Getting your money talking

The argument goes as follows: if one retail or air-time company is willing to take a risk on providing credit to customers, then why shouldn't other companies accept their payments?

In other African countries, cash is king, but South Africans prize the credit card as a symbol of wealth and status. This means many products have been built around this aspirational piece of plastic - from branded credit cards like Discovery's, to gift cards preloaded with cash, to store credit cards and even to cellphone-related card services like MTN's Mobile Money.

Financial service providers which are attempting to bring about financial inclusion know it's best to work with a product or service that potential customers are already familiar with. In SA, the most familiar cash alternative is the credit card.

While the banks still remain fairly risk averse when it comes to offering credit to customers at the bottom of the financial pyramid, many retailers have established successful business models on scoring and lending to exactly this market. These retailers are playing successfully in the financial services space by offering internal credit - usually associated with a card - to their entry-level customers.

This being the case - the customers already having been scored, and the retailer already offering a financial service - it's not a big leap to suggest it might be a good idea for these retailers to explore the notion of interoperability. Simply put, they can provide the credit and their customers can spend it elsewhere.

While this may initially seem like an unlikely proposition - because surely the point of store credit is to get the customer to spend money in that particular store - in actual fact, there is usually a division between the financial services arm and the retail arm of most businesses. The financial services arm wants to be profitable, which it achieves by earning interest on loans. What better way to expand its loans business than by offering universal credit?

Of course, businesses can't just decide to do this and make it so. A lot of stuff has to happen at the back-end. Interoperability can come into being in one of two ways.

The first is much simpler, but also rather limited. Two non-competing retailers - for instance a clothing chain and a food chain - could enter into an agreement to allow their credit systems to talk to each other. The payment infrastructure exists in both cases; it simply needs to be connected via an application programming interface (API). Once the system is in place, customers will then be able to use their store credit card in either chain.

The second approach requires a far broader agreement that interoperability is a desirable outcome, and necessitates the involvement of a number of regulatory authorities. In SA, this would require the collaboration of the Payment Association of South Africa, the South African Reserve Bank, the banks and the various retailers.

The banks and retailers are already registered credit providers, but there are different rankings of licence, so part of the conversation around interoperability would be the upgrading of these licences.

They would have to consider various regulatory issues like know your customer (KYC), which are a lot less stringent for store credit than they are for a true banking credit card. For instance, banks are required to track all their customers' transactions to prevent fraud and money laundering, and those requirements don't apply to store cards.

The involved parties would also have to agree on common standards, so all the systems could talk to each other, and then the payment infrastructure would have to be brought in line with these standards.

Simply put, they can provide the credit and their customers can spend it elsewhere.

But if this could be universally achieved, the financial inclusion opportunity this would provide to those at the bottom of the financial pyramid is immense. With the common standards and the infrastructure in place, a worker with an M-Pesa account could send money to someone with an eWallet (currently, the money has to be withdrawn and re-deposited), a salary received into an eWallet could be paid into a Jet store card, and a Jet store card could be used to buy food at Woolworths.

While this may seem like an elaborate set-up for minimal gains, remember the goal of financial inclusion is a long-term strategy. The ability to engage with financial services gives low-income customers freedom and agency, and grows their capabilities at the same time as it delivers new customers to the banks.

This approach has already been successful in Tanzania, where Airtel, Tigo and Zantel have entered into an interoperability agreement, and the arrangement is already live between Airtel and Tigo. This allows customers to send and receive money between their respective mobile wallets. This agreement is a world first, but it will show the way forward for future partnerships of this nature.

Ultimately, this kind of unification of standards and interoperability will have benefits for all financial services users, whether they earn R100 or R10 000 a month.