Despite the current uncertainty caused by the coronavirus pandemic, it is possible to predict some changes that are already happening in the South African economy.
Online purchases and payments
The Covid-19 pandemic has forced the world to adapt quickly to a ‘new normal’. We found ourselves at an inflection point where many companies were forced to partially or fully shift their sales to the digital world. Either because they had to close stores or because people had to stay at home due to mandatory foreclosure rules and had to shop at home to help curb the spread of the coronavirus.
One of the biggest changes that have happened very quickly as a result of the spread of Covid-19 is the behavior of South Africans when making a purchase or paying. Shopping in crowded places and using cash, as this can be a vector for the spread of the coronavirus, are behaviors South Africans have recently adopted and it looks like they are here to stay.
According to a study Led by Nielsen South Africa, the technological adaptation of people to shop at home during the mandatory foreclosure paves the way for the successful expansion of e-commerce in South Africa. Gareth Paterson, director of retail at Nielsen South Africa, said: “So we can expect a permanent increase in the number of online purchases even after the pandemic has ended, as many behaviors adopted during the Covid-19 period are likely to result in a long-term habits.
Peach Payments, an electronic payment platform for South African entrepreneurs, said the number of new monthly users increased by 400% since February of this year. “Growth was driven by the acceleration of e-commerce adoption by consumers and the development of more localized products for South African merchants,” said Rahul Jain, co-founder of Peach Payments.
Due to the foreclosure and the inability to visit bank branches, consumers have started to use more mobile apps and online services to complete their financial transactions.
The apps South Africans use the most to manage their finances are money transfer and bill payment apps. Regarding non-banking applications, they are used less frequently and mainly for online purchases. Very few people use mobile money and it is mainly used for in-store purchases or international currency transactions.
Widely used by South Africans, 22seven is an app that links all banks, credit and store cards, investment and loan accounts of over 100 financial institutions, so all transactions are displayed in the same place. The application generates a budget based on the user’s actual spending, so it is possible to know exactly how much is spent on spending.
According to financial services comparator, QuotesAdvisor, aThe most chosen digital banking option for South Africans is the electronic wallet. This method is used to transfer funds, local and cross-border, and to buy online.
As the financial platform said: “The use of online banking services in the region has increased and is expected to continue to increase, while the use of cash has declined. This trend is not only driven by the convenience and safety concerns of transporting cash, but also by the need for South Africans to stay at home during the lockdown and to avoid crowded shops and banks. “
Research conducted by PwC, a global network of companies providing insurance, tax and advisory services, shows that banks will experience significant credit losses due to defaults on residential mortgage loans, commercial loans, loans online and unsecured personal loans. The possible reason for this loss is not affordability induced by price increases and loan payments, but the borrower’s loss of income.
However, despite the many pressures they face, SA Bank’s current capital is sufficient to withstand the impact of the economic crisis of the coronavirus. This is due, in part, to the actions taken by the last global financial crisis.
PwC said that a “high level stress test” was carried out recently. Financial stress tests consist in evaluating the results of the modeling on different unfavorable economic scenarios, called “stress scenarios”.
“The largest full-service banks, including Absa, FirstRand, Standard Bank, Nedbank and Investec, have been assessed. These banks account for 91% of all bank deposits and 94% of all loans granted by South African banks. The study shows that banks are expected to suffer significant credit losses, ”said PwC.
Samira Mensah, senior credit analyst at African Bank Ratings at S&P Global Ratings, told a seminar that while South African banks’ credit losses are expected to increase, they are still good relative to Brazil, Thailand and in Morocco.
According to the test, unsecured loans are expected to be the most affected by the economic consequences of the Covid-19 pandemic. PwC said that compared to the 2008 financial crisis, residential mortgages would be less affected than in 2008, while business lending could face similar pressures as in 2005.
Unsecured loans have always been a vulnerable area of the banking system. According to PwC, “Over the past 12 years, unsecured loans have grown by an average of 9.6% per year.
This category of loans is likely to be seriously affected by the current crisis. Today, despite the uncertainty caused by the pandemic, despite the uncertainty caused by the pandemic, it is essential to ensure that a balance is struck between risk and opportunity.
Above all, the new standard must not overshadow the ultimate goal of eradicating COVID 19 and all of its negative socio-economic impacts. The new economic paradigm must persist in regions where recent developments exceed normal levels.