By Steven Snyman, Commercial Product Manager for Payments at Innervation Pan African Payment Solutions
Since the pandemic emerged in 2020, a burst of new payment innovation has entered the South African market. Contactless payments, new forms of in-store customer financing and the emergence of a bevy of buy-now-pay-later (BNPL) providers are bringing greater choice in how we pay for goods and services.
And the timing is ideal: Mastercard data indicates that nearly all (95%) South African consumers will consider at least one emerging payment method in the next year. The adoption of contactless payments has become widespread, with the number of such payments for grocery and pharmacy purchases growing thirteen-fold between March 2019 and March 2020.
Despite the growing interest in alternative payments, the vast majority of purchases in South Africa are still made using cash. Data from the Payment Association of South Africa estimates that 73% of retail payment volumes in the formal sector are cash-based; in the informal sector, this rises to 89%.
In light of the economic pressures caused by the pandemic and a slowing economy beset by load shedding and other risks, many retailers are seeking new solutions to drive sales and grow the average basket size.
Alternative credit options, offered in-store and enabled via the point-of-sale, hold the promise of luring new customers and expanding options for existing customers to make purchases in a cash flow-friendly way. For retailers, this could lead to increased customer retention, increased basket size, greater footfall to stores and ultimately increased turnover. Internationally, alternative payments already constitute more than 20% of retail turnover.
But determining the correct payment services to offer at the point-of-sale can be tricky. The following four rules should guide retailers as they choose which payment options to introduce:
1. Keep it simple at the point-of-sale
Retailers need to ensure they keep checkout experiences simple and frictionless from a customer and cashier perspective. Customers are unlikely to enjoy seeking out the correct QR code among a sea of lookalike competitors.
Utilising a single unified QR code standard with a common process across all QR payments would significantly ease the checkout experience and could further increase adoption among customers.
The National Credit Act can make in-store credit applications quite cumbersome, and credit providers have started tightening their approval policies for new credit as pandemic-related economic pressures start to bite.
Buy-now-pay-later providers offer incredibly simple sign-ups that often require only the name, surname and ID number of the applicant, which are then used to run a number of background checks to determine basic eligibility.
Keeping things simple for the customer helps drive adoption of new payment options and expands a retailer's opportunities to successfully make a sale. Using payment services that don't require extensive cashier training is also helpful in ensuring frictionless checkout processes.
2. Use the correct payment options for your customers
South Africa has fairly high levels of banking services penetration, with roughly 80% of the population holding a bank account.
Credit cards are far more scarce: only 6.7 million credit accounts exist for a nation of more than 60 million. QR-code based payments will require that the customer has an active bank account or similar facility with the credit and buy-now-pay-later providers.
Understanding which options your customers will find most useful is key to deploying the correct payment solutions.
Some payment types are also better suited to certain items and customer types. In many international markets, for example, buy-now-pay-later adoption has been driven largely by younger shoppers making fashion-related purchases.
3. Understand the risks and costs
Not all payments are made equal, especially not in terms of their underlying fees. Merchant transaction fees can vary from 2% to 5%+ depending on the provider.
Buy-now-pay-later providers do not charge the customer interest on the purchase amount, but rather levy a fee on the merchant. They do, however, take on all risk related to the customer meeting their repayment schedule, which alleviates some pressure from the retailer.
4. Educate and Build trust
A core tenet of successful payment innovation is the education of the merchant and customer, ultimately growing the uptake of these new payment options and the trust therein. In the early days of e-commerce, for example, many shoppers found it risky to provide their credit card details to make a purchase.
From a customer perspective, uptake and trust are best achieved by the merchant and alternative payment providers working closely together in terms of the processes involved, which payment providers are supported in which stores, signage in-store etc.
Today, with a slew of new payment providers entering the market, the payment service provider has an important part to play in creating a frictionless cashier and customer experience. From ensuring common processes across multiple payment providers, streamlined reconciliation and settlement, to quick payment dispute resolution and fast, effective customer service, to name but a few. Without this, there is a risk of lower adoption of these new payment services from both the merchant and the customer perspective.
Innervation Pan African Payments is part of Adumo, South Africa’s largest independent payments processor trusted by retailers across Africa. Utilising our in-house platform, Innervation Mobile QR, we are enabling merchants for alternative payments through a single POS integration.
Whether a large multi-national, independent, entrepreneur or an online retailer, we have the technology and expertise to help you understand which Alternative Payment methods will grow your business. https://www.innervation.co.za