Should informal consumers still use cash to transact or move on with the times and join the digital age? Are these informal consumers aware of the risks of cybercrime in the digital space?
These questions pose a dilemma for many of these consumers in our sprawling townships and rural areas, who are yet to enter the cashless society.
Many people in the informal economy still carry cash at the risk of being robbed of their hard-earned money.
But there are signs that some are venturing into the digital space. Use of digital means to pay for goods and services is increasing in informal sector trading.
For example, my barber at Enver’s Salon in Eldorado Park, south of Johannesburg, now refuses to accept cash. The young businessman used to boast that “cash is king”.
Asked about the change to digital transactions, Enver said: “From now on, ‘uncle’ you do not have to bring cash to my salon. We swipe now, and business is growing.”
After my haircut this week, he proudly showed off his point-of-sale (POS) machine branded with a black cow and Flash atop his table. Impressed, I obliged and used my card to pay the bill.
“Blessed is the digital economy; Enver is transitioning from his cash-based economy, and safety shall be his refugee,” I said to myself as I left, with branding on the machine stuck in my mind.
When I got home, I researched a little on Enver’s device to assess its impact on digital payments. The system saves millions of rand in taxi fares for countless South Africans.
Each time they leave home and go to town or the nearest shopping centre to pay for various services such as DStv, Netflix, electricity, buy airtime, data, and lotto the devices save them money.
From now on, be aware that when you see this brand on a wall or door, it indicates that an affordable digital payment system is available.
The business, better known as “Flash”, is owned by JSE-listed low-cost retailer Pepkor, the owner of the most significant retail store footprint in Southern Africa. Pepkor also owns PEP, Bradlows, Ackermans, Capfin, Incredible Connection, Hi-Fi Corp, Rochester, Timbercity and Shoe City.
Shop owners can use the devices to increase their business by offering multiple services to attract more customers.
Flash is now regarded as the largest informal retail network in Africa, supported by its dedicated field staff across the country.
So how is Flash, which has become prominent in big cities, doing this and becoming a new source of payments in the townships and rural areas?
Their devices are supported by an army of 203,000 traders in the informal market. This is a huge inroad into a formerly exclusively cash-based market.
Some traders have become entrepreneurs in local communities that provide transactional services to customers using the Flash technology.
Most significant is that the brand signed up nearly 5,000 stores, which gives Pepkor’s fintech business an extensive reach and proximity to customers, making it a money-spinner for Pepkor.
It earns commission from about 6.5-million transactions a day, huge figures from a relatively unknown business.
It is no wonder Flash is digitising payments at the speed of lightning in the informal economy.
In the 2020 financial year, Pepkor’s fintech division increased revenue 3% to R8.9bn. The Flash business contributed 89.4%, or R7.2bn, to the segment’s revenue.
In the same year, Flash launched 1ForYou voucher sales that reached 193-million transactions, making it an enabler that effectively digitises cash and allows informal consumers to participate in the digital economy.
Commissions earned by Flash from service partners are shared with traders.
This keeps money in the communities, provides entrepreneurial opportunities for small businesses, and creates new digital transaction economies through an open ecosystem.
However, in the three months to end-December 2021, Pepkor’s fintech business saw a 9.9% drop in revenue to R2.1bn.
The company attributed the decline to the Flash business, where a deliberate change in product composition resulted in income now being recognised as net commission versus full transaction value as determined by International Financial Reporting Standards.
“This change forms an integral part of the Flash strategy to increase profitability and grow its basket of products and options to improve trader and customer retention,” the company said.
“Virtual turnover continues to show double-digit growth, and the profitability of the business remains positive and intact.”
That said, Flash is ready to be a stand-alone business with R7.2bn in revenue and could easily be unbundled to create shareholder value for Pepkor.
If not, a suitable buyer interested in a thriving fintech player could be hovering.
• Lourie is a former correspondent for Thomson Reuters, Business Report, Fin24 and Finweek magazine. He is also the founder and editor of techfinancials.co.za
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