South Africa’s informal economy has for long been largely cash-based. This is changing with spaza shop owners leading the way when it comes to the adoption of digital payments. While there are still hurdles to broader adoption, such as costs and some consumers preferring cash, these ‘cash-smart’ businesspeople are finding new ways to grow their spaza shops, keep their money safe, and serve their communities better,one digital transaction at a time.
Yet, digital payments are not new to the informal economy, and spaza shops have been the go-to place for residents when it comes to buying services like airtime, data and prepaid electricity. Access to vending devices provided traders with more than just extra income; it helped to fuel an entrepreneurial mindset, and showed them the opportunities within the digital payments ecosystem. This set the stage for the next big step: moving beyond just selling value added services (VAS) and toward accepting digital payments for everyday goods.
Bridging the gap: Where traditional banks fell short
For years, getting a card machine meant having to go to one of the major banks. However, these offerings were often aimed at providing broader business banking services, and did not fully serve the informal market’s needs for a transactional product that was simple, practical and cost-effective.
The challenge was clear: how to get a digital solution in the hands of spaza shop owners that was fit for their world. These business owners are cash-smart; they know when to use cash and when to transact digitally. The goal was not to replace cash entirely, but to give them the choice and the tools to do more business digitally.
Spaza owners had real worries about going digital, mainly around cost, complexity and transaction speed. Fintech companies understood these challenges and came up with solutions to address them, including the creation of a closed-loop payments system that brought traders into the digital payments ecosystem.
Fintechs have further reduced the barrier to entry in the following ways:
- Offering a transactional product that gives spaza shop owners a simple way of accepting digital payments.
- Increased competition in the sector has ultimately led to lower costs for merchants adopting digital payments.
- Introducing fit-for-purpose digital payment devices that are designed for the informal market.
These measures have gone a long way in demonstrating to spaza shop owners that digital payments can be easy and affordable, helping build trust and encourage further adoption and usage.
Business help for spaza shop owners
Enabling digital payments goes far beyond cashless transactions. Being part of a closed-loop payments system means that spaza shop owners have quick access to funds and efficient working capital cycles. The aforementioned are crucial for managing small margins and ensuring steady stock supply.
Furthermore, the transaction data collected by fintechs, like Shop2Shop, offers valuable insights that enable solutions that empower businesses to make informed decisions and expand their market reach. This includes giving entrepreneurs access to stock advances when needed, or providing them with the opportunity to earn extra income by selling VAS.
Small businesses are leading the change
Overwhelmingly, spaza shop owners are tech and financially-savvy entrepreneurs. They see the growing demand for digital payments from their customers and are responding to it. So, there is little resistance to going digital; but instead, a practical understanding that while cash is still important in the local economy, payment alternatives are simply good for business.
And it goes beyond spaza shops. Small businesses like hair salons, repair services, and local artisans can also attract more customers by offering more ways to pay. In a world where more people want choice, not accepting digital payments means you’re most likely missing out on sales.
Changes on the horizon
While shop owners see the potential of digital payments, the biggest hurdle to wider adoption remains the cost, and, for a small business, every single cent counts. The good news is that this is changing.
The South African Reserve Bank (SARB) is working on modernising the country’s payment system to make it fairer and more affordable. Their plans include creating a national payment utility that will allow for instant, free, and easy transactions that work just like cash. SARB is also putting rules in place to allow fintech companies to participate more fairly in the payment ecosystem.
These changes will help level the playing field, making it cheaper and easier for informal businesses to offer digital payments to their customers. As costs continue to come down and technology becomes even more accessible, more entrepreneurs, and consumers, will be empowered to join the movement.
