BUSINESS BEYOND COVID
ANTON GAYLARD: Fintech providers and the cash-free world after the coronavirus
A move to digital payments is vital, and as well as being contactless, all digital transactions offer some measure of trackability
In the Business Beyond Covid series, CEOs and other business leaders and experts in their sectors look to the future after Covid-19. What effect has the pandemic and resulting lockdown had on their industries and the SA economy as a whole? Which parts will bounce back first and which will never be the same again? Most importantly, they try to answer the question: where to from here?
The global economy is floundering. As the Covid-19 pandemic continues, the steep cost of limiting its impact on vulnerable communities is only now becoming clear.
The unanticipated and abrupt slowdown in public and economic life has forced people and businesses to reconsider what the world could — and should — look like when the crisis passes, and what parts of “normal” are worth rushing back to.
There is a growing perspective that the world was accelerating through an unsustainable period of growth and expansion at the expense of all other considerations. Were we moving too fast and getting too carried away with short-termism?
In the most vulnerable communities, the effects of the lockdown have been immediate and devastating. That many of the most vulnerable remain excluded from formal economic assistance and participation is becoming clearer by the day.
While smallholder farmers and street vendors are now able to continue producing and selling food, affording food remains an ongoing problem with some shops being looted to get it.
Small and medium enterprises (SMEs) in the formal economy have not been spared. A Stats SA survey in April found that only 29% of SMEs were confident they would survive the economic damage from the lockdown. In a May survey conducted by several fintech provider,s including Retail Capital, 80% of SMEs said they won’t survive a lockdown beyond July.
What we’re likely to see from fintech providers in the coming months is an active effort to displace cash with other forms of payment, especially digital payments. Fears around the spread of the virus may push more people to demand cashless payment methods, which could put pressure on informal merchants to offer such payment options.
It is vital that adoption of digital payments is accelerated during the immediate period ahead. All digital transactions offer some measure of trackability, which bodes well for improved collections for our beleaguered tax authority and also provides more direct channels for the distribution of grants and other forms of funding solutions.
Fintech providers will need to work closely with merchants to ensure contactless payment services are offered at acceptable price points
One of the many obstacles to greater digital payment adoption is the widespread use of cash payments for weekly wages. Mobile wallet provider My-iMali is working to move wage workers away from cash through the adoption of mobile wallets.
Instead of employers withdrawing funds from an ATM, they could use mobile wallets as a wage disbursement mechanic. The wallet can also be linked to a my-iMali debit card, enabling more widespread use.
This reduces risk to the employer and the wage worker, and creates exciting synergies with other service providers to offer value-added services that can be purchased via the mobile wallet app or other integrated services.
The informal market
We’ll also see more fintech providers establishing partnerships to serve financial products and services to the informal market. An example is the partnership between iKhokha, which provides payment acceptance devices to informal merchants, and Retail Capital.
Merchants using iKhokha devices can apply to Retail Capital for cash advances based on past transaction volumes, while risk to to the lender is minimised through risk calculations based on actual trading volumes.
However, fintech providers will need to work closely with merchants to ensure contactless payment services are offered at acceptable price points. Adoption of digital payments will stall when such payment services are perceived as too expensive, either to the consumer or the merchant.
This requires renewed vigour in seeking out partnerships with large banks, insurers, retailers and mobile network operators that have the scale and reach to drive mass adoption and instil trust in the payments ecosystem.
Greater alignment between fintech suppliers and their customers can also encourage adoption of digital payments.
Fintechs will develop pay-as-you-use business models in which customers are billed digitally based on things such as card payment volume (with fintechs taking a small percentage of the transaction value); turnover-based rental clauses; and insurance fees based on usage (for example, charging insurance premiums based on distance travelled and general conduct on the road).
This should encourage greater adoption from customers weary of being caught with high, fixed monthly costs when revenue is reduced, such as the case in times like these.
E-commerce and payment rails
With the lifting of restrictions on e-commerce, we’ll see a marked increase in e-commerce transactions and solutions that support less direct engagement. Know your customer (KYC) and Financial Intelligence Centre Act (FICA) processes will not require physical interaction with proof of life, location and identity done via biometric authentication digitally.
E-commerce is likely to pick up even in informal markets, especially as older folks self-isolate in line with health department guidelines and online retailers seek new growth opportunities in markets they may have neglected in the past.
In the hospitality industry, which has been particularly hard hit by the lockdown, an increase in self-service and order-ahead options is likely in the coming months, especially as restrictions ease and in-store trade resumes.
Quick-service restaurants that have invested in mobile order-ahead technology will be able to quickly resume some form of trade even with social-distancing measures in place.
Fintechs have invested heavily into establishing rails — the payment platforms that move money from payers to payees, such as the credit card rails established by Visa and Mastercard, which enable credit card purchases at such a wide range of outlets.
These same rails can be used to distribute third-party payments, vouchers and coupons, for example food vouchers given to vulnerable communities that can be redeemed using the tech that fintechs have implemented at the point of sale.
Loans can be distributed to SMEs via the digital channels fintechs have established. Cash can be displaced through cashless payment solutions to help the most vulnerable with accessing funds without having to go to cash points.
Payment acceptance devices such as mobile point of sale terminals can be issued to SMEs, spaza shops and informal traders to encourage contactless and cashless payments among communities.
This places fintechs in a unique position to support government and industry efforts to bring financial relief and support to a greater share of SA’s population, whether in formal or informal markets.
• Gaylard is co-founder and COO at Crossfin Technology Holdings.