JOHANNES BINNEKADE AND ISANA CORDIER: Banks set to combat cash challenges

With trillions of rand in cash flowing through SA’s economy annually, how do stakeholders co-ordinate their efforts to mitigate risks, reduce the cost of handling cash, embrace the characteristics of the anonymity of cash, and not fall foul of regulatory and competition authorities?

This is the conundrum faced by banks, cash-in-transit (CIT) operators, retailers, financial technology (fintech) players, stakeholders such as the SA Social Security Agency (Sassa), National Student Financial Aid Scheme (NSFAS) and ultimately consumers who use cash daily to transact.

Reports and videos circulate on social media weekly regarding CIT-associated violent crimes, conducted with military precision using high-end explosives and firearms. Data from the Cash-in-Transit Association of SA (Citasa) shows that in 2023 SA experienced an average of one incident of violent crime daily (reported crimes only) and the trend continues unabatedly into 2024.

CIT suppliers continue to implement new technologies and use security intelligence to counter this while working closely with law enforcement authorities to counter this scourge proactively as best they can. While the level of crime appears to be flat year on year, it is disturbing that the values associated with the crime are increasing significantly year on year. The number of lives lost annually in these incidents is also increasing.

Many of those who watch this risk of cash to the economy from the sidelines argue that it would disappear if we could use technology to reduce cash in circulation, while others argue for further investment in solutions to better secure the movement of cash.

Research by the Swedish Bankers Association, which was recently presented to the Banking Association SA, shows Sweden has made enormous strides in reducing cash in circulation, yet it has experienced a rise in other forms of criminal activity related to digital payments, including fraud at much higher levels compared with cash as a payment instrument. The SA cash economy plays a critical role and there is no one-size-fits-all solution.

Some media coverage about load-shedding at the start of winter 2023 sketched scenarios of grid collapse and banking networks potentially going offline. Then there were concerns about social unrest when millions of grant recipients were potentially unable to access their grants in 2023.

Distribution points

Access to cash is a perceived sense of security for many, including the most vulnerable in society, who depend on cash for financial inclusion. As cash and access to cash are integral components of keeping the economy going, it is essential to ensure the continuous daily flow of cash in the economy. Considering that more than 26-million people receive grants from Sassa or student grants (such as those from NSFAS), this cash needs to find its way into the hands of the recipients monthly, especially on fixed dates to enhance the customer experience.

With state distribution points (mainly the Post Office and Sassa paypoints) unable to cope with demand, many banks and retail groups have filled the gap in the hope that it would drive transaction volumes at their sites. Data has shown that these spending patterns have materialised differently than expected, but it has been expected that they continue to carry the cost of cash handling and associated security costs as part of the outcome.

The other dynamic that regulators worldwide are grappling with is the anonymity of cash and its role in enabling corruption and tax/VAT evasion. As evidenced in the records of the Zondo commission, cash has often featured as an integral factor in the commitment of the crime.

The subject about the role of cash in the SA economy generates significant debate — especially in a country in which the tax base is under pressure. The size of the informal cash economy is a growing area of focus for many stakeholders. The natural response is that if we digitise cash through bank accounts, wallets and fintech solutions, we can reduce corruption and grow our tax base. But it is not quite as straightforward.

If you are on a Sassa or NSFAS grant, where every rand counts, can you afford the ATM deposit and withdrawal costs? Can you afford the taxi or bus trips to and from the ATMs or bank branches or retailers without knowing the availability of cash?

Going nowhere

If you are a small subsistence business, in which your daily profit or loss decides whether you can place food on the table, can you afford to be part of the formal tax net?

When you view it through these lenses, it becomes apparent why, in the immediate future, cash is going nowhere in SA. 

Fintech businesses are delivering several innovative solutions to communities globally, from PayShap and wallets to digital solutions and cross-border payments.

It is an exciting time for consumers and businesses to transact with and without cash through digital platforms such as mobile wallets, online payment gateways and cryptocurrency exchanges. Often, these businesses are seen as competitors or replacements for traditional banking offerings, but banks are the regulatory backbone on which many of these innovators operate. In this regard, SA has a world-class banking system.

One of the reasons for SA’s stability is that it has invested heavily in the integrity and credibility of its currency. Cash and digital payment solutions are therefore complementary to each other in the economy.

Emerging markets that have struggled with the presence of counterfeit currencies have found that businesses and consumers have gravitated away from local currencies and focused on so-called hard currencies, such as the dollar, to mitigate this risk. Apart from concerns about the availability of hard currencies, this creates enormous distrust between parties. If you cannot trust the currency you are trading in, economic activity flounders and dissipates.

The banking sector is not resistant to change, but it does have an obligation to understand how cash moves through the economy and to ensure that the integrity of the cash in the system is upheld. With SA’s greylisting, this issue is of even greater significance.

The issue of “competition” takes on a very specific nuance in the SA context in which the banking sector is under constant scrutiny for anything that might be perceived as collusion or anticompetitive behaviour. While there is a need to work together, we also cannot allow ourselves to be seen to be developing solutions that might be deemed anticompetitive. This is a consideration that banks continuously grapple with.

Cash is here to stay and will be a feature of the SA economy for the foreseeable future. However, this comes with real challenges. To mitigate the risks of dealing with cash, the investment in infrastructure is a significant risk. This is not a challenge that the banking sector alone can tackle. As banks, we are excited to collaborate to combat these challenges in a socially sustainable way with our industry stakeholders.

• Binnekade is head of cash, and Cordier head of consumer goods & services sector coverage, at Absa CIB.