Africa is a place like no other, and its economy has its own unique characteristics. It’s a continent of massive opportunity, but that comes with a unique set of challenges – especially when it comes to financial inclusion.
This is true for South Africa too, a country with a large informal sector, estimated at 3.3 million micro and informal businesses. These enterprises accommodate, involve, serve and benefit marginalized communities, such as women, youth and the previously disadvantaged, many of whom fall outside of formal financial structures.
Recently Mastercard pioneered and commissioned a piece of research titled Driving Financial Inclusion In South Africa’s Informal Economy: The Landscape At The Bottom Of The Pyramid, in order to study the attitudes and behaviours of both consumers and micro businesses in the informal economy. Because only when we have the necessary data and insights on informal markets, can we hope to create relevant and effective financial solutions. Particularly because, the informal sector is where financial inclusion efforts can make the biggest impact.
To establish factors that would democratize and widen financial access and enable equitable financial inclusion, the study looked at the ‘bottom of the pyramid’, where consumers and SMMEs primarily use cash when making or receiving payments. These entrepreneurs either do not use bank accounts, have bank accounts that are inactive, or have access to facilities such as credit and digital banking, but choose not to make use of them. As a result, many continue to be marginalised and financially excluded from the growth happening in the digital economy.
The study showed signs of a movement to switch away from cash: nearly two-thirds of those surveyed (65%) claimed they are likely to start paying with something other than cash in the year ahead. A large part of this willingness is underpinned by a desire for increased security, but the one-year study also highlights that the convenience of non-cash payment methods is growing in importance: originally 48% of informal sector consumer respondents cited the convenience of using cards, a figure that grew to 60% a year later. By contrast, the perceived convenience of cash dropped from 51% to 34%, and there was a 9-point drop in the use of cash “out of habit”, along with fewer concerns related to the hidden costs of bank cards.
However, the study indicated that SMMEs are not quite ready to serve this growing appetite for non-cash transactions. Despite high awareness of banking, the study actually showed a decline in respondents’ ownership of a traditional bank account. By the end of 2022, only 25% had a business bank account. All the surveyed SMMEs offered cash options to customers, with only 2% offering a card machine or tap-on-phone, and 1% offering contactless QR codes – their reasoning being that non-cash payment options are too difficult to use, and data costs are too high.
Currently this disconnect is a challenge, but in future, this is also a great opportunity for everyone. Clearly, there is a need to develop simple, affordable, easily understood fintech solutions that can displace cash and unlock wider inclusion for everyone involved in a transaction. Regardless of size, turnover, headcount, or customer segments, convenient digital solutions underpinned by secure technology level the playing field for entrepreneurs and ensure that disadvantaged communities can participate meaningfully in the economy.
We must think of customer-centric designs and solutions that are market-specific, in a language relevant to those using it. Clearly defining usefulness is imperative. Consumers need to understand the value of digital
payment options, and this in turn can help to drive large-scale adoption. We must also continue financial literacy initiatives and remain focused on interoperable infrastructure.
As a business, Mastercard has the technology, reach and expertise to provide communities with tools that can connect them to opportunities in the digital economy. However, we cannot do it alone. Collaboration and co-creation are critical. Partnerships with fintech companies, governments, banks and telcos are key to achieve scale, adoption and affordability.
When people have access to financial services, they are more likely to start and grow businesses, invest in education and health, and save for the future. The knock-on effect is a reduction in poverty and inequality, and an increase in economic growth.
Developing, incubating, and scaling locally relevant digital solutions is a vital step not only in growing financial inclusion, therefore, but lifting South Africa’s citizens out of poverty, and building a thriving country and economy.
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