The Potential Of Digital: Informal Sector Shows Signs Of Moving Away From Cash

Published 3 months ago
Gabriel Swanepoel 2crop

Following the release of a new study, Gabriel Swanepoel, Country Manager at Mastercard, Southern Africa, shares insights related to behaviors emerging from South Africa’s informal sector.

Q: Mastercard and FORBES AFRICA recently released a whitepaper titled Driving Financial Inclusion In South Africa’s Informal Economy: The Landscape At The Bottom Of The Pyramid. Please tell us more about the study, and why it was conducted.

Swanepoel: South Africa has the African continent’s second-biggest economy and a large informal sector estimated at 3.3 million micro and informal businesses, which also happen to accommodate marginalized communities such as women, youth and the previously disadvantaged.

If we can understand South Africa’s informal sector better, we can serve it better, so the study was conducted to establish factors that would democratize and widen financial access and enable equitable financial inclusion. We explored behaviors and attitudes at the ‘bottom of the pyramid’ where consumers and SMMEs primarily use cash when making or receiving payments.

These are also consumers who either do not use bank accounts, have bank accounts that are inactive, or have access to facilities such as credit and digital banking but choose not to make use of them. As a result, many stay marginalized and financially-excluded from the growth happening in the digital economy. We must look for more ways to incentivize consumers and micro enterprises to digitize their commercial exchanges – and eventually switch from cash – so they can be included and empowered in a formal financial ecosystem.

Q: The whitepaper revealed that South Africa’s informal economy shows signs of a movement to switch away from cash. What does this mean?

Swanepoel: We know that cash is still in mainstream use, but the research showed that 65% of consumers are likely to start paying with something other than cash in the year ahead. In essence, it means that digital payments and electronic transactions are becoming more appealing. Over the course of a year, the perceived convenience of non-cash methods has been growing in importance. Originally 48% of informal sector consumer respondents cited convenience using credit cards, a figure that grew to 60% a year later.

In terms of moving towards less cash use, respondents would be motivated towards alternatives if there was a potential of cash-back, increased safety and security, and if they received airtime or data. They also mentioned they would change to a digital alternative for extra security and if they were convinced of higher convenience, minimal costs and loyalty offers.

The flip side is true too. The perceived convenience of cash dropped from 51% to 34%. Using cash out of habit declined by 10%, and concerns related to the hidden costs of bank cards also reduced substantially.

Q: The financial behaviour of informal sector SMMEs indicates the need for simpler solutions. How will we achieve this?

Swanepoel: The need for simpler and more affordable solutions is crucial, and so is access and the ability to make use of them. One of the benefits is that simpler solutions bring efficiency – making them more desirable to the millions of underserved in our communities.

Mastercard is driving this switch through simple, affordable, easily understood fintech solutions that can displace cash and unlock wider inclusion for everyone involved in a transaction. Regardless of size, turnover, headcount, or customer segments, convenient digital solutions underpinned by secure technology level the playing field for small businesses and micro merchants, ensuring that disadvantaged communities can participate meaningfully in the economy.

Customer-centric designs are where we should focus and this should include solutions that are market-specific in a language relevant to those using it. Furthermore, consumers need to understand the value of what they’re getting. If it’s easy to explain the value, that can help drive critical mass, changed behaviour and large-scale adoption. Financial literacy initiatives and education via radio, newspapers, TV, social media, and schools remain important to get people to trust a new way of doing things and get comfortable doing it.

Q: What role is Mastercard playing in terms of providing solutions to the informal sector?

Swanepoel: Bringing consumers into the digital economy requires solving pain points, gaining trust, and growing adoption to unlock inclusion. Financial inclusion is important because it’s a key enabler to addressing extreme poverty, building financial security, and boosting shared prosperity.

As a technology company, Mastercard’s role is to provide innovative solutions that are affordable, safe, secure, and seamless. Our commitment to the underserved communities is that of providing access to digital finance through collaborations with fintech companies, telcos, and banks. Solutions like QR codes, Tap on Phone, virtual cards, and mobile wallets have all driven payments acceptance.

We also work closely with governments to provide e-government solutions, which promote quick and convenient access to information and ultimately promoting efficiency and productivity.

Other partnerships include iKhokha, a fintech company that develops digital tools to help entrepreneurs start, run and grow their businesses gives access to digital services through solutions like Mastercard Tap on Phone which help customers move from cash transactions to digital payment solutions, which are safe and secure.

Our collaboration with Ukheshe enables people without bank accounts or smartphones to get paid in real-time through an uKheshe card, which features a Quick Response (QR) code linked to their cell phone number. To receive payments, their customers simply scan the QR code with any Masterpass-enabled app. Ukheshe also has a relationship with the Mastercard Start Path, the locally developed financial inclusion platform was selected for the award-winning start-up engagement program in 2020.

Another collaboration we are proud of is with our partners, Paymentology, a micro-transaction platform and the first cloud-native processing platform. Paymentology’s platform allows consumers to send and receive small payments or tips, using an app on their phone. The company joined the Mastercard Network Enabling Partner program, allowing fintech players to go to market faster, accelerate product innovation and optimize performance and operational efficiency.

Since Paymentology represents a global superpower in payments, our partnership is a powerful combination and showcases an ultra-advanced, multi-cloud platform, with unmatched global reach and expertize.

Q: Lastly, how does Mastercard’s financial inclusion goals aim to change communities for the better? And what role do partnerships play in accomplishing this?

Swanepoel: By providing access to financial services to those who are currently excluded, Mastercard is helping to address poverty and inequality and promote economic growth. When people have access to financial services, they are more likely to start and grow businesses, invest in education and health, and save for the future.

Digital innovation is a critical part of the journey, as new technologies are helping to transform the way people access and use financial services. Through our partnerships with fintech companies, telcos, and governments, Mastercard is helping to develop new and innovative solutions that are more affordable, accessible, and secure than traditional financial services. Partnerships also help us to scale solutions. If it doesn’t scale, it doesn’t matter because then it can’t deliver the widespread benefits needed for the excluded population.

This is why Mastercard has pledged to connect one billion people globally to the digital economy by 2025, including 50 million small businesses, with a direct focus on providing 25 million women entrepreneurs with the tools they need to thrive. If we can succeed in this, we can ensure inclusive growth and change communities for the better.

DISCLAIMER: Brand Voice is a paid program. Articles appearing in this section have been commercially supported.