South Africa plans to say goodbye to cash?

Despite the surging adoption of contactless payments in South Africa, more than half of the country still relies on cash as their dominant payment method, and the digital divide is slowing the migration to digital currencies.

South Africa's major banks have noted that transactions made with digital wallets have been skyrocketing, with Capitec reporting a 238% increase in digital payment volumes between June 2023 and June 2024.

However, this is primarily attributed to upper-income segments, with high transaction fees and a lack of Internet access hindering greater adoption.

Efficient Group director and chief economist Dawie Roodt said several barriers must be overcome within the South African economy before lower-income groups join this trend.

One of these barriers is trust in financial institutions.

Roodt argued that this lack of trust stems from the country's lowered confidence in governmental institutions and, thus, South Africa's economic future.

He said that even PayShap, a universal payment system meant to lower the barriers for South Africans sending money to one another, has been surrounded by rumours of government surveillance and spending controls.

Roodt also pointed to the convenience of cash for certain transactions as a major contributor to its ongoing usage.

He used the example of how using Bitcoin to pay for a loaf of bread would be nonsensical because of the fees involved, whereas using cash is free.

The South African Reserve Bank's (SARB) Digital Payments Roadmap also points out that cash is preferred for specific transactions, even by those who have bank accounts.

A study by the University of Pretoria and SVB Services found that 55% of South African earners use cash as a dominant payment method.

This study divided the South African public into five categories: cash-reliant, cash status, cash-functional, digital adopter, and digital migratory.

While these categories segment the population based on their reliance on cash, the study argued that there should not be an either-or approach to payment systems but rather an and-and.

This is because 96% of the population uses both cash and digital forms of payment.

The categories fall on a spectrum based on their preference for the future use of cash and digital payment methods - with cash reliant on one side and digital migrator on the other.

The first three categories, cash reliant, cash status, and cash functional - 46.6% of the population - although using both payment forms, tend towards a pro-cash future.

This is primarily due to circumstantial factors such as those mentioned by the SARB, such as low merchant adoption of digital payments, being paid in cash, or lack of smartphone or Internet access.

Additionally, digital payment options do not cater to the needs of all income segments.

When considering day-to-day payments, the appeal of using a tap-to-pay-enabled device or a bank card is convenience rather than necessity.

Therefore, digital payments will have to meet more South Africans' needs to outweigh their lack of trust in such systems.

Lowering the costs of digital payments, which the SARB points to as a barrier to an inclusive digital economy, is another need for the lower-income population.

These costs include the transaction fees and data costs incurred by merchants and consumers.

If data is needed to facilitate payments, the relatively high cost will slow merchants' adoption of digital payment methods.
The spectrum shows how open South Africans are to a digital future. Blue indicates a preference for using cash in the future, whereas red shows a preference for a digital economy.

The final two categories in the study are digital adopter and digital migrator, comprising 53.3% of the population.

South Africans in these categories tend towards a pro-digital payment future, although both use cash frequently - between 96% and 99%.

Those with a more optimistic outlook for a digital payment future - and higher levels of trust in these technologies - fall within the middle and upper-income segments.

This brings another variable into the mix: access to technology and South Africa's digital divide.

Roodt said this alienation from the technologies used in South Africa's digitally-driven economy hinders increased cash adoption.

"Once you can access a smartphone and the Internet, your world opens up. You could set up an e-commerce shop from your phone and earn in dollars," said Roodt.

Vodacom Group CEO Shameel Joosub agrees that lowering the cost of smartphones is the key to bridging South Africa's digital divide and improving Internet access on the African continent.

Joosub said only 25% of the Sub-Saharan population has access to mobile Internet and that more than half of the group's entire customer base doesn't have a smartphone.

He says that this comes down to the cost of smartphones, as entry-level devices can consume 16% of monthly incomes in low- to middle-income countries, such as South Africa.

This can rise to 44% for the most financially vulnerable in the country.