Digital money in South Africa

At the beginning of September 2010, Vodacom, one of South Africa’s cell phone network operators, announced the introduction of M-Pesa "cell phone money" to South Africa. M-Pesa is very successful in Kenya, where it has over 10 million users. Vodacom is aiming to reach the same number of people in South Africa. 

To register for M-Pesa, a Nedbank account holder must curently be a Vodacom customer. He needs to open a Nedbank account with his Vodacom cell phone number as account number. For security reasons, the user is issued with a PIN number. This equipped, he may proceed to send a voucher to any other cell phone number. The recipient will be able to claim the voucher within seven days – to take it out as cash from registered outlets, to buy airtime or to transfer it to a third party.

South Africa has numerous digital payment solutions. Some are powered by banks, like eBucks (First National Bank) and mimoney (Standard Bank), others by various companies, for example MyGate, Npay or PayFast. Some are designed for online shopping, but many are also adapted for buying or sending money via cell phones. Thus, Standard bank offers its mimoney on cell phones too. FNB’s cell phone money is called eWallet. While M-Pesa requires a Nedbank account holder to be with a specific cell phone network (Vodacom), both mimoney and eWallet are network-independent; that is, one can buy vouchers and send them from any cell phone to any other cell phone, regardless of network.

With all these players, it is perhaps not surprising that no web money or mobile money solution managed to become widely accepted in South Africa.

Many say that the cell phone money has more chances to take off in the country, because out of about 50 million inhabitants practically everyone has a cell phone, while only about 5.5 million have internet-enabled computer.

Enabling cell phone users to transfer funds and to transact via their cell phones may bring online shopping, which is often a more affordable venue than retail shops, to new markets. That would contribute to development of this area of economic activity in South Africa. It is believed that ecommerce accounts for only about half a percent of the national retail cake; in mature economies, that percentage is seven to ten percent. Internationally, ecommerce is expected to grow at an annual rate of 10 percent for the foreseeable future. If South Africa is to experience similar growth, it needs a reliable, trusted and widely accepted online payment method.

One of the hurdles for South African online traders is the complexity of collecting money from overseas customers. That is why the introduction of PayPal into the local market couple of moths ago was greeted with cheers. Everyone thought that this payment method will provide the long-awaited universal solution. Since then, the euphoria has cooled down, as South Africans realised that, in order to become a part of the PayPal family, they need to (1) open an FNB account; (2) withstand relentless Reserve Bank scrutiny; and (3) have all the transactions done in the US dollars. The last requirement is the biggest problem, because it practically excludes PayPal for local trade.

Online South African sellers, especially small ones, need to be able to accept payments from both their local and international customer via one easy to use solution.  With the limitations currently imposed on it in the country, PayPal cannot satisfy that requirement. It is interesting to note that the biggest South African online marketplace, bidorbuy.co.za, has bought into PayFast and is currently developing more robust online payment solutions. The idea is to offer a product capable of integrating seamlessly with any ecommerce site.

However, having in mind the South African Reserve Bank rules and regulations, it is difficult to see how any online payment solution, local or international, will manage to walk the last mile and enable the flow of digital money across borders. 

Recently, two big credit card companies, MasterCard and Visa, have announced moves that may signal their readiness to move into the arena of online and mobile payments. This may prompt local players to intensify their efforts to bring to South Africans an easy to use, flexible and widely accepted digital payment solution.