South Africa’s central bank plans the biggest overhaul of the nation’s cash system in decades, moving to create a cash-management company, roll out white-label ATMs and tighten oversight of how money circulates to make it cheaper and easier to access.

Cash moving through Africa’s biggest economy tops R180-billion, or 2.5% of gross domestic product, and accounts for about two-thirds of all transaction volumes even as digital payments grow. Managing, transporting and securing physical money cost about R90-billion last year, a burden shouldered by consumers. Crime accounts for 13% of that.

The so-called Cash Smart Strategy aims to ensure physical funds remain accessible for low-income and rural communities that have limited digital-payment options and often face costs as much as five times higher than wealthier urban users. The reforms — likely to be the largest change in how cash is circulated since ATMs were introduced more than 40 years ago — are intended to ease that burden.

The central bank expects cash usage to drop by 30% to 40% when the nation reaches digitization levels comparable to India, Brazil and the European Union.

“It’s a very radical transformation of the industry,” Pradeep Maharaj, the head of the South African Reserve Bank’s Payments Ecosystem Modernization Programme, said in an interview.

Key to the proposed strategy is establishing a cash utility co-owned by entities including banks and retailers. The company would mirror the Netherlands’ Geldmaat — a joint venture between ABN AMRO Bank, ING Groep and Rabobank that operates a unified ATM network.

The utility would model cash demand and distribute it accordingly, removing the 480 million-rand indirect subsidy currently received by a few private companies that hold and circulate physical money on the central bank’s behalf.

‘WORTHWHILE SHAKE-UP’
ATMs, which are mostly owned and operated by lenders such as Capitec Bank Holdings and FirstRand, would be rolled into the company and converted to white-label facilities that any bank’s customers can use at little or no cost.

“There’ll be complete interoperability and therefore we’d be able to reduce the fees to almost zero,” Maharaj said.

While the changes may affect commercial bank revenue, “we hope that doing this would reduce the costs they incur by even more and make up for that,” he said.

The strategy won’t “come without cost but it will be a worthwhile shake-up if we can make cash cheaper, more accessible and safer,” said Jannie Rossouw, an honorary professor at the University of the Witwatersrand’s business school.

Declining cash in circulation would also weigh on the central bank’s seigniorage income, or the interest it earns on deposits placed with it in exchange for notes, he added.

The central bank is also considering extending cash regulations beyond lenders and may introduce operating licenses for cash-in-transit companies, retailers and some payment-service providers. A draft regulatory framework is expected early next year.

The Reserve Bank further plans to engage major grocers including Shoprite Holdings Ltd. and Pick n Pay Stores — which recycle as much as 100 billion rand in cash a year — about taking stakes in the planned utility and operating as licensed cash wholesalers with direct access to cash, a move that could benefit their businesses, he said.

It presented the plan to banks this month and will engage with industry experts starting January. Rolling out the strategy could take as much as three years.