Quantifying the true cost of cash in South Africa

South Africa has a high proportion of banked adults but cash still accounts for over 50% of the total value of all consumer transactions. While digital payments innovation is taking place at an unprecedented speed with significant benefits for consumers, cash remains sticky.

Cash usage is particularly prevalent among low-income earners who have lower access to digital channels and who live in communities where digital payments are not always accepted. International studies have shown that cash usage incurs both direct and indirect social economic costs.

Genesis partnered with MasterCard to quantify the true cost of this reliance on cash for consumers in South Africa. While most consumers are aware of the direct costs of using cash, such as bank transaction fees, the indirect social economic costs of cash usage are often overlooked. These indirect factors include the cost of travelling to cash points, the time forgone, the interest foregone by holding cash, and the risk of loss or theft, among others.

Genesis undertook a comprehensive quantification of these costs through rigorous assessments of secondary survey data of consumer behaviour. Quantifying the direct costs of cash such as ATMs, branch costs and cash back at point of sale was relatively straightforward using available data. However, quantifying the indirect costs was significantly more difficult and required developing new quantification methods.

After identifying all the components of the indirect cost of cash through literature reviews, Genesis calculated the opportunity costs associated with cash usage for different income segments in South Africa. We did this by incorporating multiple data sources, sound assumptions and probability theory into an economic model. The study found that cash cost consumers in South Africa about R23-billion, or 0.52% of GDP, and that poorer communities carried a disproportionate share of these costs.

This was a landmark study because no other South African study on consumer costs of cash has conducted an analysis at this level of detail. The research concluded that any strategy to reduce the cost of cash for consumers in South Africa would have to be centred on behavioural adjustments as well as improving accessibility to alternative payment channels through product innovation, particularly in rural and semi-urban areas.

The study was presented at the World Economic Forum on Africa in 2017 and provided a resource for MasterCard to contribute to policy discussions on the benefits of migration to digital payments.

R23-billion cost of cash in SA is carried by low earners