STEVEN HEILBRON: Removing the cash will make the playing field more bumpy instead of levelling it

What would happen tomorrow if we could turn SA into a cashless society with a wave of a magic wand? Far from turning the country into a crime-free paradise of low transaction costs and widespread financial inclusion, it’s more likely that chaos would reign in many communities as millions of South Africans found themselves financially excluded and unable to transact.

As we debate the noble aspiration of achieving financial inclusion in our country, going cashless is often presented as the mechanism through which financial inclusion will be achieved. Yet digital payments are not a panacea for financial inclusion for the simple reason that reliance on cash, or any digital payment mechanism for that matter, is not the root cause of why people are financially excluded in SA.   

The payment mechanisms available to consumers and merchants — be they cash, debit card, credit card or digital — facilitate financial inclusion. However, they are not the determining factor for whether people are financially included, but rather a choice about how people engage with the financial system. The substantive reasons contributing to financial exclusion in our country are far more complex and numerous.

To create real financial inclusion we would need to facilitate an environment where children are born into stable and supportive family environments, have a roof over their heads, food in their stomachs, access to quality education and grow into adults who can participate in the economy through employment or entrepreneurship.

This needs to be facilitated by an economy that is growing and creating jobs through the application of sound economic and political policies that encourage investment from both local and international investors. Addressing this, in turn, involves grappling with factors such as low levels of literacy (financial and otherwise), high unemployment (especially among the youth), a lack of access to reliable power, high data costs, low internet penetration and a dearth of banking infrastructure in remote corners of the country.

People should choose, not companies

When we look at the payments landscape in SA, we believe financial inclusion is facilitated through offering consumers and merchants a choice of payment instruments. This choice should be shaped by their needs and circumstances, rather than by the corporate interests of those providing the service.

In exercising free choice consumers will use the mechanism best suited to their needs, taking into account factors such as speed, convenience, accessibility, security, data confidentiality, potential for identity fraud, anonymity and avoidance of perpetual and intrusive marketing algorithms. Whichever choice they opt for actually has little to do with financial inclusion.

As a fintech company that offers quick access to retail lending, card acceptance, digital payments, cash management solutions and value-added solutions to both formal and informal merchants, Connect Group and our business division, Kazang, have chosen to be agnostic about the payment instruments with which our clients (retail merchants) choose to transact with their consumers.

Our experience shows that card, digital and cash all still have a key role to play for different consumers, different types of transactions and different merchants.  Furthermore, much of the rationale offered for going cashless doesn’t hold up to scrutiny. For instance, moving away from cash is often positioned as a strategy to combat crime. The reality is that crime will be with us as long as crippling unemployment and poverty prevail.

As more transactions move from cash to digital cash, crime is not eliminated. Instead, it manifests in new ways. Newly released crime statistics from the SA Banking Risk Information Centre (Sabric) highlight that accelerating the move towards a cashless society does little to reduce cash crime. In fact, we are seeing higher levels of digital and card fraud and identity fraud as criminals focus on where the money is.

Crime follows the money

According to Sabric, the value of contact crime is less than 10% of the combined R1.3bn lost to card and digital fraud incidents. What’s more, if cash is less readily available, criminals will focus on other physical stores of value. For instance, in retail, theft of other commodities such as cigarettes, liquor, electronic devices and jewellery is already a significant problem with an enormous cost to our economy.

The latest statistics from the Reserve Bank show the central role of cash in the economy, despite the drive to push digital payments. Between March 2020 and March 2021 cash in circulation grew 8.23% in value from R155bn to R168bn. We cannot simply turn this tap off without causing a range of unintended consequences.

Removing the option of cash threatens to increase financial exclusion among the unbanked and underbanked, equating to about 11-million citizens. Cash allows anyone to immediately participate in the economy, including those in rural areas or foreign nationals without SA ID’s. In this context cash is the ultimate instrument facilitating immediate financial inclusion.

While the drive towards digital payments and cards is laudable, organisations in the financial landscape should be thinking of cards and digital as payment instruments that coexist with cash. If payment options and highways are well executed and accessible, consumers and merchants will use them. Consumers should not be forced down a particular path by removing cash.

The realities of the digital divide

We need to consider the realities of the digital and financial divides in SA and focus on fixing the root cause of financial exclusion. We cannot exclude consumers who don’t have access to a smartphone or data. In addition, with rampant phishing, SIM swap scams and other forms of digital fraud, we also need to ensure digital payments do not expose vulnerable community members to higher risks of crime. Their needs must come first.

Cash remains a key option for many retail merchants. For a spaza shop owner an inability to take cash would significantly damage this sector’s ability to trade. While the introduction of digital options is important in this arena and will grow in time, at present, cash underpins trade. In addition, many of their customers and some of their suppliers prefer cash too. These informal retail shops generate an estimated annual revenue of R7bn, providing a livelihood for micro-entrepreneurs.

As we look to the future, developed countries that are far down the road in digital payments are recognising that availability of cash remains central to consumer choice and empowerment. Sweden and Finland require banks that offer transaction accounts to give customers “adequate” access to cash, and New Zealand is considering a similar law.

Any payment option may eventually fall into disuse when its relevance as determined by consumers fades to a point where it is so diminished as to no longer be viable. This decision would need to be adequately supported by accessible alternatives that are provided on a well built and stable platform of broad-based financial inclusion.

Without cash, consumers have less choice, and more people get left out of the economy. Rather than focusing on eradicating the use of cash, the focus should be on giving people a menu of safe, convenient ways to pay and connect with the financial system. A democracy of payment options isn’t an obstacle to financial inclusion — it’s a key facilitator thereof.

• Heilbron is CEO of financial technology group Connect.