Electrum Business Analyst Cassandra da Cruz compares domestic remittance services and explores what makes them work (or not).

The M-Pesa digital wallet has been a phenomenal success in Kenya, growing the banked proportion of the country’s population from around 60% in 2006 to over 80% in 2018. Yet, in South Africa, uptake of M-Pesa was underwhelming, despite a strong demand for domestic remittance services. There are several reasons M-Pesa is not being adopted by South Africans but the principle is clear: context is important when innovating for banking.

It’s not the availability of financial instruments holding South Africans back…

South Africa has one of the most advanced banking systems in the world and a high proportion of its population has access to bank accounts. It’s not the availability of financial instruments holding South Africans back from initiating remittances via their bank accounts, it’s the obstacles to accessing them. Many major banks require a minimum account balance of around R20 and charge between R2 and R5 a swipe for debit cards, an unfeasible prospect for many low-income earners in South Africa. In addition to these challenges, ATMs are thinly spread across rural regions.

South Africans still make use of informal means of remittance payments, like sending cash in long-distance passenger taxis, despite the risks. While Kenyans readily took up digital wallets, it seems South Africans prefer to stay with hard cash, particularly as mobile banking solutions are difficult to access due to high data costs and poor network coverage in rural areas.

Banks and retailers should take notice of solutions like these…

ATM coverage may be sparse in rural South Africa, but retailers have widespread reach. The Shoprite Group alone has over 1,000 outlets across South Africa and Lesotho, and they’ve leveraged this reach to make their Money Transfer Service the largest retail domestic remittance service in the country. It charges the sender a flat rate of R9.99 per transaction for any value from R1 to R5,000 (the maximum allowed), which is much more attractive to the majority of South African citizens.

The procedure for sending cash through retailers is convenient, safe and reliable, and the mechanism clearly appeals to South Africans. A sender deposits cash at the retailer’s point-of-sale, and the recipient uses a PIN, reference number and their ID to redeem their cash at their local retail outlet. Capitec offers a similar solution, for slightly cheaper, where their customers can send money from their accounts via USSD or their mobile app to be redeemed at a Shoprite store. Banks and retailers should take notice of solutions like these – not only is there revenue to be made from transactional costs, but there is an opportunity to reduce cash handling fees by recycling it through this service offering.

These solutions increase the quality of life for their users…

Financial inclusion is a key goal of the National Planning Committee’s 2030 National Development Plan and also of the South African Reserve Bank (SARB). SARB’s Vision 2025 plan specifically calls for the further development of domestic remittance solutions, as well as interoperability between retailers, with the regulatory framework being changed to make this easier. As more citizens are able to access digital financial products, the velocity of money in the market is expected to increase, helping bolster the economy. 

These solutions increase the quality of life for their users and contribute to a more just and equitable society. Worldwide, there are still 2 billion people who are under-served by banking infrastructure and 810 million domestic migrants. There is considerable potential for growth in this market, but understanding the context of the country and the needs of its citizens is the key to success for product innovation.

If you’d like to talk about making your banking or retail offering more financially inclusive, why not contact us?

Cassandra da Cruz

Cassandra da Cruz

After studying chemical engineering at UCT, Cassandra da Cruz ditched her lab coat to become a business analyst. She gets to immerse herself in research and problem solving at Electrum every day.