices increase prepaid availability and retail foot traffic. By utilising POS devices, local enterprises and grass-roots entrepreneurs earn extra income and foster economic inclusion of the unbanked and underbanked masses by providing convenient, reliable and safe access to essential mobile and financial services,’ he says.

He adds that these systems have the potential to drive economic change in townships and rural areas through overcoming supply-chain challenges and facilitating access to basic services. ‘[They] enable more people in remote areas to access basic services such as mobile airtime, electricity and water at a fair price. The inefficient supply chain based on scratch cards from national service providers, through many intermediaries, to remote points of sale leaves little profit for the end seller. As a result, the practice of “marking up” the price of the voucher has become commonplace. Thus, those in underserved areas, usually with the least disposable income, often pay the most for basic services,’ he says.

‘POS devices improve the distribution of and access to prepaid services electronically by providing a direct conduit from national service providers and prepaid distributors to remote points of sale.’

Similarly, Monadjem argues POS solutions could play a vital role in providing varied financial services in low-income areas, including ATM-like services, access to savings accounts, insurance, credit facilities and cash-transfer services.

What established financial services companies and more niche providers such as Nomanini agree on is that the continent’s huge economic potential has prompted a gaping demand for new payments systems. And it is imperative that they draw in the full demographic spectrum. ‘The African continent is best positioned to continue benefiting from new payments systems, largely because of its massive economic growth potential. African countries are increasingly promoting the development of small businesses, contributing to the growing need for better and reliable payments solutions,’ says Scoular.

Monadjem agrees, adding that POS offerings are ‘continuously evolving across countries in Africa to suit the needs of customers’ of varying income brackets.

‘As POS platforms and devices evolve, the implication for the payments sector is to ensure offerings cater to the needs of their direct target market,’ he says.

‘New solutions and products offered with the intention of efficiency could overwhelm customers if careful consideration is not given to the design ahead of adoption.’

By Gabriella Mulligan
Image: Andreas Eiselen/HSMimages