Killing cash

The death of physical currency is slowly approaching and the scramble to replace it is already in full swing.

Multinational payments company Mastercard used the World Economic Forum (WEF) on Africa in Durban this week to launch two reports on the issue, underscoring its hope to be a major part of the post-cash world.

One report on the “cost of cash” claims that consumers effectively lost R23 billion in 2015 due to the use of physical currency.

This report follows a number of similar anti-cash research projects sponsored by Mastercard in other countries.

Of this estimate, R13.3 billion consists of “indirect costs” that include “unproductive time” – the assumption is that people are losing an hour’s wage for every hour they spend travelling to banks and ATMs.

The second-largest element, R6.6 billion, is the actual fees charged at ATMs and bank branches.

The main point is that the cash network is expensive and that poorer people disproportionately pay for it.

Spreading digital payment systems is one pillar of what is increasingly being called financial inclusion, which was the subject of another Mastercard-sponsored report launched on the sidelines of the WEF this week.

This one, in partnership with Deloitte, focused on platforms that may replace cash – and who would own and run them.

It concludes that the major future players may be “platform” companies that host payment systems, but also “create marketplaces for a host of financial services”.

While moderating a breakfast discussion at the WEF, Martyn Davies, the managing director of Deloitte for emerging markets and Africa, said:

“Most Africans are poor and in low-paying, unproductive jobs … Arguably, a lack of financial services is the cause of that low productivity.”

It is, however, not always that clear-cut.

Adam Ikdal, the managing director of the Boston Consulting Group in South Africa, told City Press:

“There is a question on the causality because you can argue that the reason the more developed countries are more financially inclusive is that economic growth itself leads to people being more included.

"I think that is a valid question.”

Mastercard, one of the two dominant US payment network providers, is aiming to have 110 million customers using its new Masterpass QR payment system within three years.

It wants to circumvent the need for card machines at shops by instead turning customers’ phones into the backbone of a payment system.

Mark Elliott, Mastercard’s division president in South Africa, said the route to cashlessness would involve a lot of cooperation with governments around “how policy and tax incentives could hasten the process”.

That includes picking the “low-hanging fruit” of payments to government.

“People make R77 billion in bill utility payments in South Africa a year,” he said.

Mastercard last year introduced a QR code-based system for the Ekurhuleni municipality.

The advocacy for financial inclusion can get blurred with marketing, often by near monopolies such as Mastercard and its peer Visa.

“It is a problem that you have commercial interests and scale economies. But peer-to-peer payments also counteract that,” said Ikdal.

He thinks new developments will “totally disintermediate the credit card players”.

“You will see all sorts of different players enter this space. The time of building monopolist platforms is over. It is going to be much more peer-to-peer based, and threaten a huge part of the income of banks and credit card companies.

"Someone will always take a fee, but it will be inconsequential compared with today,” said Ikdal.

Sim Tshabalala, the CEO of Standard Bank, dismissed the notion that cash or banks were about to disappear.

“Mastercard might say it would like to kill cash, but my view is that cash is going to be with us for quite some time,” he said.

“Physical use of branches, ATMs and cash in general are all declining, but the decline is quite slow in South Africa – and even slower in most of the rest of the continent,” he told City Press.

A lot of the hype stems from the success of M-Pesa, the cellphone wallet system introduced in Kenya in 2007 by operator Safaricom.

According to Tshabalala, M-Pesa is the exception and not the rule because of Kenya’s lack of inhibiting regulation at the time.

In Nigeria and South Africa, similar services did not take off in the same way despite high cellphone penetration.

Banks would need to learn not to charge for payments, said Stephen van Coller, vice-president of strategy and mergers at MTN.

“You have to figure out how to make payments in real time and make them basically free because, in a digital world, that isn’t actually a service – it is just an electronic pulse.”