Cashless or not? Exploring the future of digital payments in Africa

Cashless payments are trickling into South Africa's informal economy

With a huge portion of the population still lacking mainstream banking services, transitioning to digital payments could be the most effective strategy to integrate more individuals into the formal financial system.

According to Statista data South Africa is advancing in this area, with stats indicating that about 85% of its citizens have bank accounts.

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Yet, many of these accounts serve primarily as conduits for government assistance, with beneficiaries withdrawing funds in cash to cover everyday expenses at outlets that don't accept digital payments.

This suggests that more efforts are necessary to achieve a truly inclusive digital payment environment, which will likely involve innovative solutions and the establishment of a comprehensive, accessible national digital ID framework.

Experimental innovation

Innovations in digital payments, such as mobile money, contactless transactions, and QR codes, provide user-friendly, affordable means for handling payments.

Initiatives like Tap-On-Phone transforms a regular smartphone into a device capable of processing payments, and there’s the experimental Money Message – a transaction method via WhatsApp.

These advanced payment options facilitate smooth, economical transactions through platforms people are already familiar with.

Furthermore, the rise of embedded finance and 'payments as a service' is enhancing this by enabling the integration and real-time data sharing between organisations.

Real time payments

A significant advancement in the digital payment sector is the introduction of real time payments initiatives that enable the digitisation of high frequency low value payments using a proxy, such as a mobile number or email.

South Africa has embraced this innovation with the launch of PayShap, our rapid payment programme.

The triumph of similar systems in other nations, like India's Unified Payments Interface (UPI), offers invaluable insights for South Africa, highlighting the importance of factors such as interoperability, transparent pricing, and integration with popular applications.

However, it's undeniable that cash remains a cornerstone of the South African economy, particularly within especially within the township economy.

Cash persists

Even as digital payments grow, cash usage persists, with some estimates are putting that annual increase at around 6-8%.

Cash's appeal lies in its physicality, familiarity, and perceived absence of costs.

Many merchants, especially in semi-urban areas, are not equipped to accept digital payments.

For digital methods to truly replace cash, they must emulate its characteristics, including immediate settlement, minimal or no fees, and universal acceptance.

Beyond technological advancements, significant investment in financial education and digital literacy is essential to instruct individuals on digital payment methods and to dispel mistrust towards non-cash transactions.

Existing habits

While South Africa might not transition to a completely cashless society shortly, the trajectory towards a digitally empowered financial landscape is clear.

The challenge lies in ensuring that innovation does not exclude anyone.

By tapping into existing habits, such as the widespread use of WhatsApp, digital financial services can be introduced and extended.

Collaborating with regulatory bodies to foster innovation-friendly yet consumer-protective frameworks is critical.

Most importantly, digital payment solutions must be as simple and intuitive as cash.

By concentrating on solutions that cater to all South Africans, from the tech-savvy urbanite to the rural entrepreneur, we can cultivate a more inclusive, efficient, and vibrant economy.