Plastic money takes root

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WHEN the central bank started a push for Zimbabweans to use plastic money due to a worsening cash crisis, point of sale (POS) and automated teller machines (ATMs) became the obvious alternative, but remained largely inefficient.

By Taurai Mangudhla

The central bank had to intervene, resulting in service providers improving their systems. Transactions that would previously take minutes to process at retail outlets are now completed in less than five seconds.

As early as December 2015, prior to the announcement of government’s plans to introduce the bond notes, banks had started capping daily withdrawal limits at US$1 000 per account. This was later reduced to US$500 and now to around US$200 or US$100 per week.

Some banks have been unable to give their customers more than US$50 per withdrawal for months now while some institutions are going for days without cash.

As the electronic platform, mostly Zimswitch, became more efficient and cash supply dried up, consumers resorted to plastic and electronic money.

By mid-June, the use of plastic money had increased by as much as 400% in five weeks, if Finance minister Patrick Chinamasa’s statistics to Senate are anything to go by. The minister says the cash crisis has been easing due to the adoption of plastic money.

Real Time Gross Settlements (RTGS), by their nature accounted for most of the high-value transactions with accounts being settled on the same day for as long as the instruction was given earlier than 11:00. Banks were in April, however, ordered by the central bank to extend the cut-off time for processing RTGS transactions to at least 2pm from the previous 11am in order to cater for tobacco farmers.

This was to persist for a few months until more depositors adopted RTGS payments, increasing the volume of transactions and overwhelming the central bank.

According to the Reserve Bank of Zimbabwe (RBZ)’s June 2016 monthly economic review, transactions processed through the RTGS system increased by 1% to US$4 522,24 million, from US$3 869,19 million recorded in May 2016. The volume of RTGS transactions registered a 35% increase from 199 256 to 268 192 in the same period while cash transactions registered a 25% decline to close the month under review at US$543,94 million.

As at the end of June 2016, the number of POS devices in the market increased to 19 280 representing an increase of 5% from 18 330 in May 2016. At the same time mobile payment agents stood at 34 351 as compared to 33 777 in May 2016.
Cash is also now being exchanged at a premium for RTGS payments and POS transactions in a rebirth of a practice popularly known as “burning” at the height of hyperinflation and economic stagnation in 2008.

A top banker who spoke to businessdigest said due to the increase in volumes, the central bank has been unable to complete transactions the same day. The delays have been described by some as a failure of government’s push for people to adopt plastic money given the failure of RTGS transactions to make payments timeously.

“What is now happening is we capture the transactions internally and then send to the RBZ where they are then carried out. The problem is these transactions have increased in volume and the central bank has been overwhelmed, now it can take 48 hours to clear,” said a banker who requested not to be named.

A snap survey by businessdigest on Monday confirmed depositors were now queuing to make RTGS transactions at their banks.

This was mainly due to the school fees payments that were being made by parents ahead of the first day of the third school term which started on Tuesday.

In June, the RBZ configured the RTGS platform into a multiple currency system with a view to mitigating exchange control losses while promoting RTGS use.

The five configured currencies are the US dollar, the euro, South African rand, British pound and Chinese yuan.
Prior to the move, all RTGS transactions were in US dollars, costing depositors huge exchange fees.

In June, the RBZ slashed tariffs for electronic transactions including RTGS and account administration, bowing to mounting pressure from the banking public which has suffered usurious transaction charges from the country’s financial institutions.

RTGS charges were reduced to US$5 from the previous US$10. Prior to the new fee structure, banks charged as much as US$25 per transaction.

At the time, RBZ governor John Mangudya said the central bank had agreed with the Bankers Association of Zimbabwe and payment systems providers to reduce charges on electronic transactions in order to promote and encourage usage of electronic banking services.

Monthly administration or service fees for account holders were also reduced to a ceiling of US$5 from as much as US$50 while ATM withdrawal fees were also set at a maximum of US$2,50 per transaction.

ZipIT electronic funds transfer fees were pegged between US$0,33 and US$2,10 while POS transactions on the customer’s own bank were capped at US$0,20 per transaction. For other POS transactions of up to US$10, a charge of US$0,10 was set while US$0,45 was stipulated for transaction above US$10.

POS issuer charges were removed.

“It is envisaged that the reduction in transactional fees will go a long way in promoting the use of plastic money which is essential to move the economy towards a cashless society and complement the current financial inclusion efforts,” added Mangudya.

Whether or not it was out of choice, the economy indeed moved to a cashless society, but it seems the service providers are unable to support the system.

Depositors who spoke to businessdigest were not at all pleased with the delays in RTGS transactions.

“I bought a bed on Monday and I was told it could only be delivered after the money reflects in my supplier’s bank account. This, according to a bank teller, could take at least 48 hours because there is too much pressure internally and also at the RBZ,” said Nyemudzai Madziva while she was queuing for cash at a local bank. “The problem is that I have money in my account and need to pay for something immediately. But I can’t. This to me is a failure on the part of government because they are forcing us to use plastic money which can’t pay for what I want right away.”

Another disgruntled depositor only identified as Eunice could be heard shouting at the top of her voice in a banking hall demanding that her transaction be reversed.

“My son cannot go to school unless that payment reflects in the account and you are telling me that can take two or more days. It’s better for me to find the cash elsewhere, reverse this transaction,” she said.

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