23 June 2016

Zimbabwe's Banks Ready for Plastic Money?

THE Reserve Bank of Zimbabwe (RBZ) is advocating greater use of plastic money, with the intention of ensuring that 80 percent of monetary transactions are done using cards or electronic transfers in the next five years.

The central bank last week reduced charges for all electronic transactions to ease pressure on banking clients and promote the use of electronic banking services.

The RBZ said the decision had been reached after discussions between the Bankers Association of Zimbabwe (BAZ) and payment systems providers to promote and encourage usage of electronic banking services.

High charges by banks had discouraged use of plastic money. Moreover, electronic payment systems, such as point of sale machines (POS), have often been very unreliable.

The economy has become largely informal, but banks have failed to accommodate the informal sector, resulting in plastic money being impractical in informal sector transactions.

'Plastic money' refers to the use of various types of cards like debit cards, credit cards, cash cards, pre-paid cash cards and cards issued by various merchants in loyalty programmes.

To have wide or mass adoption of plastic money, several conditions need to be in place. A card simply helps a user access an account representing cash somewhere whether at a bank or merchant.

However, while plastic money is convenient and less risky than carrying cash, a spate of bank failures in which depositors lost large sums of money have made many people suspicious of banks.

Zimbabwe is facing serious cash shortages. Many people are queuing for long hours to withdraw cash, and often failing to get it from their banks despite waiting for hours daily.

Banks have introduced daily withdrawal limits, some as little as US$50 per day.

So bad is the cash situation that Chamber of Mines president, Toindepi Muganyi, told a Parliamentary portfolio committee recently that banks were taking 10 to 20 days to clear payments for imports by mining companies "with a potential production loss of up to four months".

"This will remain a high potential risk to the outlook," Muganyi said.

Mining constitutes about 15 percent of gross domestic product, and contributes about 53 percent of foreign exchange earnings; it accounts for between eight to 12 percent of government revenue and more than 400 000 of formal unemployment.

The sector has generated more than US$8 billion revenue in five years to 2015. With the real sector underperforming, the liquidity crisis can only get worse.

Despite assurances from different government institutions that the cash situation is manageable, some people fear it could spiral out of control and lead to a social crisis if not addressed.

Zimbabweans generally prefer to deal in cash and when it comes to the security of the formal financial system amid questions about the reliability of banks, it does not take much to rattle the entire population.

The current cash squeeze too, does not give the people enough confidence to open bank accounts.

The worsening cash-crisis has inevitably resulted in a significant rise in mobile money transactions, latest RBZ figures show.

In its weekly update for the period to May 27, the RBZ said while total National Payment Systems (NPS) transactions stood at 5,6 million, 84,6 percent of these transactions had been conducted from mobile money platforms.

"The total number of NPS transactions stood at 5 563 099 during the week under analysis, down from the 5 702 979 transactions recorded in the previous week. The transactions were distributed as follows: Mobile, 84,64 percent; Point of Sale (POS), 11,37 percent; Automated Teller Machine (ATM), 3,11 percent; Real Time Gross Settlement (RTGS), 0,77 percent; and cheque, 0,11 percent," the RBZ said.

However, the total value of transactions processed through the NPS increased from US$1,126 74 billion the previous week, to US$1,129 51 billion during the week to May 27, 2016.

RTGS transactions stood at US$929 million, up from US$921 million registered in the previous week.

BAZ president, Charity Jinya, said there were plans to import more POS machines to reduce reliance on cash.

"We are pursuing the importation of POS machines to widen the use of plastic money and other electronic platforms to lessen reliance on cash for day-to-day transactions. BAZ has come out strongly in support of the measures that have been put in place by the central bank," she said.

Jinya added: "Banks are there to, among other things, protect people's hard-earned money. When people start keeping their money at home, it affects the normal flow of cash resulting in shortages, as we are seeing now. It also poses a risk of theft of that same money. We, therefore, encourage people to keep their money in banks."

Most retailers do not have POS machines that enable use of plastic money. This includes formal businesses like fuel stations which still insist on cash.

A Zimbabwean who travelled to Botswana recently said he was surprised to find POS terminals at all fuels stations in the country, including those located in remote parts of that country.

These were also very efficient, he said, and were available for fuel purchases.

TechZim founder, Limbikani Kabweza, told the Financial Gazette that most people did not trust the banking sector and would therefore use their bank accounts only as vehicles for receiving money and not as a place to store it.

Salaries would be withdrawn immediately after being credited in bank accounts, he said.

"Zimbabwe is still a somewhat disjointed payments ecosystem where one has to go through many processes to move money," he said, referring to the complications that still exist in the country's payments system.

For example, he said, it was impossible right now to move money from an EcoCash mobile wallet, owned by mobile telecommunications company, Econet Wireless, to Telecash wallet, which is owned by Telecel Zimbabwe, and vice versa.

"These disjointed silos become payments ecosystems unto themselves instead of such a small country having common ecosystem where money can flow easily with convenience to the transacting public," Kabweza said.

In other parts of the world, plastic money is widely used instead of hard cash. Closer to Zimbabwe, in South Africa, there are innovations like Ikhokha and M-Pesa in Kenya that have made major strides towards a cashless society.

BAZ senior economist, Sanderson Abel, recently called for the use of plastic money in the form of credit, debit and pre-paid cash cards because there was usually no need for people to have cash on them.

"In the current globalised economy, purchases across the globe can be made through mail, telephone or via the internet. These purchases can only be possible through the use of credit cards," he said.

Monetary authorities are mulling various other ways of easing the cash crisis, including the introduction in October of the much-debated bond notes.

The notes, which will be printed in Germany, will be backed by a US$200 million Africa Export Import Bank facility. A similar facility was used to back the printing of bond coins, already in circulation since 2014 to ease the availability of lower denomination coins for change purposes.

While the issue of bond notes is economically sound, many do not trust government's motives.

ICT expert, Taurai Chinyamakobvu, said for plastic money to be adopted faster, the country should invest in widespread infrastructure where people can swipe to transact easily.

"If that infrastructure is not in place, then people will find it convenient to carry cash because it does not give them hassles. Developing such infrastructure requires a lot of investment in POS terminals, telecommunication networks and other computer hardware and software to make this work," he said.

He said people must have confidence in the issuers of plastic cards. If there is no confidence, people will keep the cash rather than bank it.

"Using plastic money is penalised through charges in Zimbabwe. So the question is: Why should I not have cash which I can use without losing it to some bankers who then go on to live a nice life on the back of my money? The charges alone are a disincentive to using plastic money," Chinyamakobvu said.

With a population of about 70 percent living in the rural areas, buying from little grocery shops without POS terminals, one cannot expect mass adoption of plastic money.

"Efficiency of the infrastructure also counts. Many a time, you see in a supermarket a shopper being held up for a very long time because the connection is playing up plus all sorts of reasons. With cash, there are no such hassles. Most importantly, the government is taxing people to use these electronic channels -- ATMs or POSs machines. No one wants to be taxed for swiping and for buying a product.There are so many levies bleeding the people from all sorts of angles," said Chinyamakobvu.


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