Research by Mastercard shows that around 96% of transactions are still conducted in cash among South Africa’s 1.5 million informal enterprises, despite strong interest in digital and card payments by consumers.
This is according to Insights into the Informal Economy Report, a Mastercard study. The study looks at trends in payment instrument usage – from cash to card – and highlights opportunities for cash displacement in the informal sector.
Around 90% of South Africa’s informal enterprises continue to run as cash-only businesses, despite 51% of them saying they encountered strong customer interest in paying by card.
Despite rural and township residents using cards for 60% of their transactions at formal retailers, only 4% of transactions are card-based at informal retailers. This is due to these small traders not offering card or mobile acceptance.
“Card acceptance is highly attractive for informal traders and is an important next step to increase revenue, but lack of access to formal banking tools and understanding of available payment options limits their opportunity for growth,” says Gabriël Swanepoel, vice president of product development and innovation at Mastercard South Africa.
The study identified six major reasons that cash still rules the informal economy:
• The perceived costs of accepting mobile and digital payments
• A lack of knowledge and awareness about the solutions available for card acceptance and the benefits of going cashless
• Lack of formal banking facilities
• A belief that cash makes it simpler to budget accurately when handling small amounts of money
• Evasion of tax payments
• A relatively high percentage (45%) of consumers receive salary payments in cash
Smartphones key to shift
The use of smartphones amongst informal enterprises and their customers was found to be relatively high, driven by the decline in the cost of smartphones and the strong demand for digital messaging services and social media platforms. Fifty-nine percent of merchants and 69% of consumers interviewed have smartphones. Yet none of the merchants in the sample were using smartphone-based card acceptance solutions.
When asked if they would consider using these solutions, they expressed great interest if the economics made sense. Twenty-two percent said they would be interested in using a QR-code solution, 44% said they would be interested in mobile payments apps, and 40% said they would be interested in a point of sale (POS) or mobile POS card acceptance solution.
The study finds that merchants who introduced card acceptance reported an average increase in turnover of 50%, while those that introduced mobile payment acceptance via Quick Response (QR) codes saw their revenues climb by 10%.
Educating merchants about the benefits of digital and card payments as well as the low-cost options available for digital payments acceptance are central to shifting billions of rand in transactions from cash to digital channels.
“The latest wave of mobile and digital innovations will help grow financial inclusion among informal merchants that play a critical role in South Africa’s economy,” says Swanepoel. “Together with partners like Spazapp and iKhokha, we are working to significantly boost card payment and card acceptance at micro, small and medium enterprises in informal settlements.” (via Bizcommunity)