South Africa: How Banks and Fintechs Can Encourage Participation In the Digital Economy – Compass Plus Technologies

By Patrick Mowatt, Compass Plus Technologies

Financial inclusion is a prominent issue in South Africa; an issue that prompted the government to take action, and, in 2012, they challenged the financial sector to achieve 90% financial inclusion by 2030. Fast forward a decade and financial inclusion in the country is no longer an issue of access, instead shifting to become an issue of adoption and usage. Despite more than 80 million bank cards in circulation and a mobile penetration rate of 157% (according to Deloitte), the large informal market, which makes up nearly 30% of the country’s trade, continues to drive consumers to remain loyal to cash instead of transitioning to the digital economy.

Given the challenges related to infrastructure, interoperability, and financial literacy, the ongoing efforts to foster trust in digital financial services within the informal market have yet to see a reduction in cash transactions. However, it is within the informal economy that financial inclusion initiatives make the biggest impact. So, how can banks and Fintechs effectively incentivise individuals to transition away from cash and actively engage in the digital economy?

The path to success
Insights from different markets demonstrate that customer-centric product and service designs have achieved success. In South Africa, Fintechs have made significant strides in promoting financial inclusion within remote communities by offering mobile wallet solutions, mitigating some of the challenges consumers encounter. However, considering that cash usage continues to grow annually at a rate of 6-10%, it’s evident that these solutions alone are insufficient. Consequently, both banks and Fintechs should focus on introducing comprehensive product offerings that directly confront the obstacles of financial inclusion while simultaneously catering to customer needs and delivering a seamless user experience. To break the cycle of cash dependence and foster genuine participation in the digital economy, it is imperative to develop digital value propositions that not only offer distinct advantages over cash, but also address any reservations consumers may have about electronic payments.

The key to digital adoption
Creating innovative products and services to achieve these goals is no mean feat. While mobile wallets have achieved some success, they are not a silver bullet for bridging the financial inclusion gap. To become a compelling alternative capable of rivaling cash, achieve broad adoption, and make a substantial impact on financial inclusion, banks and Fintechs need to design products that are simple, user-friendly, and affordable, while providing advantages that cash cannot match. Those financial institutions with flexibility at their core are best placed to take on this challenge.

So, what does flexibility actually mean here? Having a platform that empowers banks and Fintechs to deliver digital experiences quickly without having to rely on vendors and their long development queues for product launches. It means the capability to effectively segment their customer base and tailor products to specific segments. It allows for rapid product launches, testing, and refinement. It’s the ability to embrace failure as a learning opportunity and promptly make amendments and try again.

For banks and Fintechs in South Africa, having a platform that can give them this level of flexibility could truly help them build out product offerings that can compete with cash and encourage more participation in the digital economy. Innovative product offerings can come in various forms. For example, increasing prepaid and virtual cards as a value-add could serve as a budgeting tool for consumers, while allowing them to shop online and access the larger retail environment where card and related loyalty programs attract consumers. Introducing and increasing loyalty programs tied to mobile banking or payment cards may incentivise and encourage repeat usage. Offering user-friendly and secure digital remittance solutions could facilitate the transition to digital transactions, while launching cash-by-code solutions could attract a fresh audience.

In a diverse market like South Africa, where the needs and preferences of audiences vary widely, having the ability to launch a range of products and services through multiple channels quickly and easily could be the gamechanger banks and Fintechs need to continue to close the financial inclusion gap.

Reshaping the financial landscape
As John Anderson at Standard Bank said: “Financial inclusion is not about having a bank account, it’s about financial deepening; it’s about a transition away from cash.” To effectively bridge the financial inclusion gap in South Africa, forward-thinking banks and Fintechs can play a pivotal role by promoting the adoption and utilisation of digital payments through innovative products and services that encourage greater engagement in the digital economy. Ultimately, the success of this hinges on the collective commitment and collaboration of all stakeholders to prioritise the needs of both consumers and businesses. By doing so, South Africa can make substantial strides in the journey towards financial inclusion, ensuring that a more consumers and businesses can actively participate in the digital economy, thereby catalysing a more inclusive and prosperous South Africa.

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