South African banks began introducing debit cards as a form of payment in the early 2000s. In 2012, Sassa [South African Social Security Agency] rolled out a debit card payment system for more than 10-million social grant recipients — effectively making card use mandatory. Prior to that, grant recipients were paid cash at pension payout points. As a result, a financial revolution started in the informal economy.
The first financial revolution (which I wrote about in KasiNomic Revolution) was one of financial exclusion. The idea behind issuing cards to social grant beneficiaries was to promote financial inclusion among low-income communities. But in practice, bank accounts functioned more like post boxes — money was deposited, then almost immediately withdrawn as cash from ATMs. I was pretty dismissive about this “inclusivity” plan in KasiNomic Revolution: “But I guess there is a sting in the tail. The Sassa MasterCard accounts were meant to build financial inclusion, moving from cash to modern card payments. Hang on, sorry, that should read, ‘modern cash payments at formal retailers with card facilities’.
“But another primary reason for immediate withdrawals of the money, is that the card cannot be used in the informal sector, only in the formal sector. Where are the majority of transactions performed? At the kota outlet, the vegetable hawker at the rank, the homebuilder who lives down the road, the stokvel, the taxi, the school tuck shop, ikeri. And how do you pay for these? In cash. And if you do not have the cash? You will have to take an expensive taxi ride to the closest ATM or retailer who cashes out money from your card.
“I often hear the words of wisdom ‘low-income people prefer cash’. What rubbish — they have no other choices, and the choices they do have are expensive, unwieldly and consumer unfriendly.
“The secret to mobile money services in an informal economy dominated by a large number of smaller traders is allowing for a system of transactions of small amounts on a huge scale at multiple transactional points throughout the informal economic system at an affordable rate. So far no system does this, only cash.”
I suggested at the time that the move from cash by the SA Social Security Agency (Sassa), drove social grant recipients to withdraw their grants at formal retailers and bank ATMs in the absence of card facilities in the informal sector. The solution was that the Sassa card should allow beneficiaries to shop and draw their money at a broader base than just formal retailers such as Boxer, Shoprite and Cambridge, or bank ATMs.
Beneficiaries should be able to use their debit cards (to spend or draw cash) at informal traders, including hawkers and township spaza shops.
At the time almost no spaza shops, kasi kos outlets or salons and other informal traders had card acceptance machines to accept debit card payments, and definitely not cash withdrawal capabilities. I strongly believed that the opportunity lay in creating better access to card payments and withdrawals at informal outlets.
Around the same time, in 2017, Minanawe Marketing was commissioned by a leading business — let’s call them Bluebird Telecoms — which supplied VAS (airtime, lotto, electricity, bus tickets, etc) dispensing devices to spaza shops. The company had more than 100,000 of these devices at spaza shops, taverns, beauty salons, and so on. “What is the next big innovation or trend in the townships?” they asked us. “There are on average two debit cards per person in South Africa, even among low income and grant beneficiaries,” I told them. “So why not add a card acceptance device on the VAS device so that a consumer can tap or swipe to pay, or even withdraw money from the spazarette.” “Great idea,” was the consensus among the execs and a task team was duly set up to develop this game-changing product offering.
Prototype devices were designed and brought in from China for testing and research. The Minanawe insights team did extensive deep dives into consumer responses to paying by card at spazas and spazarettes. Spazarette owners and managers were consulted across the various foreign trader groups and South African traders. The consensus was universal that at spazas (the hole-in-the-wall, generally dingy outlets) consumers would not pay by card, but at spazarettes, beauty salons and kasi kos outlets card payment was a no brainer. We presented our research triumphantly: our hypothesis was correct, and it revealed a significant opportunity.
The task team presented to the executives. A forecast was done. It was all systems go. And then … “Hang on,” said the execs, “this is a lot of money to buy all these devices; it’s millions of rands. What if GG and Minanawe are wrong and we bring in these devices and no one uses them?” An instruction was given — go off and verify the Minanawe insights by getting a “formal” (read respectable), reliable agency to research consumers on card payments in the spaza sector. Not surprisingly, the formal research agency didn’t know the difference between a dingy hole-in-the-wall spaza versus a respectable, high turnover spazarette — which, by the way, already provides credit to social grant recipients for food purchases in the last week of the month, mampara week — so trust went both ways.
The research agency came back weeks later with a clear and resounding no. Shoppers would not tap or swipe their debit card at a spaza shop. “Did you check the difference between spazas and spazarettes?” I protested, to no avail. The project was canned!
In 2020 I was approached by one of the members of the task team from Bluebird Telecoms. After some small talk, he said, “GG we are reviving that project you worked on to allow card payments at our VAS devices in spaza shops.” “Oh, what’s changed?” I asked. “I thought your research reported that people would not tap their cards at spaza shops?” I knew the answer, but rubbing it in was so nice!
“Well, I don’t know if you’ve heard of Shop2Shop?” he inquired. I did know Shop2Shop — a VAS dispensing device for spaza shops, launched by Peter Berry, where you could, wonder of wonders, also tap your debit card to pay or to draw cash from the till, called “Cashback”. Peter Berry is an extraordinary entrepreneur, first launching Flash (a VAS company) that had about 90,000 VAS dispensing devices distributed at mainly spaza shops when I first encountered him. Peter sold Flash to Pep for a pretty large sum and after a stint managing Flash for Pep he started Shop2Shop.
Shop2Shop targeted the foreign-owned midi wholesalers, placing drop safes on their premises to safeguard cash, but primarily focused on distributing devices to spaza shops. Peter explained that the Shop2Shop camel logo was originally intended to depict the camel as a beast of burden — carrying large volumes of products over long distances. However, for the Somali community (who at the time dominated both the midi and spazarette sectors), the camel symbolised wealth. This unexpected interpretation didn’t harm the brand — in fact it became the de facto meaning of Shop2Shop.
The next revolution had begun: the Silicon Spaza revolution. And the spaza sector (now dominated by foreign traders, most often Somali and Ethiopians) rapidly upgraded their VAS dispensing devices to VAS devices that also took card payments and card cash withdrawals. The proposition to accept card payments was simple; spaza shop owners were a target for crime — not in their shops on a residential street, but when they had to leave to buy stock. The local criminals would watch the trader leave to go to the wholesaler, in a bakkie, if he had one, or he’d take a taxi, and then hire one of the many bakkie-brigade drivers outside the wholesaler to take him and his purchased goods home. Either way, leaving the spaza heading to the wholesaler, he was an easy target. So Shop2Shop loaded the wholesalers’ payment details on their ewallet, as well as a number of other suppliers, bakery companies, Coke, Kingsley, and so on, and the trader could then, at the press of a button on the Shop2Shop ewallet, pay the wholesaler or supplier electronically. Oh, but wait, only if he had money in the ewallet. To get money into his Shop2Shop ewallet, he needed people to either pay for their groceries by card or withdraw cash at the till using a debit card tap. Suddenly the foreign trader — who dominates this space — had a strong incentive to encourage card payments through his Shop2Shop device and to discourage cash transactions.
On the other hand, the shopper has to take a taxi to the shopping centre (a cost of about R8 to R15 one way), stand in an ATM queue for 40 minutes to an hour — sometimes even longer at month-end — just to draw cash for the month. Carrying cash not only poses a crime risk, but also, as the saying goes, “imali esezandleni iyahamba” — money in your hands departs quickly. So, for shoppers, a saving of between R16 and R30 in taxi fare, not having to stand in queues, and carrying less cash was a huge incentive to rather use their debit card to withdraw smaller amounts more regularly at the spaza and tap to pay for groceries. Which, of course, was exactly what we’d told Bluebird Telecoms.
Shop2Shop took off and was doing billions in turnover pretty soon — and, according to Peter, card payments exceeded cash very quickly! Shop2Shop has unleashed a spaza debit card payments revolution.
I gave the Bluebird exec a polite smile as he tried to resurrect their card acceptance plan — way after the camel had bolted — and simply walked away.
The interesting thing about the foreign-owned spaza sector is that they have, in many ways, spearheaded the growth of the informal economy, and its evolution. Owning a spaza carried no prestige — it was seen for what its name implied: isipazamisa, an imitation shop. South African spaza owners were looked down on, they had no other choices, worked long hours, and made low profits. When the likes of Shoprite, Pick n Pay, Spar and others started entering the townships and rural areas, the South African spaza could not keep up; they were loath or unable to modernise, to offer a wide range of products, or better prices. The foreigners, initially Somalis, were different — they rented the boarded-up South African spazas, and changed that retail sector almost instantly.
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