SA Payments Industry Shows Cautious Signs of Good Growth in 2023

The South African payments industry can expect steady, if cautious growth over the next year. However, like the general economy, much of the growth shareholders are looking for will depend on a stable macro environment and good access to skills, says global Payments-as-a-Service specialist, Network International.

The Boston Consulting Group anticipates global payment revenues to show year-on-year growth of 9.5% for 2022 and the company says its forecasts global payments revenues will rise by a compound annual growth rate (CAGR) of 8.3% through 2026. What’s more, the company goes on to forecast that payments will continue steady growth of 7.6% through 2030, driven by what it refers to as “solid fundamentals and ongoing cash-to-noncash conversion.”

A good deal of this growth is reliant on more people making mobile transactions with the same report pointing out that Africa accounts for more than 70% of mobile-money transaction value globally as of 2021, according to the Global System for Mobile Communications.

“We see mobile payments in Africa continuing their upward trend although they may not maintain the same aggressive pace. Growth will be driven by interoperability between multiple payment types. For instance, we will be using our phones to access mobile wallets to be used on a physical point-of-sale machine, bridging the gap between what has historically been either a digital payments or a traditional card play. We foresee a lot more integration between store of value offerings, rather than pure mobile-to-mobile type interactions. I think the days of M-Pesa only working in an M-Pesa universe are over as we see more integration between platforms. In addition, we see strong growth in the non-bank space with a number of telcos and retailers entering the financial services industry and this will also be a large driver of future payments growth,” says Chris Wood, Regional Managing Director, Southern Africa and PALOPS at Network International.

Wood says that the focus of many payment providers in 2023 will be to ensure that their payment options work on as many payment acceptance mechanisms as possible, thereby extending their reach.  What’s more, as infrastructure improves and deepens, Wood says people will be more inclined to use more reliable sources of payments. These are the ones that reduce risk of fraud, reduce friction to transact and work anytime, anywhere.

Big picture for SA payments looks good

Looking closer to home, Wood says there are a number of potential macro influences which could impact South Africa’s payment sector.

“If the world can keep the pandemic at bay, South Africa will once again benefit from an influx in international tourists spending in foreign currencies. For a country so rich in tourism and hospitality, this is an essential driver. From a payments industry point of view it will also be interesting to see how the Rapid Payments Programme (RPP) plays out and if consumers shift from cash and even EFT payments to use the new RPP offering – although this will be largely dependent on whether or not the banks will fully embrace it as the regulator is hoping they will. We can expect contactless payments to continue to grow and again, I think we’ll continue to see that growth linked to how banks are pushing products like virtual cards and digital wallets like Apple and Samsung Pay,” he adds.

Caution is on the wind 

As the world braces itself for some tough years ahead, Wood says the South African market is already beginning to feel the bite of the global recessionary winter.

“A lot has been made recently of the over-valuation of heavily investment funded start-ups, with some notable newsworthy headlines making waves. It would be natural to see a bit of a slowdown in VC funding globally off the back of some of these. This will also likely impact local funding and local start-up growth may suffer as a result, particularly where investments were in the double and triple digit millions. Having said that, the global cynicism could actually inject a bit of healthy scepticism into the market which could protect the industry from a potential investment bubble,” he says.

Another bugbear in the payments industry specifically, is the demand for specialist skills which Wood says remains a big hindering factor when it comes to continued innovation and growth.

“This is not to say that quality candidates don’t exist, only that the hyper regulated and technical payments environment will always have a need for deep experience. As we always say, this industry is actually very small,” he adds.

While Wood says that innovation has flattened over the last few years, he says this is to be expected and says overall the country is still looking good.

“I think the expectations of shareholders are winning out and many companies are focusing on going back to basics and doing what they do well. This is to be anticipated, and we know that innovation takes a while to reach maturity in terms of financial output. We still have a lot to look forward to. But companies have to get the most out of what they have built, and we can expect a period of stabilisation and consistent growth with a few pockets of standout performance.

One of the low-hanging fruits in the industry is converting consumers from cash to digital payments, but Wood says the jury is still out on whether the conversion will be as easy as the regulator is inclined to believe.

“We are still waiting for that golden experience that will convert people from going to the ATM to withdraw money, but the real uptake in new payment methods still relies on merchant uptake of the new payments. We also know that customers are fickle so their first experience has to be good, otherwise they will just go back to what they know,” he cautions.

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