Digital wallets open the doors to a whole new paradigm
Ecentric, which processes card payments for two-thirds of JSE-listed retailers and manages both digital and in-store transactions for retailers of various sizes, can confirm from hands-on experience that the digital payments landscape is, indeed, undergoing radical – and quick – transformation.
So much so that some of the biggest payments businesses in the world are sitting up and taking notice, and are putting their money where their mouths are.
Digital wallets are not a trend or a fad. They are very much the present and the future. Global research indicates that by 2027, that’s just two years away, digital wallets will account for 49% of point-of-sale and retail purchases. Let that sink in. Half of all global retail transactions will be through digital wallets in 18 months.
This sheer volume is proof enough that any talk of trends or fads is antiquated. What we are witnessing is a paradigm shift in how businesses and consumers interact.
Major financial institutions, which made their names and fortunes in the previous paradigm, such as Visa and MasterCard, are investing billions of dollars into digital wallet technology precisely because they’re preparing for a seismic shift in payment ecosystems.
How big is this shift? In Visa’s own Digital Wallet Report from as much as two years ago, it wrote: “In the next five years, digital wallet usage is projected to double, with transaction volume growing from 752 billion transactions in 2023 to 1.4 trillion in 2028. This growth will be seen across use cases from P2P payments to remittances, from merchant payments and worker payouts.”
But why now, and why South Africa?
If we look all around us, both globally and especially locally, where South Africa has a unique economy with various sectors operating at differing levels of digital sophistication, traditional financial systems are plagued with inefficiencies.
The first is that smaller businesses struggle with complex banking processes. On the other hand, cash-based transactions create significant operational challenges.
If we are honest, one thing that holds back innovation and business growth is high transaction costs. Often, these are simply insurmountable for smaller businesses or those operating with exceptionally tight margins or serving less affluent markets. Slow settlement times restrict business agility and the ability to take advantage of growth opportunities.
All of these challenges add up to inefficiencies broadly, and in the informal economy, it leads to operators facing massive financial exclusion. This, as we all know, is a huge missed opportunity.
To this backdrop, South Africa and the rest of this continent need payment innovators who are committed to continuous technological innovation and the drive to expand into multiple economic sectors.
This is especially important in a country such as ours, where we simply need to break down financial barriers to help the country unlock its immense potential, thus creating more inclusive economic opportunities.
The theory is convincing, and therefore, it needs solutions that can deliver on the vision. Certainly, from Ecentric’s perspective, we share the view of the likes of Visa in a digital wallet future. Beyond this, digital wallets present not only massive growth opportunities, but they also hold the keys to some of the most pressing and shared challenges in South Africa.
It is important not to see a digital wallet as just another payment tool. Providers need to build a comprehensive financial ecosystem. As such, our solution leverages blockchain technology to directly address real-world challenges.
These include:
Digital Wallets become useful as we enter a new era in payments for use cases well beyond simply facilitating the sending and receiving of funds.
For example, Ecentric has rolled out digital wallets to 2,000 taxis with an innovative fuel rebate programme, offering up to 200 litres back to fleet owners. The solution eliminates traditional back guarantee requirements, saving millions in locked-up capital.
But the potential of digital wallets goes well beyond this. Innovation in the space can see a complete reimagining of business transactions. Imagine a world with instant stock ordering for small traders, affordable business-to-business transaction processing, the integration of various digital payment methods, credit assessments based on transaction history and finally a solution that properly removes the risks and inefficiencies of handling and moving cash.
We designed a solution that would boast features such as daily interest payments on wallet balances, enable the integration of loyalty and rewards programmes, work seamlessly with value-added-services such as airtime and data purchases as well as insurance and other financial product sales, and comprehensive financial management tools.
It is abundantly clear that far from being a trend, investing in digital wallets is strategically smart and intended to go well beyond just facilitating transactions. It is about democratising financial services, reducing transactional friction, empowering smaller and informal businesses and creating transparent and efficient financial networks.
Retailers with an eye on the future would do well to sit down with an expert in digital wallet technology and the broader payments ecosystem, and understand how the technology should form part of their payments ecosystem.
From increasing sales and security, the technology will increasingly become fundamental to doing business in South Africa and the rest of the continent.