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Is hard cash on its way out in SA?

A cashless society has clear benefits, but could also create uncertainties.
Image: Waldo Swiegers / Bloomberg

As the world shifts towards cashless payment methods, South Africa is gradually moving away from cash against a social and economic backdrop of inequality and slow economic growth.

My research finds clear benefits of moving to a cashless society, but it could generate and emphasise new uncertainties. It is the lowest income earners that show the highest incidence of cash usage and therefore bear the burden of hidden and unhidden costs more frequently.

The intended cashless society will be implemented in South Africa by 2030 and is supported by recent planning and implementation strategies by the Payments Association of South Africa (Pasa).

A cashless society uses plastic cards or digital transfers to make payments and eliminates physical cash from the economy. It is clear that physical cash will be replaced by digital money but maintain its function and its value will continue to be determined through monetary policy. Digital money is more cost-effective than physical cash and these savings can be passed on to individuals and businesses.

Cash is not only costly but constrains economic growth when compared to more efficient non-cash forms of payment. The economic benefits of going cashless are emphasised but the value proposition of non-cash alternatives has not inspired mass adoption in South Africa.

Furthermore there are costs and access issues associated with digital money which have not been sufficiently mitigated. The longer that it takes to disperse non-cash payment methods, the longer these benefits will take to be realised. There are outstanding questions regarding universal digital access for South Africans, consequences of having money available in digital format only and prevailing monetary policy which will determine its value.

During my research, I did a detailed analysis of the contextual environment and established that a cashless society in South Africa could aggravate the socio-economic ills we are trying to solve. Rationality is required when evaluating the merits of moving to a cashless society. Reducing the payments menu by excluding cash limits choice for citizens who rely on it as their preferred form of payment. As an example, the informal sector, which forms such an important part of South Africa’s economy, stands to be left out in the cold.

Informal traders hesitant to adopt cashless payments

The informal sector relies on cash as a means of payment, and as evidence, it is the only means of payment they accept. The informal sector is underbanked and their use of financial instruments to grow their business or enhance their cash flow is underutilised.

According to a Stats SA report, there are 1.8 million South Africans operating as informal traders. In terms of payment methods, eight out of ten traders had no bank account and 60% of those who did possess one, only used it to process payments.

Since cash is still a mainstay of payment tender in South Africa it indicates that both consumers and informal merchants are cautious to adopt cashless forms of payment. The challenge with the uptake of cashless payment methods will be addressing perceptions, especially around cost, to induce a natural gravitation towards cashless payment methods.

According to reports, the current number of South Africans who are unbanked (those without bank accounts) or underbanked (those with bank accounts but who rely on cash or non-formal financial institutions) is reportedly 11 million – which constitutes 18% of the population.

Banking services are competitive and their profitability is highly dependent on high transaction volumes. The high costs involved in servicing the low-income earners, small entrepreneurs and the poor made it an unappealing segment of the market for the established banks.

Capitec Bank’s success in growing its customer base is attributed to offering a product that is simple and easily understood across all consumer segments. Their strategy and business model is underpinned by the use of technology to simplify customer-facing processes, improve customer experiences and to lower costs.

With clear indications of consumer preference and the pervasiveness of cell phones throughout South Africa, mobile payments are expected to be a highly used payment alternative in a cashless society.

The growth and support of M-Pesa (a mobile phone-based money transfer service, payments and micro-financing service) highlight the potential influence that mobile-based payments are likely to have in South Africa. The speed at which South Africa can realise economic growth will depend on how quickly payment alternatives are diffused.

Diana Bresendale MPhil in Futures Studies graduate of the University of Stellenbosch Business School (USB). 

COMMENTS   21

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Cashless is all very well until the power goes off, MTN is down, the internet crashes, the banks system crashes as regularly happens to Standard bank.
Then the benefit of having cash is obvious.
I once travelled through and stopped at Kroonstad to fill up. When it comes to paying the system is down — Had I not been able to pay cash I would have been stranded their like many others !!!

cashless another knot of control soon no jab and you prevented from public places prevented from access to your bank etc

Unfortunately any savings that may materialise will definitely not be passed on to the consumer.

Banks will come up with new charges that they will justify to extract even more from the average joe on the street.

What research? Desktop? Obviously never been to the rural areas in kzn where people have ro walk km to ferch water in drums let alone other amenities

I’m sure the taxi industry will not accept it. So no, its not

SARS would LOVE a cashless taxi industry. Revenue from taxi industry alone could plug the national budget revenue-gap.

What could possibly go wrong? Apart from expiring money, increasingly negative interest rates, withdrawals capped, withdrawals taxed and gifts taxed.

This is a fascist’s wet dream. The obvious problem is the total loss of personal economic liberty, but it is even more insidious because it will make it very difficult or impossible to exchange commodities without going through the funny-money fiat-fraud system. The rentier parasites will own you.
Welcome to neo-feudalism.

We totally agree Oubok !!

I hope we never become cashless.In fact we never will.

Cash money will aleays be part of Southern Africa.

We will move back to relationship banking and all the great benefits of good human interaction.

The main reason informal traders keep to cash is not qouted in the article. And that is that informal traders prefer to keep the governments dirty fingers out of their wallets.

Writing a research paper such as the above without stating the truth just shows biase.

Luckily it seems crypto will move in to the space of cash so SA Robber Services faciltation of the corruption protection racket in this country will survive cash being cancelled.

Should we not rather cancel the government itself?

Don’t worry Liyabona, the corrupt govt and their cronies will ensure CASH will NEVER disappear in SA.

Diana, go research CBDCs and rewrite your entire thesis.

Savings will be passed on to the government, not the consumer. Only the consumer feels the pain.

Cash is still gonna be around for decades to come. Don’t forget, at its current trajectory, South Africa is de-industrialising. This guarantees cash’s prime position for a long time yet.

Scenario: SA is a cashless society. The entire system is controlled by the banking system. Every cent we give or receive will need to be reported to SARS, who will essentially then be an Orwellian Big Brother. However, all our tax will go into one huge pot – who controls that huge pot? The ANC of course, who can’t pay their own salaries, who steal from Mandela’s funeral funds and are de facto mafioso. I think your thesis should mostly focus on that criminal enablement Ms. Bresendale. Otherwise it would be very useful at the bottom of a parrot cage

Totally agree Pamplona

Cash is king !!

Agree, SA will never be ready for a cashless society.

In SA we still perform many things with manual labour, when it has been phased out in the developed world. A cashless system would be too advanced for SA (and criminals will suffer too much).

…except that SARS will love it, though.

This article only seems to deal with transaction costs.

With cheques (and credit) there was certain leeway for “cheque in the post” which EFTs have eliminated. This speeding up of the velocity of money should have some effect, too.

Cash benefits the criminals in this country / illicit trade, etc.

SARS would LOOOOOVE a cashless system!

SA will be the very last country on the planet to let go of cash. So don’t fear…cash will be with us, dare I say forever. Cash will disappear, when SA will disappear.

Examples of SA not letting go of methods, that are considered bygones abroad or being automated in the developed world:
– Fuel station attendants
– Grocery packers
– Till slip ‘checkers/tickers’ at shop exists
– Car washes done by hand
– …readers can add many more 😉

definitely will make them poor zombies poorer with all the service fees

End of comments.

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