IT in Banking

Financial constraints create tech-savvy SA consumers

Retailers have long understood the need to adapt to changing shopping preferences, but the pandemic disruptions triggered a much greater sense of urgency.
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The economic consequences of the coronavirus pandemic have drastically altered the shopping behaviour and decisions of South African consumers, with a marked shift towards more conscious and mindful shopping, as well as acceleration in the adoption of digitised, alternative payment methods.

South Africa's retail sales were down 4% year-on-year in November 2020, according to Stats SA. This was the worst performance since August, when sales plunged to 4.2%.

Massmart, owner of Makro and Builders Warehouse, recorded a 4% sales decline, while Truworths reported an 8.5% decline in retail sales during the same period.

Equally, recent insights from McKinsey found discretionary spending remains subdued, with cautious discretionary spending growing 1.5-fold in 2020 across all classes and product categories.

With substantial changes to discretionary income, many consumers are facing new financial challenges, which are in turn influencing their attitudes and behaviours towards spending.

We’ve seen a far savvier consumer emerge in recent months, whose shopping behaviour is based on need rather than want, and who is more confident than ever in their digital consumer journey, especially when it comes to how and where they shop and pay.

Old Mutual’s annual Savings and Investment Monitor points to a stressed and financially-pressed South African consumer, with 58% of households across South Africa facing high or overwhelming financial stress as a result of the pandemic. The report found over 50% are currently dipping into their savings just to make ends meet, while 36% of consumers reported they are just getting by.

At the same time, TransUnion's Financial Hardship Report found the percentage of South Africans financially impacted by COVID-19 increased to 82%, despite most industries being fully operational. Millennials are the hardest hit at 86%.

Similarly, figures from Trading Economics show the ratio of unsecured debt to income may have increased to nearly 73% by the end of 2020.

A shift in priorities

In many cases, consumers have used the pandemic to reflect on their own consumption and have learnt they can do with a whole lot less than they thought they could.

Insights from Google found South African consumers who bought new brands or tried new retailers in 2020 were not overly concerned about quality or recommendations from other shoppers. Instead, convenience (40%), price (39%) and stock availability (33%) were at the forefront of purchase decisions, with speed (41%) being the most important factor of all.

We’ve seen a far savvier consumer emerge in recent months, whose shopping behaviour is based on need rather than want.

Similarly, consumers have shifted their mindsets and preferences when it comes to payments, becoming more techcentric, with a move away from traditional payment methods in favour of the convenience and extended cash flow of flexible, digital payment models.

We’re witnessing an overarching trend towards alternative payment methods, such as digital wallets and the contactless payment of the buy now pay later (BNPL) no interest, no fees payment solution, accommodating consumer demand for a streamlined buying experience that offers greater convenience and control over spending, as consumers veer away from the debt-laden landscape of credit cards.

As a result, total spend via digital wallets is set to exceed $10 trillion in 2025, up from $5.5 trillion in 2020, while $680 billion will be spent by global consumers using BNPL over e-commerce channels in 2025.

In fact, one-fifthof digital buyers worldwide won’t complete an online purchase if their preferred payment method is not offered. From a local perspective, this has translated in an 85% year-on-year increase in consumer sign-ups on the Payflex platform.

New spending patterns here to stay

Retailers have long understood the need to adapt to changing shopping behaviours and preferences, but the recent disruptions caused by the COVID-19 pandemic have triggered a much greater sense of urgency.

And now that we are well into 2021, it’s clear these pandemic-accelerated changes in consumer behaviour and attitudes have become entrenched in shopping behaviour. Especially as the threat of the COVID-19 virus shows no signs of abating until a successful vaccine roll-out in South Africa − something that could take several months, if not longer.

As consumer behaviour continues to change amid an unpredictable environment, we can continue to expect more deliberate and tech-oriented shopping choices. Retailers therefore have no option but to embrace the evolving and shifting consumer expectations by not only remaining agile, but by providing the option of alternative payment solutions too.

Those retailers that exhibit emotional intelligence strive to build trust, and aim to provide a digital environment with a more intuitive, seamless and flexible e-commerce journey will certainly have an advantage against their competitors in our post-COVID-19 realities.

The first and most critical step in doing so is understanding the nuance of tech in facilitating an experience which accommodates both budget and behaviours, so that retailers can get to grips with what consumers actually want and how they want it in the new normal.

Derek Cikes

Commercial director at buy now, pay later fintech Payflex
Derek Cikes is commercial director at buy now, pay later fintech Payflex. He brings in-depth knowledge, experience and insights into the payment fintech and digital space, as well as the retail and e-commerce environment. His 21 years of financial services experience in building successful partnerships at Hollard for the banking, retail and motor industries plays a key role in delivering creative value for Payflex retail and industry partners.

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