Low card acceptance at informal enterprises: MasterCard
Around 96% of financial transactions are still conducted in cash among SA's 1.5 million informal enterprises, despite strong interest in digital and card payments by consumers.
This is accordingtoMasterCardresearch titled "Insights into the Informal Economy", released recently at the company's Digital Indaba in Cape Town. The report shows that more than 51% of SA's informal enterprises have encountered strong customer interest in paying by card, yet around 90% of them continue to run as cash-only businesses.
Despite rural and township residents using cards for 60% of their transactions at formal retailers, only 4% of transactions with informal traders are card-based. This is due to these small traders not offering card or mobile acceptance, notes the study.
"Card acceptance is highly attractive for informal traders and is an important next step to increase revenue, but lack of access to formal banking tools and understanding of available payment options limits their opportunity for growth," says Gabri"el Swanepoel, VP of product development and Innovation at MasterCard SA.
SA has around 1.5 million informal enterprises generating turnover of around R75 billion a year. Absorbing 12% of the country's labour force, they provide a valuable source of employment and income for some of the country's most financially vulnerable, explains the study.
"Ninety-six percent of transactions at informal retailers are still concluded using cash, exposing them to high cash handling and transaction costs and lost sales when customers don't have cash or exact change to pay, and the threat of crime," notes the study.
According to MasterCard, among the major reasons that cash still rules the informal economy is the perceived costs of accepting mobile and digital payments; a lack of knowledge and awareness about the solutions available for card acceptance and the benefits of going cashless. Other reasons include lack of formal banking facilities, evasion of tax payments and a belief that cash makes it simpler to budget accurately when handling small amounts of money, adds Mastercard.
The use of smartphones among informal enterprises and their customers was found to be relatively high, driven by the decline in the cost of smartphones and the strong demand for digital messaging services and social media platforms. Fifty-nine percent of merchants and 69% of consumers interviewed have smartphones. Yet none of the merchants in the sample were using smartphone-based card acceptance solutions, the study finds.
"The latest wave of mobile and digital innovations will help grow financial inclusion among informal merchants that play a critical role in SA's economy," says Swanepoel.
"Together with partners like Spazapp and iKhokha, we are working to significantly boost card payment and card acceptance at micro, small and medium enterprises in informal settlements."