South Africans ditching cash

Pepkor has reported strong growth in FinTech revenue, which comes at a time when South Africa is increasingly ditching cash in favour of digital payments.

The retailer’s interim results for the six months ended 31 March 2024 showed revenue from its FinTech segment increased by 24.5% to R5.8 billion.

“The FinTech segment continued to increase its contribution to group revenue, contributing 13% in the current period (H1FY23: 12%),” Pepkor said.

This was driven by strong growth in the retailer’s Flash and Financial services businesses. Flash is specifically geared towards the informal market.

“Flash is a technology-driven company. Its hardware and applications offer informal traders an affordable and safe payment system through which to do business in their communities,” the company explained.

“Having built the largest informal retail network in Africa, featuring integration across multiple technology platforms and channels, Flash can process millions of transactions daily.”

Flash has expanded across Africa and Europe, integrating its payment application programming interface and products into formal retail outlets.

It increased profitability by over 20% and contributed 65% to the FinTech segment’s revenue.

“Throughput value in Flash increased by 28% during the period, enabled by the 165,000 trader network,” the company said.

Pepkor also offers a range of other FinTech products, including credit through Tenacity and Connect.

“Tenacity supports the Ackermans, PEP and Pepkor Speciality brands in terms of interoperable credit sales across brands through store cards to customers,” the company explained.

“Its credit programmes are highly regarded for their simple pricing structures, quick time to market and ongoing professional support.”

“Connect provides credit through instalment sale receivables to the furniture, appliances and electronics brand, offering flexible terms to make purchases more affordable, as well as various payment options.”

The retailer also offers lending services through Capfin, which provides unsecured credit to customers. Capfin strives “to make loan applications accessible, simple, and hassle-free”.

Finally, Pepkor has Abacus, “a niche insurer that focuses on addressing the insurance needs of Pepkor’s retail customers”.

“They provide easy and affordable insurance products by delivering efficient and personalised service and being readily accessible at all times.”

This increasing reliance on FinTech reflects general trends in South African retail, with more businesses relying on electronic payments and eliminating cash transactions.

In January, Woolworths Café announced they would “no longer accept cash, as we’ve joined a global responsible business initiative prioritising customer and staff safety”.

With this decision, WCafé joined global coffee giant Starbucks, which no longer accepts cash payments in South Africa.

The retailer said the decision for its WCafés to go cashless was based on data it had collected, which showed that they received relatively few cash payments.

According to Discovery Bank’s SpendTrend24 report, compiled in collaboration with Visa, South Africans increasingly use their mobile phones to pay instead of physical wallets.

In particular, spending via digital wallets, such as Apple Pay, grew sharply in South Africa, increasing by 9% in 2023 versus 2022.

The 4Sight Digital Banking Behaviour Survey reports that more than 60% of South Africans prefer digital wallets because this technology eliminates the need to carry a physical wallet.

Digital payments also offer other benefits, such as easy payment tracking, convenience, and safety features, making them more appealing to customers.

The benefits of digital payments have not only been noticed by customers and businesses but also by the Reserve Bank, which has acknowledged the importance of South Africa going cashless.

In April, the SARB published its digital payments roadmap to overcome the barriers to reducing cash usage, which entails a 17-item action plan to increase the effective use of digital payments in South Africa.

Despite these advances towards a digital-payment-only society, cash still dominates in all areas of South Africa’s economy.

Nearly 90% of Mr Price’s sales for its 2023/2024 financial year were conducted in cash, while growth in its credit sales remained flat compared to the previous year.

Similar to Pepkor, which targets lower to middle-income consumers, Mr Price primarily sells to younger, budget-conscious consumers.