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A look at why we are using digital payments rather than cash

The use of cash over digital payments in South Africa is not only driven by choice or behaviour but also by a lack of access to cash alternatives. File Image: IOL

The use of cash over digital payments in South Africa is not only driven by choice or behaviour but also by a lack of access to cash alternatives. File Image: IOL

Published Jul 7, 2022

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The use of cash over digital payments in South Africa is not only driven by choice or behaviour but also by a lack of access to cash alternatives, with limited acceptance of digital payments by smaller businesses, according to the Payments Association of South Africa(PASA).

PASA is responsible for managing the activities of its members, mostly banks, in the payment systems said it continued to see a continuation of the current overarching trends in South Africa which include the move to digital, contactless, and real-time payments, but equally a continuation of the high penetration of bank accounts used simply to withdraw funds once available, for example, social grant disbursements.

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“Nonetheless, despite the increasing use of card payments and digital financial services, we believe cash usage will remain persistent in the medium term. A new real-time payments system, delivered by the Rapid Payments Programme, which will start going live this year, will bring

further benefits to consumers and businesses as a new digital payment alternative to cash. This new payment mechanism will provide immediate payment, as well as the ability to pay to a proxy (e.g. a mobile number) instead of having to have bank account details and the functionality to request a payment. When combined with QR Codes, it will create an easy and cheap means for merchants to accept digital payments. Our estimates suggest that if the uptake of this system is sufficient to displace some cash, it will lead to a sustainable GDP uplift of 0.25 percent over five years,” PASA said.

The payment system management body recognised by the South African Reserve Bank (SARB) said it seeks to ensure that payment systems are safe, efficient and that a payment from any one bank can reach all other banks (interoperability).

PASA said that Payment systems were the lifeblood of the economy and had to function irrespective of the challenges-domestic or global. “We have watched with interest the use of payment systems to impose sanctions on Russian entities and think this will have long-term implications for how countries approach payments. In spite of the challenges, the payment systems remain robust, and our modernisation initiatives continue. Considering the

international and domestic payments trends, the short-term outlook for South Africa is likely an accelerated growth of digital payments with the continued growth of cash in circulation.”

The organisation said that payment system innovation and modernisation played a key role in alleviating some of South Africa’s pressures. It said that by ensuring widespread access to payments, modernisation promoted the deepening of financial inclusion. According to PASA, research showed that deepening digital financial inclusion required a modern, flexible, adaptable, and interoperable payment systems that cater to South Africa’s unique structural issues (for example the new real-time system referenced above), an enabling regulatory framework that promotes inclusivity, competition, innovation, and interoperability to improve the reach of payment service to all South Africans; and broad consumer education to support the adoption of new payment innovations and promote trust in financial services.

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For this reason, it said modern payment systems were therefore necessary, but not sufficient, to drive financial inclusion.

According to the recent Statista Digital Payments report for South Africa total transaction value in the Digital Payments segment was projected to reach US$14.34bn this year. Total transaction value was expected to show an annual growth rate (CAGR 2022-2026) of 13.20 percent resulting in a projected total amount of US$23.55bn by 2026. The market's largest segment was Digital Commerce with a projected total transaction value of US$10.42bn in 2022.

From a global comparison perspective it is shown that the highest cumulated transaction value is reached in China (US$3,497.00bn in 2022). In the year 2021 a share of 51.4 percent of users was female. In the year 2021 a share of 36.3 percent of users is in the high income group and a share of 34.5 percent of users was 25-34 years old.

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PASA said its first priority continued to be the safety, efficiency, and security of the National Payment System. Beyond this, it said industry efforts were currently largely focused on modernisation initiatives to ensure the needs of the market were adequately met through its payment systems.

Thus far, it said further protection has been provided to consumers through the industry efforts

to curb debit order abuse which by PASA’s estimates prevented in excess of R12 bn of rogue debit orders since inception. The industry said it continued to collaborate on initiatives to further unlock the benefits of QR Code payments, as well as modernising fleet cards used by businesses for large fuel purchases, by migrating it to more secure chip and PIN technologies and standards.

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