South Africans kissing cash goodbye

South African consumers increasingly use contactless payment methods and digital wallets to purchase goods and services. 

Contactless payments have surged in popularity, with Standard Bank pointing out that over half its customers tap their cards or phones at supermarkets, restaurants, and fuel stations. 

These payment methods now account for 53% of all transactions by the bank’s clients, up from 42% just two years ago.

The bank said this has been driven by merchants adopting new technology and clients increasingly trusting digital wallets. 

Standard Bank recorded the most significant growth in 2023, with the value of contactless payments increasing by 37%. This year, the growth has continued with an additional 14% rise. 

The trend spans across all income brackets, with the bank noting double-digit year-on-year increases in tap-to-pay transactions among both middle and high-income clients.

Notably, some client segments have shown a natural affinity to contactless payments, with 81% using this method regularly.

“For credit card users, the shift to contactless payments is even more pronounced, with over 60% of their transactions using this method,” the head of credit at Standard Bank, Tumelo Ramugondo, said. 

“Consumers are becoming more accustomed to the tap functionality, and it’s becoming increasingly entrenched among merchants across various industries.”

While essentials like groceries, fuel, and utilities still dominate transaction categories, there’s a growing trend of discretionary spending through tap-to-pay. 

For example, Standard Bank has seen a 23% year-on-year increase in contactless payments at clothing and footwear retailers this year. 

The value of transactions paid via digital wallets like to devices like Apple Pay, Samsung Pay, Garmin Pay and Google Pay increased by more than 65% year-on-year at the end of August. 

Digital wallet transactions now comprise 13% of all Standard Bank’s contactless payments transactions – up from 4% two years ago.

“Interestingly, while Apple Pay remains the dominant digital wallet, we have seen increased adoption of our own digital card wallet, SBG Mobile, with transaction volumes growing nearly threefold year-on-year,” Ramugondo said.

While the shift to contactless payment methods has been partly driven by consumer demand, it is also a result of a determined push by the Reserve Bank and commercial banks to reduce the use of cash in the economy.

Earlier this year, the Reserve Bank published its digital payments roadmap to reduce the use of cash in the local economy. 

The benefits of digital payments are safety, convenience, cost-effectiveness, women’s empowerment, business opportunities, and transparency, the bank said. 

An overarching challenge that needs to be overcome is consumer trust in digital payments. A lack of trust influences how consumers adopt and interact with digital platforms.

Commercial banks have also pushed to reduce the use of cash in South Africa as it drives violent crime in the country. 

South Africa typically has between R160 billion and R180 billion of cash in circulation in the economy. 

Reserve Bank Deputy Governor Fundi Tshazibana said the amount of cash used in the South African economy limits the type of transactions that can be conducted and presents a set of problems.

“Losing physical cash means the loss is irreversible, unlike electronic wallets or other forms of payment,” Tshazibana said. 

This significant amount of cash being used in the country also brings about concerns related to criminal elements. 

The use of cash also limits the ability to monitor and track its economic impact effectively.

As a result, the Reserve Bank is attempting to reduce the amount of cash in circulation by encouraging banks to push clients to use digital payment channels and by launching its own payment service, PayShap. 

This shift aims to accommodate non-banking users into the payment system and provide mechanisms for small payments, especially for informal traders. 

She explained that the intention is to establish a comprehensive range of payment mechanisms for everyone in the country.