Towards Digitalising Payment Systems for Financial Inclusion in South Africa

Introduction

South Africa is considered by many to be a dual economy where a large percentage of the population live in poor conditions in rural areas, and another significantly large percentage are wealthy and live in urban areas. Many of the people that live in the rural areas in South Africa are often unbanked and therefore do not fully participate in the economy. Factors that contribute to this lower participation include the non-availability of banking infrastructure, high crime rates, financial and digital illiteracy, high transport, data, and banking costs, and more.

Many countries around the world are on a mission to include the financially excluded population in the mainstream financial system to stimulate economic growth and fight against poverty. On a global level, institutions like the World Bank and the International Monetary Fund (IMF) have embarked on initiatives that aim to eradicate poverty through including financially excluded populations in the banking system. South Africa is also on a journey of overhauling its banking system, and modernisation of payment systems and financial inclusion are among the nation’s key goals.

A Glimpse on the Usage of Mobile Devices in South Africa

The usage of mobile devices in South Africa has increased considerably in recent years. According to Statista, there has been an increase of close to 12 million users of smartphones between 2014 and 2023 in South Africa (with an estimated 5 million more users expected before the end of the year). The research further indicates that there are over 90 million connections as a result of feature phones, which are more popular than smartphones in the country.

Even though there are many mobile phone vendors in South Africa, the Korean tech company Samsung is in the lead and preferred by most South Africans. They have a share of 40 percent of the devices that are in the market, followed by China’s Huawei and the US-based Apple who share the stake of 15 percent each. Three mobile network operators share the mobile telecommunications market in South Africa, namely Vodacom, MTN, and Cell C. Vodacom dominates with the biggest stake of 40 percent, followed closely by MTN and then Cell C. These statistics show that the digitisation of payment systems can have a major influence on the journey towards financial inclusion in South Africa.

SA Connect — The Government’s Response to the Digital Divide

In 2013, the South African government approved a national broadband policy, and its implementation was called SA Connect. The aim of this policy was to bridge the technology gap that exists between citizens living in rural areas and those that live in urban areas. The government would achieve this by availing and implementing a high-capacity and future-proof network infrastructure that entails 10 Mbps broadband services to public facilities such as schools, health facilities, and police stations at affordable rates. The programme was divided into Phase 1, which served as a pilot phase, and Phase 2.

Having successfully connected 970 government facilities in rural areas during Phase 1 of the programme, the South African government is implementing Phase 2, now being rolled out through state-owned entities such as the State Information Technology Agency (SITA), Broadband Infraco, Sentech, and other government partners. Phase 2 seeks to connect the remaining government facilities and communities by 2026.

The government, through the SA Connect programme, aims to reach ...

About the Author: Mvelo Walaza is a PhD student at the University of South Africa (UNISA). His research is based on the digitisation of payment systems in the South African banking industry for financial inclusion. He has been working in both the public and private sectors in the South African ICT industry since 2007. He completed his Masters Degree (Cum Laude) in Computing in 2018 and is currently working as an Analyst Developer at the South African Reserve Bank (SARB) since 2019. At the SARB, Mvelo was involved in the implementation of the upgrade of South Africa’s domestic RTGS — the South African Multiple Option Settlement (SAMOS) system to ISO 20022. He was also the technical lead of the implementation of the SADC Core Reporting System that went live in Eswatini in 2023.

Disclaimer: The views and opinions expressed in this article are solely those of the author and do not necessarily reflect the official policy or position of the author's employer or affiliated organisations.

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