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Show me the (cashless) money

Mobile payments are on the rise. But are they relevant for your business?

It’s hard to imagine a world without money and we generally assume it was a rather natural innovation. After all, what better way is there to establish a trade for goods or services? But surprisingly, hard currency did not come into being as a practical way to conduct commerce. In ancient societies the ebb and flow of harvest seasons meant that ledgers were instead kept, usually by temples, and people bought and sold on an elaborate credit system.

Money came into being because of warfare, or more specifically, the need to pay mercenaries. Unlike farmers and traders, swords-for-hire had little use of IOU agreements with local societies, so monarchs minted coins and forced their trade in order to facilitate mercenary armies. The most telling evidence of this is that the Phoenicians, so prolific in trade that even today we use the template of their alphabet, were late adopters of currency.

Walking the cashless talk

Today, of course, money is everywhere and undergoing a radical revolution. The so-called cashless society has threatened to arrive every year, yet its uptake has been haphazard. In terms of credit, cheque and debit cards, it’s been a big hit – at least for consumers. Retailers are increasingly paying the price of a banking monopoly that enforces fees to use its card systems. Even in hard economic times banks have shown little reluctance to raise merchant fees.

But the banks are not the only action in town. Google, Apple and Samsung have launched cashless payment systems tied to their mobile devices. The logic is simple: by linking a credit card to your smart device, you can easily make payments at shops without exchanging a single note or cent. It’s the convenience of a bank card, but without the inconvenience of carrying a bank card.

Yet the response to these systems have been lukewarm and even Apple Pay, once touted as the gamechanger of the cashless world, has struggled to gain meaningful traction in the US and Europe.

None of the above three payment systems have launched in South Africa, for a number of reasons. They all require point of sale systems that can interact with the RFID or Near-Field Communication (NFC) chips on new smartphones, something that requires expensive upfront investment by retailers. They also rely on fairly new mobile phones – though SA boasts a substantial mobile phone penetration of over 100%, not many of those devices are modern flagship phones. The critical mass is simply not there. But perhaps most paramount is a total lack of buy-in from South Africa’s banks: they need to approve of Google Wallet and its peers to link their cards, something that hasn’t happened yet.

Homegrown fills the gap

The banks are instead hedging their bets elsewhere in a mobile commerce market that Juniper Research predicts will be worth $3 trillion globally next year. Locally there are said to be more bank cards than South Africans, yet only 15% of businesses have card facilities. The cost of adopting those is the main barrier, laying down a challenge that several local startups are eager to solve.

Payment Pebble (produced by Thumbzup, backed by Absa) and Yoco are two local solutions that combine smartphones with accessory card readers for easy swipes. Snapscan (backed by Standard Bank) skips the secondary reader and uses QR codes instead. The local version of Whatsapp and WeChat integrates with Snapscan for merchant payments, but also offers peer-to-peer money transactions. This latter feature is quite common among local banks, which is why M-Pesa – the Kenyan peer money success that has been blazing trails across developing economies – continually failed to gain meaningful traction in South Africa. In May, Vodacom admitted it had failed with M-Pesa, with plans to cease the service at the end of June. From a three-year target of ten million local users, its most optimistic result was one million registered users, of which 72 000 were active.

But M-Pesa’s woes also demonstrate South Africa’s banking maturity, while startups are working on filling the gaps with smaller retailers. The time is ripe for companies to exploit this.

Cashing in on the revolution

Mobile payment systems are creating new payment channels for both traditional and online stores. The momentum is currently with the bricks and mortar sector, since all of the above offer alternative payment methods. These are often cheaper than traditional banking products, charging around 3% of processed transactions. Pebble charges an additional monthly rental fee of R50. That is very appealing for small and specialist retailers.

But mobile payment is also creating a beachhead among e-commerce sites. Apple and Google are taking on services such as Paypal in offering online payment. Locally, Snapscan has been piloting online payments through its app, and says it has been doing well, especially uptake among local specialist online retailers.

Such systems face competition from incumbent online paygates such as PayFast and PayU, neither of which have yet introduced an app. So online mobile payment systems can tap the trust they built with consumers offline. This defines the two choices retailers should weigh around mobile payments: will it open transactions to new customers and is it appealing to existing customers? Will a Pebble card swipe or an online Snapscan transaction make that sale more likely? Given the low subscription and merchant fees, for many it may be worth the gamble. Traditional businesses can open their doors to card payments, while online retailers could cash in on the expectations of tech-savvy consumers. But neither have yet broken through significantly into the mainstream market, so it is still an early adopter move for businesses to make.

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