Digital economies of the future need next-generation payments infrastructure
SMEs’ growth has been stifled by the absence of well-suited financial services and products tailored to their specific needs
The emergence of ever more innovative and entrepreneurial thinking has kept us hopeful in recent months as we navigate unprecedented economic challenges. Despite the turbulent economy, home-based businesses such as bakeries, hairdressers and grocery delivery start-ups have taken off, allowing entrepreneurs and small business owners to survive and even thrive under the limiting circumstances.
This is great news for a country such as SA. Our small and medium-sized businesses (SMEs) are the lifeblood of our economy. There is much supporting evidence for this. Our research shows SA’s informal economy, comprising spaza shops, house shops, shebeens, hair salons and takeaways, among many others, contributes 20%-30% of GDP.
Yet statistics show SMEs are the first to shut their doors when faced with hardships and devastating pressures such as the Covid-19 pandemic. In July, a McKinsey report entitled “How SA SMEs can survive and thrive post Covid-19" predicted that about 60% of SMEs will close before the crisis is over.
Yet SMEs are vital; they are the drivers required to shift the economic environment to a state of recovery and stimulate economic inclusivity. Ironically, their growth — or the potential for it — has been stifled by the absence of well-suited financial services and products tailored to their specific needs. Many small business owners simply cannot afford to go digital for their banking and payments because of the high costs involved, leaving them to default to cash and often putting their personal safety and businesses at risk.
Despite the headway made in financial services and payments SA is still a largely cash-driven economy. This is most evident among small businesses, which use notes and coins as their preferred exchange of value. With cash there’s convenience but no promise of security from a personal and counterfeit perspective. Then there’s the long-term risk of not being in a position to grow the business and build personal wealth. Without a credit history or formal banking records entrepreneurs are often unable to access the capital needed to entrench themselves in the marketplace. They’re also incapable of safeguarding their businesses from risks without access to additional financial services such as insurance.
There are limitations to card payments. Card transactions are only available for the fully banked portion of our population and require, in most cases, expensive and quite sophisticated infrastructure on the merchant’s side. Card payments attract notable fees, don’t allow easy interoperability with other payment channels, and there are often delays before business owners get their money.
These are just a few of the examples of the payments challenges out there. But we’re tackling these together, as an industry, to introduce a faster and more immediate way of transacting. The wide use of smartphones presents a window of opportunity to leapfrog technologies while responding to the need on the ground.
Digital economies of the future require next generation payments infrastructure. The digital consumer of the future will want the best of two worlds: digital convenience, reliability and safety they can trust. As a country, we cannot afford to leave anyone behind on this journey.
In 2018 we began an industry-wide payments initiative called Rapid Payments Programme with the Payments Association of SA, SA banks and the broader industry, to establish a new digital way to pay. This will be real-time, data-rich and with the capability to make rapid payments by simply using mobile phones. This new way of paying allows entrepreneurs — with or without bank accounts — and digitally savvy South Africans to make a payment as quickly as sending a text message. This simplified experience is bound to benefit the spaza shop owner and unlock opportunities never thought possible.
This Global Entrepreneurship Week, which ran from November 16 to 22, was an opportunity to recognise the hardship and barriers SMEs have had to endure and overcome. Through our industry payments initiative we hope to create an environment that makes it easier for them to do business and frees up their time to focus on continuously innovating, giving the market their best and creating a better life for themselves and their families. As SA and Africa’s leading payments provider this is how we see ourselves contributing to the country and local economy.
• Pilbauer is CEO of BankservAfrica.
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