Photograph — Austin Mason

As the financial services sector in South Africa undergoes an unprecedented transformation, driven by modernization and rapid developments in digital technologies, Deloitte Africa and Mastercard have jointly called for a multi-faceted collaboration to drive the digital economy.

In their report titled The future of payments in South Africa: Enabling financial inclusion and innovation in a converging world, the organizations stated that the ongoing digital advancement disrupts the financial sector as well as enables change in previously disconnected sectors such as banking, telecommunications, and retail.

This resulting convergence of multiple sectors has given rise to new market entrants and solutions actively shaping the payments space. This is according to the study, released on the sidelines of the recent World Economic Forum on Africa held in Cape Town.

Consumers may be getting access to services in a user-friendly way, however, there is no meaningful change in consumer behaviour. Cash is still king and trust in digital payments is still lacking, drawing back financial inclusion efforts.

The report suggests four key levers for change to further enhance the ongoing convergence in improving the uptake of digital payment services. These focus areas include Regulation; Interoperability; Infrastructure; and Customer needs and financial education.

Public-private partnerships are crucial

If South Africa is to achieve meaningful financial inclusion, the report recommends that private and public sectors must collaborate to reduce the reliance on cash and encourage the use of digital payment methods and financial services. This would help to achieve more inclusive and sustainable economic growth.

“Great progress has been made in increasing access to financial services in the country, with 80 percent of the adult population now banked – up from just 46 percent in 2004,” Mastercard’s Division President for Southern Africa, Mark Elliott says. “Despite this increase, the majority of all consumer payments are still made in cash, which indicates that people are not frequently using payment cards or digital solutions for everyday payments.”

According to Elliot, a key challenge is the lack of digital payment acceptance at small businesses and informal retailers, as well as deeply embedded behaviours and attitudes towards cash.

In South Africa, there is an apparent devotion to cash, in spite of the fact that cash is costly and carries safety risks. A Mastercard study shows that the cost of cash for consumers is R23 billion per annum or 0.52 percent of the country’s Gross Domestic Product (GDP), with the majority of this cost carried by lower-income earners.

To address this, Elliot says digital technologies and new distribution models may help speed up South Africa’s journey to a cashless society, but a “greater focus is needed to deliver payment experiences that add real value to both small businesses and consumers.”

Collaboration between industry players

The advancements in technology make digital payments and services more readily accessible and affordable to consumers and small businesses. And industry convergence in the payments space is inevitable and will become further influenced by regulatory change if the European and United Kingdom examples of open banking are followed, the report said.

But the usage of such digital products in South Africa will be subject to how well payments providers collaborate to meet their needs, the report added. Thus, payments ecosystem players need to rethink how they both compete and collaborate.

According to the Managing Director for Emerging Markets and Africa, Deloitte Africa, Dr Martyn Davies, the convergence across industry sectors requires new partnerships between companies. This presents a whole new layer of complexity to manage but also unrealized opportunities for new models to emerge.

An example of where this collaboration could be most effective is between players in the telecommunications and banking sectors. The combined strengths of financial and cellular services offer the opportunity to provide payments solutions as well as increased customer utility among the large customer bases of mobile phone operators.

“If the converging industry players can move towards greater interoperability and partnerships, the end result must be an increase in payments offerings and better financial services, which answer customer needs with greater effect,” Davies said.

Partnerships among industry players will, in turn, have the benefit of improving the customer experience and increasing adoption and usage of digital payments and services, thereby reducing cash dependency, the MD explained further. “Ultimately this will lead to increased financial inclusion and inclusive growth.”

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