The Cards and Payments Industry in South Africa: Emerging Trends and Opportunities to 2020

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Date: 30-Dec-2016
No. of pages: 61
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The Cards and Payments Industry in South Africa: Emerging trends and opportunities to 2020

Summary

South Africa is a cash-based society, with the main use of cash for small-value retail transactions. This is due to the lack of adequate banking infrastructure, limited awareness of electronic payments, and low acceptance at retailers. In 2016, cash accounted for 67.7% of total payment transaction volume. However, use of payment cards in South Africa is growing at a healthy pace, with a review-period (2012-16) compound annual growth rate (CAGR) of 18.6% in terms of transaction value. Uptake is primarily being driven by the government's financial inclusion plans, the introduction of basic bank accounts, improved banking infrastructure, and a steady fall in interchange fees.

Debit cards dominated the payment card market in terms of transaction volume and value during the review period. This growth was supported by the increased banked population, the availability of low-cost banking accounts, consumer awareness of the benefits of debit cards, improved banking infrastructure, growing awareness of debt control, and continued migration of low-value cash payments.

South Africa has one of the region's fastest-growing credit card markets, following decades of limited access to credit facilities. South African consumers, especially the middle classes, use credit cards to meet temporary credit requirements. Consequently, the frequency of credit card use was 81.3 transactions per card in 2016 - increasing from 55.7 transactions per card in 2012.

Although e-commerce penetration in South Africa is comparatively low by international standards, the e-commerce market posted a review-period CAGR of 26.2%, growing from $1.0bn (ZAR14.3bn) in 2012 to $2.6bn (ZAR36.2bn) in 2016. The growth can be accredited to high mobile penetration, rising consumer confidence in online transactions, and secure online gateways. Individuals prefer traditional payment instruments, including payment cards and credit transfers, as the mode of payment for online transactions.

Consumer preference for credit cards over personal loans has risen as a result of lower interest rates on credit cards. According to the National Credit Act (NCA), the maximum interest rate that can be charged on a credit card is 18% (repo rate plus 12%), while on an unsecured loan it is 27% (repo rate plus 21%). Banks also offer installment facilities, flexible repayment options, and interest-free credit periods of up to 55 days, as a result of which credit card transaction volume recorded a review-period CAGR of 10.6%.

The report "The Cards and Payments Industry in South Africa: Emerging trends and opportunities to 2020" provides top-level market analysis, information and insights into the South African cards and payments industry.

In particular, this report enables the following -

- Current and forecast values for each market in the South African cards and payments industry, including debit, credit, and charge cards.

- Detailed insights into payment instruments including credit transfers, cash, cheques, direct debit, and payment cards. It also, includes an overview of the country's key alternative payment instruments.

- E-commerce market analysis and payment methods.

- Analysis of various market drivers and regulations governing the South African cards and payments industry.

- Detailed analysis of strategies adopted by banks and other institutions to market debit, credit, and charge cards.

Companies mentioned in this report: Absa Bank, Standard Bank, FirstRand Bank, Nedbank, Capitec Bank, First National Bank, Visa, Mastercard, American Express, Diners Club.

Scope

- Visa and Mastercard have introduced their own payment solutions to push electronic payments in the country. In July 2014, Mastercard launched the Masterpass digital wallet in South Africa, in association with Standard Bank. Masterpass users can shop online without giving payment and shipping information with every purchase. Meanwhile in September 2016 Visa launched Visa Checkout. The new service requires a username and password to make a payment, as opposed to credit card details and an expiry date for each transaction.

- Banks and regulatory bodies are implementing new technology to curb card fraud. In July 2016, the Payments Association of South Africa (PASA), in association with Visa and Mastercard, introduced a new specification for biometric authentication for card-based payments. The framework facilitates open interoperability solutions and allows a range of biometric solutions such as fingerprint, palm, voice, iris, and facial biometrics. Eventually all transactions will be biometric-authenticated, which includes confirmation of transactions through customers' fingerprints. In line with this, Mastercard and Visa designed a framework for biometric authentication of transactions.

- To control growing consumer debt and payment defaults, the South African government amended the NCA in May 2014 to include new measures that card issuers need to follow while offering credit facilities. The measures were implemented from March 2015. Banks are now required to analyze customers' income and take all monthly debt repayment obligations into account before offering credit facilities. However, the measures had little impact on the fast-growing credit card market, as consumers are increasingly using credit cards as a temporary source of disposable income. Low interest rates in comparison with personal loans, installment facilities, flexible repayment options, and long interest-free credit periods are some of the factors driving credit card growth.

Reasons to buy

- Make strategic business decisions, using top-level historic and forecast market data, related to the South African cards and payments industry and each market within it.

- Understand the key market trends and growth opportunities in the South African cards and payments industry.

- Assess the competitive dynamics in the South African cards and payments industry.

- Gain insights into marketing strategies used for various card types in South Africa.

- Gain insights into key regulations governing the South African cards and payments industry.

The Cards and Payments Industry in South Africa: Emerging Trends and Opportunities to 2020

Table of Contents
1. EXECUTIVE SUMMARY 2
1.1. Market overview 2
1.2. Key facts 4
1.3. Top five industry events 5
2. PAYMENT INSTRUMENTS 11
2.1. Current payment environment 11
3. E-COMMERCE AND ALTERNATIVE PAYMENTS 13
3.1. E-commerce market analysis 13
3.2. Alternative payment solutions 15
3.2.1. PayPal 15
3.2.2. Masterpass 15
3.2.3. Visa Checkout 15
3.2.4. Zapper 15
3.2.5. SnapScan 16
3.2.6. FlickPay 16
3.2.7. Cell Pay Point 16
3.2.8. Ukash 16
3.2.9. VCpay 16
3.2.10. Instant Money 17
4. REGULATIONS IN THE CARDS AND PAYMENTS INDUSTRY 18
4.1. Regulatory framework 18
4.2. AML 18
4.3. FDI regulations 19
5. ANALYSIS OF CARDS AND PAYMENTS INDUSTRY DRIVERS 20
6. PAYMENT CARDS 23
7. DEBIT CARDS 25
7.1. Debit card market analysis 25
7.2. Competition in the debit card market 27
7.3. Debit cards comparison 29
8. PAY-LATER CARDS 30
8.1. Pay-later card market analysis 30
8.2. Competition in the pay-later card market 32
8.3. Pay-later cards comparison 34
9. PREPAID CARDS 36
10. MERCHANT ACQUIRING 38
11. APPENDIX 41
11.1. Abbreviations and acronyms 41
11.2. Supplementary data 42
11.3. Definitions 55
11.4. Methodology 57
11.5. Bibliography 59
11.6. Further reading 59

List of Tables
Table 1: South Africa: key facts, 2016 4
Table 2: South Africa: regional benchmarking of payment cards, 2016 4
Table 3: South Africa: mode of entry of foreign banks 19
Table 4: South Africa: debit cards comparison and key features, 2016 29
Table 5: South Africa: gold credit cards comparison and key features, 2016 34
Table 6: South Africa: premium credit cards comparison and key features, 2016 35
Table 7: South Africa: charge cards comparison and key features, 2016 35
Table 8: South Africa: payment instrument transaction values (ZARtn), 2012-16e 42
Table 9: South Africa: payment instrument transaction values ($bn), 2012-16e 42
Table 10: South Africa: payment instrument transaction volumes (millions), 2012-16e 42
Table 11: South Africa: payment cards in circulation by type (millions), 2012-20f 42
Table 12: South Africa: volume of payment card transactions (millions), 2012-20f 43
Table 13: South Africa: value of payment card transactions (ZARbn), 2012-20f 43
Table 14: South Africa: value of payment card transactions ($bn), 2012-20f 43
Table 15: South Africa: debit cards in circulation (millions), 2012-20f 43
Table 16: South Africa: debit card transaction volumes, 2012-20f 44
Table 17: South Africa: debit card transaction values (ZAR), 2012-20f 44
Table 18: South Africa: debit card transaction values ($), 2012-20f 44
Table 19: South Africa: debit cards in circulation by scheme (millions), 2012-16e 45
Table 20: South Africa: debit card transaction values by scheme (ZARbn), 2012-16e 45
Table 21: South Africa: debit card transaction values by scheme ($bn), 2012-16e 45
Table 22: South Africa: debit card transaction values by issuer (ZARbn), 2012-16e 45
Table 23: South Africa: debit card transaction values by issuer ($bn), 2012-16e 45
Table 24: South Africa: pay-later cards in circulation (millions), 2012-20f 46
Table 25: South Africa: pay-later card transaction volumes, 2012-20f 46
Table 26: South Africa: pay-later card transaction values (ZAR), 2012-20f 46
Table 27: South Africa: pay-later card transaction values ($), 2012-20f 46
Table 28: South Africa: pay-later cards in circulation by scheme (000s), 2012-16e 47
Table 29: South Africa: pay-later card transaction values by scheme (ZARbn), 2012-16e 47
Table 30: South Africa: pay-later card transaction values by scheme ($bn), 2012-16e 47
Table 31: South Africa: pay-later card transaction values by issuer (ZARbn), 2012-16e 47
Table 32: South Africa: pay-later card transaction values by issuer ($bn), 2012-16e 48
Table 33: South Africa: credit cards in circulation (millions), 2012-20f 48
Table 34: South Africa: credit card transaction volumes, 2012-20f 48
Table 35: South Africa: credit card transaction values (ZAR), 2012-20f 48
Table 36: South Africa: credit card transaction values ($), 2012-20f 49
Table 37: South Africa: credit cards in circulation by scheme (000s), 2012-16e 49
Table 38: South Africa: credit card transaction values by scheme (ZARbn), 2012-16e 49
Table 39: South Africa: credit card transaction values by scheme ($bn), 2012-16e 49
Table 40: South Africa: charge cards in circulation (000s), 2012-20f 49
Table 41: South Africa: charge card transaction volumes, 2012-20f 50
Table 42: South Africa: charge card transaction values (ZAR), 2012-20f 50
Table 43: South Africa: charge card transaction values ($), 2012-20f 50
Table 44: South Africa: charge cards in circulation by scheme (000s), 2012-16e 51
Table 45: South Africa: charge card transaction values by scheme (ZARbn), 2012-16e 51
Table 46: South Africa: charge card transaction values by scheme ($m), 2012-16e 51
Table 47: South Africa: prepaid cards in circulation (millions), 2012-20f 51
Table 48: South Africa: prepaid card transaction values (ZARbn), 2012-20f 51
Table 49: South Africa: prepaid card transaction values ($m), 2012-20f 51
Table 50: South Africa: merchant acquiring transaction volumes (millions), 2012-20f 52
Table 51: South Africa: merchant acquiring transaction values (ZARbn), 2012-20f 52
Table 52: South Africa: merchant acquiring transaction values ($bn), 2012-20f 52
Table 53: South Africa: acquirers' transaction volumes (millions), 2012-16e 52
Table 54: South Africa: acquirers' transaction values (ZARbn), 2012-16e 53
Table 55: South Africa: acquirers' transaction values ($bn), 2012-16e 53
Table 56: South Africa: retail outlets and card-accepting merchants (000s), 2012-20f 53
Table 57: South Africa: debit card average interchange fees (%), 2012-16e 53
Table 58: South Africa: debit card MSC and interchange fee (%), 2012-20f 53
Table 59: South Africa: pay-later card average interchange fees (%), 2012-16e 54
Table 60: South Africa: pay-later card MSC and interchange fee (%), 2012-20f 54
Table 61: Key definitions 55

List of Figures
Figure 1: South Africa: payment instrument shares by transaction value (%), 2012 vs 2016 11
Figure 2: South Africa: payment instrument shares by transaction volume (%), 2012 vs 2016 12
Figure 3: South Africa: e-commerce market value 13
Figure 4: South Africa: population and economic indicators 20
Figure 5: South Africa: ATMs, POS terminals, and household consumption 21
Figure 6: South Africa: payment card transaction value and cards in circulation, 2012-20f 23
Figure 7: South Africa: debit card penetration and turnover per card 25
Figure 8: South Africa: debit card scheme and issuer transaction value share, 2016 27
Figure 9: South Africa: pay-later card penetration and turnover per card 30
Figure 10: South Africa: pay-later card scheme and issuer transaction value share, 2016 32
Figure 11: South Africa: prepaid cards in circulation and transaction value, 2012-20f 36
Figure 12: South Africa: merchant acquiring transaction volume and value, 2012-20f 38
Figure 13: South Africa: acquirers' market share in terms of transaction volume and value (%), 2016 39
Figure 14: South Africa: average merchant service charge and interchange fee (%), 2012-20f 40
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