News

Card associations working to increase debit penetration in S. Africa

September 21, 2003

CAPE TOWN, South Africa - Visa and MasterCardare working with South Africa's government to find a way to bring debit cards to the 60 percent of South Africans who currently have no formal banking relationships.

According to a report in Business Day, card growth in South Africa is booming. Visa said that the number of its cards has grown 40 percent in 2003 to 8 million, most of them debit cards. MasterCard had 10.6 million cards in South Africa at the end of June, both credit and debit.

Most South Africans hold more than one card, however, so it is estimated that less than 30 percent of the population holds a bank card.

The financial sector is trying to establish a plan for expanding banking services to the 60 percent of people without formal banking accounts; debit cards are seen as crucial to this effort.

Chris Winter, Visa's general manager for sub-Saharan Africa, said his company is working with the Reserve Bank and the home affairs department to see what role debit cards can play in making it easier for certain groups, including the unbanked and pensioners, to access their bank accounts.

"Our card numbers are growing at an unprecedented rate now, but there is a natural saturation point not far away unless the number of bank accounts can be expanded," Winter told Business Day.

Winter said the pending introduction of chip cards will make it easier for people to use both debit and credit card functionality.

Unlike magnetic strip cards, chip cards do not require a constant telephone connection, an important factor in a country with inconsistent telecommunications. Chip cards can be used "offline," with transactions details processed directly on the card.

"The cost of producing chip cards has been brought down to less than $1 so it is now an affordable way to expand our services without making it more expensive for the cardholder," Winter said.

Theoretically, chip cards could support drivers' license details, medical records and other information, as well as pension and benefit payment information.

New applications still appear some distance away, according to Business Day, as many South African retailers did not accept debit cards until earlier this year.

Anthony West, vice president of business development of MasterCard Southern Africa, said the number of debit transactions where people used cards to pay directly at shops had doubled over the past year.

"This is encouraging, but it's still small because in more than 90 percent of debit card transactions, people use their cards only to draw cash from ATMs," West said.

West said that encouraging more people to use debit cards for retail purchases is crucial to meeting one of the authorities' objectives of reducing the amount of cash in circulation.

"If we can tap the unbanked population, there is a potential to increase card numbers by another 20 million, but this will only happen through a concerted effort to bring banking to this lower-end market," Winter said.