International money transfers in South Africa: An overview of a growing industry

South Africa has one of the largest economies on the African continent. Being one of the most technologically advanced and diversified economies in the whole country, South Africa’s GDP nearly tripled between 1996 and 2011, reaching its $416 billion peak. As of 2022, it stands at over $435 billion, with the purchasing power parity at $1.250 trillion, a constant increase from the previous years. Around the early 2010s, foreign reserves increased from $3 billion to nearly $50 billion, creating a strong economy and a sizable middle class. These changes appeared within two decades of the end of the apartheid, the institutionalized racial segregation that lasted from 1948 to the early 1990s.

The total market capitalization of the Johannesburg Stock Exchange stands at $1.28 trillion as of late 2021, and while natural resource extraction remains one of the most significant contributors to the economy, the tertiary sector has been under continuous expansion since the end of the apartheid. As of 2014, the service sector employed nearly 72% of the labor force, while 23.5% worked in industry and 4.6% in agriculture. South Africa is the world’s largest producer of chrome, platinum, vanadium, vermiculite and manganese and the second-largest producer of palladium, zirconium and rutile.

In 2012, South Africa overtook India to become one of the largest iron ore suppliers, with a significant portion of the exports going to China, the world’s leading consumer of the metal. Other main export partners include the United States, the United Kingdom, Japan, Germany and Botswana. Automobile manufacturing, textiles, technology, IT, fertilizer, foodstuffs and commercial ship repair are other essential parts of the economy.

Nevertheless, the country is still grappling with issues within the economic sector.

Much like in the case of the rest of the world, the Covid-19 pandemic has deeply scarred the South African population. By extension, it has also affected the economy. As the pandemic progressed, an increasing number of the population was affected by the loss of income and, by extension, financial troubles and food insecurity. As of 2022, the unemployment rate is estimated to have climbed to nearly 37%, while the rate for youth unemployment stands at over 64%. The reasons for this troubling trend are multifaceted, ranging from many young adults exiting the education system before they can acquire the necessary skills and qualifications.

The reservation wages of the youth are also typically much higher than what it is feasible to receive from smaller or medium-sized businesses. As such, many remain unemployed or continue looking for a job at a larger company. Some senior South Africans receive almost twice the per capita income. This is largely applicable in the case of the white population, and as such, the youth have less incentive to look for employment, aware that there’s a safety net to fall back on.

The investment sector has been struggling as well, already on a downward path before the health crisis of the pandemic struck. The causes range from political uncertainty to a lack of infrastructure. Now, regulatory restrictions pose a further threat to recovery. The overall expectations are that the GDP should increase by roughly 1.3% in 2023. However, the danger of an ever-increasing inflation rate is still looming on the horizon. In early 2022, inflation reached the 6% mark. However, by September, this trend had slowed down.

The government has certain priority interventions in mind when it comes to helping the economy bounce back, including infrastructure investments, supporting tourism, strengthening food security, as well as mass public employment interventions. Nevertheless, it’s worth mentioning that the general public came up with strategies of their own.

South Africa’s love for digital payments continues to grow, with 95% of consumers having used at least one cyber payment method over the last year. And usage is only expected to increase. The biggest trends are in cryptocurrency, Buy Now Pay Later, open banking, account-to-account transfers and biometrics. These developments are used not only on particular occasions or by a few niche groups but are actively used by South African people in their daily lives. Online shopping rates are also increasing, with nearly 70% claiming to have made online purchases over the last six months, with 49% having bought a service via online subscription.

As such, South Africans have been on the lookout for the best solutions supporting online money transfers. It’s no surprise considering the fact that 60% of South African consumers confess they believe digital payments help them manage their finances more efficiently, while 84% agree that making purchases or paying bills directly from their bank account without the need to provide additional details is a preferable strategy.

Transfers are also an essential matter in the international context. For one, wealthy South Africans are leaving the country at increasing rates or at least moving a large portion of their investments abroad. Many are concerned about how economic stagnation could impact their finances, so they choose to move their assets to countries such as Australia, the UK, Switzerland, Portugal, Mauritius and New Zealand. This has caused the country’s private wealth levels to plunge. The possibility of a more reliable stock exchange market and the opportunity to acquire ventures or invest in businesses at a discount are alluring prospects for the HNWIs.

Another category using money transfers from South Africa is represented by the large number of young people looking to emigrate. A recent survey estimates that 52% of young Africans are considering leaving their country. The reasons range from not feeling secure to an inadequate health sector, high unemployment, and meager job opportunities.

There are some drawbacks to international transfers as well. Transactions are often quite expensive in South Africa. For instance, Absa Bank has a 0.55% commission for any transfer. This means there’s a minimum of R180 to a maximum of R800 associated with any transfer. There’s also an additional electronic fee of R100 for online payments.

However, A2A payments remain very popular in the country. More and more South Africans are using account-to-account payments due to their flexibility, convenience, and ease of use. Many also believe that transactions are much safer and that the speed of digital methods is one of the main reasons open banking is gaining increasing traction among the general public. Most consumers agree that they feel safe using apps to send money to either relatives or businesses directly from their phones. They also feel no apprehension towards sharing financial and personal information with the apps and are confident that sensitive data and their funds are well-managed within the applications.

With the rise of biometrics, an ever-increasing number of customers agree that it has become the preferable, safer option to use and are more likely to choose it over a card or another device. While some still hold some concerns regarding the way in which their data is managed, they still use or are planning to use biometric payments, as they believe it is safer overall than PINs, passwords and other forms of identification.

With all these aspects in mind, it’s clear to see that money transfers and digital payments have already become a well-established part of the South African financial market. Estimates assert that it is only going to expand, so those that aren’t using the technology yet, are sure to do so soon.


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