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Electronic payment solutions moving informal retailers into 'cash-light' era

4th April 2014

By: Natasha Odendaal

Creamer Media Senior Deputy Editor

  

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As South Africa follows the world into an increasingly cashless economy, small, medium-sized and microenterprises (SMME’s) and informal traders are getting a shot in the arm as business leverages innovative financial technologies to stimulate financial inclusion and bolster economic growth.

Smaller traders are increasingly being recognised for the critical role they play in the overall growth of the country and many larger companies are moving to empower township and rural traders, mom and pop stores and spaza shops.

While 90% of retail payments in Africa are in cash, with the remaining 10% using electronic payment systems, South Africa is in a transition phase towards a “cash-light” society, with about 30% to 35% of retail payments electronic and 60% to 65% cash payments, a Frontier Advisory report, ‘Toward the cashless economy in Africa’, reveals.

The increase in financial inclusion in Africa provides the “unbanked” with access to the formal financial system and services, such as savings, payments, transfers, credit and insurance, and presented spaza shops and other informal merchants and traders, particularly in townships and rural regions, the opportunity to adopt mobile forms of cashless payments.

Spaza shops and informal traders are often successful within the informal economy of South African townships, providing local access to everyday goods otherwise only available at distant supermarkets.

A paper by the Sustainable Livelihoods Foundation reveals that, while there is no precise data on the scale of South Africa’s spaza market, the market has grown steadily, on the back of higher levels of disposable income of historically poor communities, to claim about 2.7% of total retail trade.

Recent estimates indicate that there are more than 100 000 spaza enterprises with a collective turnover of more than R7-billion, but the Sustainable Livelihoods Foundation stated that the actual size and composition of the South African spaza market is poorly understood.

With about 50% of the economic activity in the informal sector believed to trade, spaza shops have emerged as important incubators of entrepreneurship, enabling the development and transfer of skills, and addressing unemployment and poverty.

“The informal economy in developing countries such as South Africa provides an entry point for persons otherwise excluded from the formal labour market due to a lack of education and skills to pursue business opportunities or gain employment,” the Sustainable Livelihoods Foundation says.

SpazaNews notes that the 100 000 spaza shops each employed between two and three people, meaning that this sector could be providing between 230 000 and 290 000 jobs and supporting more than a million people.

A microenterprise survey undertaken by the Sustainable Livelihoods Foundation in eight urban from 2010 to 2013 identified 1 130 spaza shops amid a combined population of about 325 000, representing 98 000 households and equating to about one spaza shop for every 86 households.

Statistics South Africa reiterates the importance of the small businesses sector, which plays a critical role in the economic and social development of a country.

While the informal sector businesses usually lack “formality” in terms of business licences, VAT registration, formal business premises, operating permits and accounting procedures, and most have a limited capital base and rudimentary technical or business skills among their operators, there remains potential for small businesses advancing into viable small businesses.

South Africa needs to foster entrepreneurship.

SALES TERMINALS
In light of this, Blue Label and Mastercard partnered to distribute 22 000 partly-subsidised low-cost point-of-sale (POS) terminals to allow merchants with profits of up to R25 000 access to electronic payment systems.

The project, aimed at boosting financial inclusion in underserved communities in South Africa, will equip small traders and rural shops in South Africa with credit card payment-enabled POS devices, opening up business for a predominantly cash-based market, Blue Label joint CEO Mark Levy says.

These will allow traders to accept chip and pin-based debit, cheque or credit cards issued by Standard Bank, Absa, Nedbank and the South African Social Security Agency (Sassa), as well as contactless payment cards for goods and services.

Mastercard notes that the Sassa Debit MasterCard card was cited as the main contributing factor to the 4% growth in the country’s banked population from 63% in 2011 to 67% in 2012.

Since mid-2012, 7.5-million Sassa MasterCard cards had been issued to grant recipients – adding to the then-2.5-million recipients – which should further increase financial inclusion in South Africa.

The roll-out will comprise 7 000 existing – but upgraded – POS systems that were previously used for selling airtime and electricity prepaid vouchers and 15 000 new EMV-certified, contactless-ready POS terminals.

The units, which use connectivity such as ethernet, third-generation technologies and WiFi, are, in effect, “taking banking to the unbanked”, Blue Label Distribution CEO Werner van Reenen says.

Van Reenen tells Engineering News that Blue Label is currently testing the concept with a handful of merchants in townships – a soft pilot that had produced pleasing results, including a small merchant that had increased the shops monthly turnover from R100 000 to about R600 000.

The official pilot is expected kick off at the end of the year, but no set date for full commercial roll-out has been cemented.

"While the number of South Africans with access to formal banking products has increased significantly in the last year, the number of card acceptance locations - especially in rural and periurban areas - has not grown in tandem," says MasterCard division president Philip Panaino.

Cashless shopping provides many benefits to consumers, who will no longer have their shopping habits determined by whether or not they have cash in their wallets and will ease the safety concerns of carrying cash.

"Our collaboration with Blue Label is another step by MasterCard towards realising our vision of a world beyond cash by bringing new and innovative electronic payment solutions to a generation of customers who are mostly banked, but are currently underserved,” he explained.

Blue Label Telecoms already provides thousands of non-EMV-approved POS terminals in South Africa, which are used to sell prepaid vouchers such as airtime and electricity, and other online products, such as a quick pick tickets or a Top TV voucher.

In October last year, the JSE-listed group committed to distributing about 10 000 partly subsidised low-cost POS online token terminals throughout South Africa’s rural areas over the next two years, with joint Blue Label CEO Brett Levy previously saying the group will take the project as far into deep rural as possible.

The pilot-to-commercial project is currently being rolled-out in Polokwane and Mpumalanga, bringing monthly revenue of about R3-million to Blue Label from about 1 500 merchants now equipped with the terminals.

Van Reenen says “foot soldiers” are currently on the ground, at taxi and trains stations, besides others, to market the product, with all set-up registration activities undertaken in one day, including Rica, the set up of the terminal and bank accounts.

The company is gearing up for a nationwide roll-out within the next three months.

Currently, 87% of Blue Label’s South African distribution revenue is generated from the informal sector.

The first month of the initiative saw 156 units distributed – significantly surpassing Blue Label’s target of 20 – generating turnover of about R280 000 through prepaid airtime sales and R1.3-million in prepaid electricity sales.

Both of these forms of payment solutions are expected to assist merchants in reducing the amount of cash they currently handle, increase sales and improve cash flow.

“Through the introduction of these solutions [the EMV-approved units] that respond directly to the needs of merchants, MasterCard and Blue Label aim to increase the level of penetration of electronic payments in South Africa, and help stimulate economic growth," adds Panaino.

SMART AND SECURE

Nedbank last year became the first to launch its own secure EMV-certified mobile POS solution – the PocketPOS – enabling businesses to process chip- and pin-based debit and credit card transactions by using a smartphone connected to a secure card reader.

PocketPOS is suitable for businesses without access to a fixed data or a telephone line to accept card payments securely or where low frequency of card acceptance does not warrant the higher-rental cost of a traditional POS device.

Meanwhile, MTN also rolled out its own mobile initiatives, such as Mobile Mobile, and enabling financial inclusion for subscribers using mobile phones.

MTN South Africa chief enterprise business officer Kanagaratnam Lambotharan tells Engineering News that Mobile Money and financial services were increasingly important of its service offerings and in 2013, the group introduced numerous financial products such as various short-term insurance offerings, ATM withdrawals options and remote payments for airline tickets – through a smart phone.

In Uganda, MTN’s mobile banking solution is close to surpassing the total banking industry in the economy, Frontier Advisory says.

However, while the company has witnessed a boom in the number of Mobile Money subscribers in a short space of time, there still is a heavy reliance on the banking system to facilitate deposits.

MTN partnered with Ecobank to enable Mobile Money users to withdraw cash from Ecobank ATMs and transfer money between their Mobile Money and Ecobank accounts across 12 countries.

Following a trial service in Ghana last month, the parties would extend the initiative to Benin, Cameroon, Ivory Coast, Guinea Bissau, Guinea, Liberia, Congo Brazzaville, Rwanda, South Sudan, Uganda and Zambia.

“We are extending our cooperation in Africa to expand the range of services provided, as well as to further explore the development of mobile financial services in these countries," says MTN chief commercial officer Pieter Verkade.

MTN, which boasted14.8-million Mobile Money users in 2013, and Ecobank were also looking to partner in developing a unique mobile savings offering within their countries of mutual presence.

Ecobank domestic banking group executive Patrick Akinwuntan says: “This roll-out further demonstrates our commitment to make branchless banking a reality by activating multiple service channels in every country in which we operate.

“Our unique panAfrican footprint will also enable us to be at the forefront of developing the market for cross-border mobile money services in Africa.”

Frontier added that it may be difficult to abandon cash completely in Africa, but the use of cash may be minimised resulting in a less cash-dependent society.

However, different strategies and approaches are required for the different regions in Africa to facilitate financial inclusion.

This will further require collaborative action from traditional financial institutions and technology service providers.

“In essence, what is developing is a convergence of payments which are being initiated by different players in the financial services and the ICT space,” the firm concluded.

Edited by Martin Zhuwakinyu
Creamer Media Senior Deputy Editor

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