Financial services and technology group Lesaka Technologies expects that the biggest growth driver for digital payments in SA’'s informal sector will be bank cards, as opposed to mobile phones as in other parts of the continent owing to personal security concerns.
This is according to a new report by the group, which estimates that the informal sector contributes more than R600bn to the country’s income, translating to more than 6% of GDP.
Fintech continues to be one of the big areas of innovation and technology investment in Africa.
Much of the push across various fintech operators has been premised around the use of mobile devices as in the case of mobile money, tap payments through Apple Pay, Google Pay, Samsung Pay and others; super app platforms like Vodacom's VodaPay, MTN's MoMo and Ayo, and bank platforms such as Nedbank's Avo and FNB's banking app.
Even then, Lesaka sees the market moving in a different direction.
Driven by security concerns, particularly the physical theft of mobile phones and muggings, Chris Meyer, Lesaka’s group CEO explains that card payments have experienced the most growth in their ecosystem.
“In terms of transactions, the data that underpins this is well over R2bn in monthly transaction flow going through our Kazang wallet. The latest data shows that we’ve gone from basically zero to 42% of transactions that are occurring in our [affiliated] spaza shops, in terms of VAS, 42% of those or almost R1bn a month are now digitised, using cards.”
VAS refers to valued added services such as the sale of electricity and airtime.
“That’s dramatic, and in a relatively short space of time. Over 90% of those are debit cards. Customers are choosing not to go to the ATM and withdraw cash. They’re choosing to use their card in spaza shops and in taverns.”
GG Alcock, a specialist researcher into the informal sector who helped to put together Lesaka’s SA Informal Economy Digitalisation Index, says “most people are reluctant to open their banking app in a public place”.
He explains that the biggest risk is that once a person opens their smartphone or tablet, that device can be snatched and taken. If such a device is taken while unlocked, it is possible for criminals to access and pilfer from banking apps.
In the informal sector, this appears to be more prevalent than the classic cybercrimes that are typically seen in traditional financial services.
Alcock, who authored the book Kasinomics in 2014, says in some instances people are being held up and being forced to open their banking app and make a transfer by criminals.
As such, cards appear more safe as the threat of immediate theft or harm is reduced. Criminals would have first have to find an ATM or similar access point to steal money, if a correct pin is in hand.
For financial services operators providing card payments, the opportunity is vast.
According to Lesaka's report that measures the contribution of SA’s informal sector to national income, retail — made up of fast moving consumer goods (FMCG), spaza shops and superettes — is estimated to worth R180bn annually.
This is made up of about 100,000 spaza shops and superettes, together with 500,000 table-top traders.
Expectedly, alcohol sales pushed through taverns are a large market, at an estimated R110bn. While many parts of what is considered to be the informal sector is unregulated or not captured by national taxes, Alcock explains that liquor sales are different. The requirement for taverns to have licenses to trade means revenue authorities are usually able to capture tax income from these businesses.
The study says taverns are spread across about 45,000 licensed operators, with 10,000 being unlicensed.
Rentals are another big market in the sector with an estimated R45bn split between spaza rentals (R25bn) and back rooms (R20bn).
Muthi is said to an R18bn market, while hair care sits at R10bn and food trade at about R90bn.
Lesaka has bet a big part of its current and future growth on SA's informal sector through its Kazang service.
The group says the service “makes it safe and easy” for spaza shops and informal traders to sell prepaid airtime, data, electricity and other services from its devices or mobile app.
Social grant recipients, a large part of Lesaka's customer base, can use their Sassa card to pay directly for goods and services.
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