Standing in the late-afternoon shadows of a bank’s giant offices, Rachel* swerves between cars at a busy intersection in Rosebank, one of Johannesburg’s biggest business districts. Stopping to ask for money at each car, she encounters a familiar sign, people shrugging with their palms open wide. The universal signal for ‘I don’t have money’.
It’s not that the mostly middle class cars’ occupants do not have money, they do not have cash on them, a phenomena that Rachel explains is becoming more frequent during the coronavirus pandemic.
The pandemic heightened the speed in which the continent is moving away from cash. Countries in East, Southern and West Africa already had well-established cashless platforms in operation, which were gaining increased traction among the public, according to Andrew Schultz, from investment bank, Investec’s African equities desk,
The informal economy fringe
Rachel at 21-years-old , is on the fringes of the informal economy and is in a predicament. She has no formal identification, having lost her ID book in a fire in her mother’s shack, far from South Africa’s economic hub. She is therefore unable to apply for the monthly temporary Covid-19 relief grant of R350 ($21.80) or for a caregiver grant for her eight-year-old sister that she is raising. Her daily income, appealing to motorists for help has taken a knock as fewer people have cash or are willing to touch coins and banknotes.
The World Health Organisation encourages mobile payments warning that Covid-19 could be transferred through banknotes. African governments were also concerned that people could contract the virus while waiting in long queues at banks.
According to the World Economic Forum in 2019, “mobile money accounts now surpass bank accounts in the region and greater financial inclusion has benefited large swathes of the population that remain unbanked including the poor, the young, and women.
Rachel is not alone in the cycle she is trapped in. Required documents to belong to the formal banking system and mobile money platforms such as an ID and proof of address can be a barrier, especially for women.
The cashless craze sweeps Africa
Covid-19 saw a massive surge in cashless payment systems with some barriers to access being lowered or removed, making it easier to use mobile payment systems in Uganda, Ghana and Zimbabwe, than in many developed countries. Encouraged by government and sighting opportunity, mobile money providers across Africa reduced or waived transaction fees during Covid-19.
Ghana's central bank announced in March that all mobile phone subscribers could open a mobile wallet and transfer up to 1,000 cedis ($170) daily without providing additional documentation. The waiver was extended to December 2020 due to its popularity.
Ghana is innovating in a region where barriers include low literacy and a lack of trust in mobile payment platforms, however Schultz explains that West Africa is catching- up due to Covid-19. Africa’s largest telecommunications network, MTN, through its operations in Nigeria and Ghana is looking to Nigeria’s 200 million strong population as the next wave for mobile payments. The company announced in August it would exit the Middle East to focus on Africa. Many West African governments have already been working toward digitising social payments such as pensions and are likely to fast-track the process now.
In East African countries such as Kenya, Uganda and Tanzania, mobile money is already the currency of choice for a wide array of goods and services, including shopping, paying rent and now public transport. The success is largely driven by Safaricom's service M-Pesa. The UK’s Vodafone and SA’s Vodacom are the big players in the region. To expand their services, Kenya’s banks waived numerous fees including fees on digital transactions, intra-bank transfer fees, bank-to-wallet fees, and transaction fees for payments for utilities, fuel, and shopping.
The Horn of Africa and the north
In the Horn of Africa, Ethiopia is planning to open up its state owned telecoms sector to private players and both MTN and Vodacom are making plays for a slice of the lucrative pie, the continent’s second most populous nation with 109 million people. Addis Ababa has also stated that mobile money can assist with financial inclusion while improving government’s revenue collection from the informal sector.
Up north, the Covid-19 pandemic saw the Egyptian government raise the limit for electronic payments to encourage the exclusive use of digital payments and the central bank instructed other banks to cancel fees on transfers and e-payments.
The continent’s most industrialised nation, South Africa, ironically lags behind others in innovation and mobile payments. This is partly due to the strong traditional banking system in place already, making it difficult for new players. Unlike its runaway success in Kenya, Vodacom’s attempt to grow M-Pesa’s mobile money services was shelved in South Africa in 2016 after managing to attract just 76,000 active users.
Rachel shuffling between cars, pleading for money between cars is dwarfed by one of South Africa’s largest commercial bank’s glistening glass offices. Her daily reality is a stark reminder of the uneasy co-existence between the informal economy and traditional business which excludes millions of people.
Without an ID book and a bank account, Rachel is in the heart of the country’s economic hub but cut off from any possibility of accessing opportunities, existing on the outskirts of a society increasingly geared towards digital and skills innovation.
However, her life started to improve after she developed an angry boil on her torso in August and a passing motorists saw the pain etched onto her face and stopped to help her. She had been unable to go to the hospital without an ID book or proof of having applied for it. First National Bank (FNB), the largest SA bank by market capitalisation has an e-wallet service. This allows FNB customers to send money instantly to anyone with a valid South African cellphone number. The motorists transferred R250 ($15.60) to her cellphone. She received and SMS with a code and was then able to access the money at a nearby FNB ATM with the sender paying R10 (62c) for the service. This was enough for her to travel to Home Affairs, order an ID document, attend to her wounds at a government hospital and apply for state grants.
In neighbouring Zimbabwe, the cash shortages have forced innovation and almost all transactions are done by mobile money with mobile companies earning a small fee off each transaction.
The coronavirus pandemic has clearly increased the need and the speed of digital payment solutions across Africa, having both positive and negative impacts for the continent
The bright side of going cashless
Improves access to financial services: Nearly 350 million adults across Africa do not have a bank account according to the World Bank which makes it difficult to do business, receive state assistance or regular wages. However, there are around 1.2 mobile phones per person in Sub-Saharan Africa, making this form of banking relatively cheap and easy to access. Services such as M-Pesa do not require a smartphone but any cellphone that uses a USSD code.
Boost social services: Schultz says that digital payments could see the acceleration of the roll-out of other platforms, such as social payments which is already being trialed in West Africa. This would reduce long queuing times waiting for social grants. Governments could also use mobile payment platforms to improve their revenue collection from businesses, boosting state coffers and their ability to deliver services.
Scale-up remittances: The Economic Commission for Africa (ECA) predicts that remittance inflows to Africa could have declined by 21% in 2020 due to the Covid-19. Migrant workers in China, the US and Europe are among the hardest hit by lockdown restrictions and are finding it difficult to send money to their relatives back home. Millions of households and entire regions are dependent on these inflows and they now comprise more than 5% of GDP in 15 African countries.
The downsides of a cashless society
Unequal access: Rachel is one of millions who rely on cash handouts or small sales to survive. ‘We are cashless here’ signs proudly displayed in trendy coffee shops have an impact on the parking guards outside hoping for a small tip of R5 (31c) from patrons who no longer carry loose change. African countries’ informal sectors, from street vendors to roadside hair salons account for more jobs than formal sector employment and not everyone has access to digital payments. The digital divide is also heightened in rural areas where people do not have the same access to connectivity and information as urban areas.
Exclusion and data concerns: Technology is only a tool to improve lives and on its own it does not necessarily lead to better policies or to stronger implementation—and it can also be used to implement bad policies more effectively. Much depends on the objectives to which it is applied and how well-implemented and inclusive the systems that use it are. The requirement for ID’s can lead to certain vulnerable groups being excluded whether deliberately or inadvertently. The companies are also privy to enormous amounts of data which requires strong regulations to prevent breaches.
Leading the charge to leave wallets behind
Within a few weeks of Rachel receiving her e-Wallet and registering for an ID book, she has signed up for social grants for herself and her little sister. She is also keen to enter the job market, despite the 43.1% unemployment rate in SA. She is hopeful that by registering her name and ID number on the South African government’s website promising 800 000 job opportunities, she can put her days of zigzagging through traffic behind her.
Although burdened by extreme poverty, Rachel is among the young ‘tech-savvy’ populations of the emerging markets who will lead the shift in payments expectations among retail and commercial consumers, according to a report by professional services company PricewaterhouseCoopers. This 15–34 age group also has a strong appetite for new technologies including blockchain which is predicted will simplify international remittances and reduce transactions times.
*Name has been changed to protect the person’s identity
*The US Dollar exchange rate to the Rand was calculated at R16.16