Getting rid of your cash could be a smart move
A major step towards converting South Africa into a cash-free, plastic-happy society is about to be taken, writes LUCIENNE FILD
But cash will by no means disappear overnight. Only 10% of South Africans qualify for credit cards, meaning 90% depend on cash or cheques when making payments.
Banks therefore face an enormous challenge in converting a society which conducts the majority of its transactions in cash to one favouring plastic money. And some bankers estimate it will take 15 to 20 years to achieve.
A major motivation for banks wanting to remove cash is that it costs local banks R1-billion a year to process. And, as the latest Council of SA Banks' figures show, millions are lost to robbers.
The major players in the banking sector have formed alliances with like-minded banks and international payment service providers in an effort to move quickly towards a cash-free society. Standard Bank and Absa have teamed up with MasterCard, while First National Bank, Nedcor and NBS Boland are working with Visa.
But all these players share one goal - to switch ultimately to smart cards.
A smart card looks like an ordinary credit card, but stores information on a microchip embedded in the card. Bankers call them electronic wallets.
Standard Bank and Absa decided to introduce customers to debit cards before smart cards.
The two banking giants, along with MasterCard, announced this week that all their ATM cards would take on a debit card function early next year. This means that about 9-million ATM cardholders will be able to conduct most transactions without using cash. And lower-income groups who do not qualify for credit cards will for the first time be able to pay with plastic money.
In time all Standard Bank and Absa ATM cards will be Maestro branded - Maestro being one of MasterCard's global brands. Consumers will pay a fee to use the Maestro debit card, but this is set to be considerably lower than ATM withdrawal costs, particularly when banks increase ATM fees - which they have indicated they will do.
Peter Abbott, assistant general manager with Standard Bank's card division, says: "Banks want to send a very strong message to customers that cash is no longer necessary."
Standard Bank will charge customers R1.45 a transaction compared with ATM withdrawal fees of R2.50. Absa will charge R1.60 a transaction which at present equals its ATM fee.
Abbott says the card will literally replace cash.
This is how it will work. You present your card for payment and, as a security measure, swipe your card through the pay point. You also enter your pin yourself. The amount you owe is deducted from your account.
In addition, you can withdraw cash from your account at the same time by entering a higher amount and collecting your change from the cashier.
One drawback is that Maestro cards are still based on magnetic stripe technology. So if the banks are offline - as happens regularly - you won't be able to pay with your debit card. And if you don't have cash on you, you might have to leave your shopping behind.
This highlights a major difference between the magnetic stripe debit card and the smart card-based debit card - the client's authorised spending limit is stored on the smart card's microchip, making offline transactions possible.
For this reason FNB, Nedcor and NBS Boland have decided to go straight into smart cards.
Cedric Edwards, senior manager of First National Bank's card and electronic banking division, says FNB and Nedcor have just launched the first phase of the Visa V-Chip smart card in Nelspruit. If successful, these cards will be launched nationwide early next year.
Edwards says the smart card will allow for speedy transactions since dialling a bank's mainframe computer for authorisation will no longer be necessary.
Depending on the bank, smart cards will provide debit or credit facilities. Transaction costs have not yet been finalised, but Edwards says they will be lower than ATM withdrawal fees.
Standard Bank and Absa hope to introduce smart cards next year with MasterCard subsidiary Mondex.
So why should you convert from cash?