Johannesburg, 26 Nov 2018
Residents in the so-called 'main market' and areas that are serviced by informal retailers are currently able to purchase lottery tickets and airtime either on their mobile phones or via their local retailers' point of sale systems. Advances in technology are now enabling these same retail operations to offer their customers more innovation in the form of products such as short-term insurance, tickets for sporting events and, in certain instances, even cash deposits and disbursements.
Andrew Dawson, Commercial Director of Solutions in Hand, says: "A smart device located in informal retail outlets can allow the owner to spread his risk by allowing him (or her) to offer customers a number of digital products as mentioned above, but also building up to the ability to drive financial inclusion through built-for-purpose insurance products, medical service vouchers, etc."
The device will also serve as a near-field communication (NFC) solution to allow for proof of sales-driven loyalty and rewards programmes.
There's a strong drive by the South African government for financial inclusivity across the informal sector, says Dawson. The challenge lies in getting local traders to be enabled to expand their offering and become more of a growth service to the community outside of selling the basic staple diet and cold drinks, etc.
"One of the ways in which we're looking at engaging and driving that space is to be able to provide smart technology. There are several players in this space that have devices of some sort aimed at that market. But, what's needed is the next evolution in the form of a software platform that is agnostic across all of the different providers' platforms and that will allow the trader to manage his business better from a stock and sales point of view, that enables auto ordering from suppliers and that gives him a base to manage his business properly."
For the bigger traders, having software that can integrate into a basic accounting platform would give them additional financial tools to better run their business. Then, once that platform is in place and widespread, it can provide a base to operate from a marketing perspective. It can be used by micro insurance or finance players to reach the community and provide access to micro insurances that talk to that community, such as short-term taxi cover or life insurance. "It opens up a financial inclusion model to a whole new market that's currently under-serviced," says Dawson.
If you consider the way financial services are moving, with new banking offerings providing app-driven services that mirror trends on social media, as well as initiatives to create cohesive financial communities, it's clear there's huge opportunity out there. "Traditional bank charges are a huge barrier to people moving away from cash," says Dawson.
Enabling this type of technology means FMCG retailers have a direct line of sight between the manufacturer and the end-consumer. It also opens up loyalty platform opportunities, says Dawson. "The direct communication from the manufacturer through the distribution channel to the end customer in that specific target markets can be used to influence sales. You can create a channel of communication that speaks directly to their unique needs and accommodates cultural and even religious differences that are specific to that community."
Dawson says: "Communities tend to buy and sell within the community. So if a manufacturer has a product that is specific to a religious or cultural grouping, they can get a better understanding of how that demographic layer works in the area and can customise a loyalty and reward initiative that talks directly to the end-consumer. This will have the additional benefit of streamlining marketing and advertising efforts aimed at the end-consumer and provide a more cost-effective 'pull' effect from consumer up through the distribution chain based on actual needs and wants."
He continues: "This is the next phase in the evolution of technology for the retail sector, particularly in the fast-growing 'main market'. There's enough hardware suppliers out there; now it's all about software-enabled services and cost-effective partnerships to marry the two and create a fundamental solution to supply much needed financial services to the community."
Over and above providing greater financial inclusivity for local communities, there are the benefits to the retailers themselves. "In the informal trader sector, an estimated 50%-60% of invoices between distributor and retailer are settled in cash. There are several initiatives to digitise those cash payments, but if you consider that, on average, a fee of between 0.6% and 1% is incurred on the digitised transactions (such as e-wallets, card readers, etc), it's clear why participants in the distribution chain are sticking to cash."
For the majority of manufacturing companies and retailers, that fee is a significant chunk out of their bottom line and impacts their profitability; some of the manufacturers are generating significant portions of their market revenue out of the 'main market' informal sector. Even a fraction of a percent of is a lot of money off the bottom line that's going straight to the incumbent banking platforms, says Dawson. "If you can get the banking and transaction costs reduced, it'll open up that channel.
"The game-changer is getting cash into the digital system between retailer and wholesaler and this process can be massively influenced if the consumer is encouraged and enabled to use a digital payment process at the informal retailer, such as bank cards or vouchers and the like."
He continues: "Perhaps as an alternative, the banking platforms should rather be looking at getting a return out of financial inclusion products and provide a channel to encourage revenue share loyalty and rewards programmes, rather than the banking platform that sits in-between."
As an example of what can be established, Dawson cites a local company that was looking to drive a consistent rate of monies deposited by its customers in one of the diaspora companies. "When they replaced the traditional rewards of branded shirts and caps with a short-term (month-to-month) taxi and funeral cover, they found a significant growth in regular volume transfers.
"The premiums for the cover, which had a similar value to the branded giveaways, were paid for by the diaspora company in return for bimonthly minimum value transfers. Customers applied an enhanced value on the loyalty programme being offered, and therefore met the minimum requirements to keep their month-to-month benefits alive."