Cash-free technology fuelled by convenience, stalled by suspicion
THE world is moving to cashless payment technology. South Africans and others in emerging markets may still use cash a lot, but we could skip some steps and move straight to relatively hi-tech payments.
Research from management consultants McKinsey & Company and Capgemini shows that consumers in North America use non-cash payment methods for 52% of all transactions. The next most cashless territory is Asia-Pacific, where 35% of transactions do not involve cash.
Transactions in Africa remain 99% cash-based, with Asia-Pacific emerging markets equally cash-based at 98% of all transactions, compared with the global average of 85%.
Non-cash payment types include cards, direct debits or transfers, and cheques, although the global average for cheque payments is 1.2% of all payments.
Capgemini’s data show that the number of cashless transactions worldwide increased from 269 billion in 2009 to 389.7 billion in 2014.
The world’s consumers have become heavily armed with plastic cards, with Chinese shoppers carrying an average of 3.28 debit cards each, although only one in three have a credit card.
In the US, consumers tend to use credit cards rather than debit cards.
Singapore has the highest proportion of cashless consumer payments at 61%, with the Netherlands close behind at 60%.
Canada is ahead of the US with 57% compared to 45%, with both considered by McKinsey and Mastercard research to be on the “tipping point” of converting to advanced payment economies.
South Africa, where just 6% of transactions are cashless, is considered to be in the “inception” phase, but cardholders who replace their cards are likely to be issued with smart cards capable of making contactless payments — cardholders simply have to wave their cards over a device.
This means that as more South Africans are absorbed into the formal banking sector, their first cards may be capable of contactless payments.
According to 2014 data from Juniper Research, the Far East and China dominate the world of contactless payments, accounting for more than half of all contactless payments made globally.
Andrew Torre, general country manager for Visa in subSaharan Africa, said the transition to cashless payments was accelerating in most markets.
“There are many reasons some countries are more advanced than others, but, broadly, penetration relies on progressive, technology-focused governments, a sophisticated, tech-savvy population, a high proportion of whom have access to formal banking services, and merchant acceptance.”
He said financial education, especially in terms of understanding the benefits and safety of cashless transactions, was key to adoption. “Trust is perhaps the most important part of the entire system.”
Torre said finding a payment format that consumers were comfortable with, and a strong developer community, were important factors in promoting the cashless society.
“If a country’s best tech minds are thinking about the problem, it will get fixed and in a locally relevant manner. Cardholder preference also drives usage,” said Torre.
“Our research globally in consumer payment preferences consistently shows there are certain transaction value ranges where consumers are more comfortable with specific payment mechanisms.”
He said that in South Africa, consumers overwhelmingly preferred to use cash for transactions below R120. Above R600, credit was by far the preferred method of payment.
“A new payment technology therefore needs to be quicker and easier than cash to compete effectively at low values. We believe contactless payments are able to do that, hence the rapid take-up in many markets.”
He said China’s advantage in contactless payments was that it had a closely linked local payments network and a central bank and government that could move quickly to implement changes.
“China is not indicative of conditions elsewhere. Places like Singapore, Hong Kong, Sweden or the UK are useful models because contactless technology has taken off there, driven by its ability to drive more traffic through a till or sales point, like a quick-service restaurant, supermarket or metro station.”
Torre said tap-and-go payments were a good entry point for a shift away from cash.
South Africa lacks the largescale public transport systems that could help drive the change, but supermarkets hold the biggest opportunity for contactless payments.
“Contactless payments have started to roll out here. Shell has recently launched contactless in its forecourts,” Torre said.
“The two leading supermarket chains, with more to follow, are in the process of implementing contactless terminals, and we expect this to become a catalyst for faster contactless adoption.
“Also, if you compare the UK and Australian examples, the maximum limit for non-authenticated contactless transactions is a major determinant of success. If the limit is set too low, the utility for cardholders is limited, and leads to frustration because the payment is not as frictionless as they might have expected.”
Currently, contactless transactions are pegged at R200 in South Africa, with the industry looking to increase this limit in the future, he said.
“We do see that adoption accelerates once the limits are pushed up to moderate levels so that the cardholder experience is quick and effortless, without compromising risk comfort levels.”
Trust is perhaps the most important part of the entire system