Plan for South Africa to kiss cash goodbye

South Africa’s government has drawn up a lofty plan to develop a free digital payment platform for residents to reduce cash transactions in the country as part of Operation Vulindlela’s second phase.

A written submission compiled by Operation Vulindlela, seen by Business Times, proposes introducing a free digitised payment system for the country’s residents.

It also puts forward the concept of a digital wallet for South African citizens, through which they can access their IDs, driver’s licences, and various other documents.

Head of the project management office in the Presidency Rudi Dicks said Operation Vulindlela’s second phase includes a focus on digital transformation.

“The main drive of the digital transformation reform will be to introduce digital identification and digital payments systems. Further details will be provided at the launch of Operation Vulindlela Phase Two,” he said.

In another move to reduce cash use, the Sunday Times reports that the South African Reserve Bank (SARB) is finalising a regulatory review that could allow non-banking institutions, like digital payment platforms, to make and accept payments without a banking intermediary.

Currently, regulations require these institutions to partner with firms holding a banking licence for transactions to be cleared.

The review of banking regulatory frameworks forms part of the SARB’s project to modernise payments in South Africa and reduce the reliance on cash, which still dominates, particularly in the informal economy.

Ultimately, the SARB wants banks and non-banks to compete for all payment services across the payment chain under the same frameworks.

While South African banks are seeing the rapid adoption of cashless payments through credit or debit cards and digital payment platforms, SARB Governor Lesetja Kganyago recently said South Africans are over-reliant on cash.

He explained that the Reserve Bank plans to reduce cash use in the South African economy by modernising the national payment system and educating the public on the benefits of digital payment systems.

The SARB’s data shows that nearly half of South African adults withdraw all their money from their accounts soon after it is deposited.

This is due to factors like a lack of trust in banks, the fees associated with card transactions, and merchants’ lack of support for card payments in the informal economy.

Despite this, demand for cash hasn’t grown in recent years. It fell by 0.8% in 2023.

BankservAfrica’s launch of PayShap, in partnership with commercial South African banks, has contributed to the country’s adoption of digital payments.

PayShap is an instant payment system enabling banked South Africans to send and receive money using their cellphone number as a stand-in for their bank account number.

It also supports instant cross-bank payments to other people’s bank accounts.

Users must register their cellphone number with PayShap, which acts as their ShapID.

Between its launch in March 2023 and mid-October 2024, the broader payments industry had processed more than 74.2 billion PayShap transactions worth R46 billion.

Standard Bank has seen a substantial increase in real-time payments through its digital platforms, driven by the uptake of PayShap.

It said the number of clients registering for PayShap increased by 9% over the past year. At the same time, the active use of ShapID for payments grew 817% year-on-year.

Standard Bank South Africa’s head of payments, Rufaida Hamilton, said this shows an apparent demand for convenient payment solutions, particularly when their transactions clear instantly.

“Even our other immediate interbank transactions, beyond PayShap, have continued to rise, highlighting a growing preference for instant payments among our customers,” she added.

Another factor contributing to the adoption of digital payments is digital wallet platforms like Apple Pay, Google Pay, and Garmin Pay, among others.

Multiple South African banks observed marked increases in digital wallet usage in 2024.

Absa said its digital wallet enrollments increased by 20% between June and September 2024, while digital wallet transaction values increased by 75% year-on-year.

Capitec was one of the last commercial banks in South Africa to adopt digital wallets, beginning with Samsung Pay (now Samsung Wallet) in July 2022.

However, the bank recorded an enormous 238% increase in digital wallet values and 225% increase in volumes between June 2023 and June 2024.