Financial experts tout open banking as the answer to the billions of rands lost in SA’s cash economy annually.
This was revealed last week during a media conference organised by local fintech firm Ozow, in Cape Town, where panellists discussed multiple ways of reaching SA’s unbanked and underbanked population, under the theme: “The future of open banking”.
Open banking, which makes it possible for customers to use their banking service in the context of other fintech services, was billed by panellists as revolutionary in helping to grow financial inclusion, while safeguarding huge amounts of cash that go missing in the economy annually.
They noted that in today’s digital economy, cash should no longer be king, but should rather be perceived as “the enemy” – as a result of the billions of rands in cash that are lost annually.
Referencing a Mastercard study, they pointed out that cash cost consumers around R23 billion, or 0.52% of GDP, in 2017, and the poorer communities carry a disproportionate share of these losses.
They noted the various factors contributing to this loss asthe cost of travelling to cash points, the time forgone to the inconvenience of using cash, the interest foregone by holding cash, the risk of loss or theft, ATM charges and branch costs, among others.
“The cost of cash to the economy is significant,” said Mpho Sadiki, head of real-time payments at automated payments clearing organisation BankServAfrica.
“To transact it, to secure it, transport it, import it and then you have to later destroy it. With all this, you are looking at in excess of R50 billion in annual losses. But being able to digitise a small percentage of cash means you start eating into a cost that the economy consumes today and further tap into other value areas, which open up further economic opportunities.”
Fintech companies have brought innovative open banking, API-based offerings to the financial sector, including alternative financial products and services to those provided by conventional financial institutions, he added.
These digital technologies have not only paved the way for innovative digital transactions, but have also given rise to new market entrants and solutions from other industries that are actively playing in and shaping the payments space.
“We must not ignore the fact that digitising the economy in itself opens up entrepreneurial opportunities beyond just merchants. It’s around ultimately building fintech businesses that orchestrate payments and the opportunities for further entrepreneurship, where we see new technology businesses that get built around the payment ecosystems. These businesses are designed to make transacting easier, convenient and more secure,” noted Sadiki.
According to Shaylen Padayachee, marketing strategist at Ozow, cash still accounts for nearly 40% of all transactions. This has serious consequences for the economy, he noted.
Although 80% of South Africans have a bank account, the majority of the population still conduct most transactions in cash. However, Padayachee believes this is steadily changing.
“Cash is a huge risk. Shoprite had 400 armed robberies during 2018. But the good thing is that multiple steps are being taken to bring more South Africans into the digital economy within the payment space, at a minimal cost that will be miniscule in comparison to cash transactions.
“The South African Reserve Bank's vision for 2025 is to create a more inclusive payment ecosystem, and part of that is making the cost incurred from digital transactions a lot cheaper,” concluded Padayachee.
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