Johannesburg- South Africans are letting their debit orders bounce just so they can manage cash flow. The Payment Association of SA (PASA) highlighted a depressing new phenomenon: a rise in the number of unpaid debit orders.
This is a desperate attempt by consumers to manage their money with many having suffered a blow to their finances under lockdown restrictions.
Economists warn that we can expect that ongoing load shedding, inflation and the rising cost of fuel and food will continue to hinder consumers, impacting their payment commitments.
Solutions Actuary at Metropolitan GetUp Prin Munsamy said in order to meet these challenges and requirements, Metropolitan GetUp has embarked on a new payment platform designed to supplement traditional collection mechanisms with a distinctly non-traditional approach to how clients pay.
“It should come as no surprise that ongoing load shedding, inflation and rising fuel and food costs have compounded the long-tail economic side effects of the pandemic, with disastrous repercussions for consumers that will continue to impact their payment commitments. And who has been hardest hit by this cocktail of chaos? The emerging market,” said Munsamy.
He added that this increasingly pressurised dynamic led to the financial services provider unveiling a highly innovative, flexible payment solution that will initially be added to its Funeral Plan and later rolled out across its full suite of products aimed at the emerging market. As the insurance industry struggles with premium collections, Metropolitan GetUp launched a flexible new payment solution that meets emerging market realities.
“Premium collection is currently the most challenging part of an insurance product’s design process, specifically those solutions that target the emerging market. This market is vast and consists of several sub-segments, all exhibiting different payment behaviours. As our economy contracts, unemployment remains rife, and many in this sector continue to survive (and thrive) through entrepreneurship, with younger consumers exploring side hustles and gigging opportunities to supplement their incomes,” added Munsamy.
According to a 2020 McKinsey report on the future of payments in South Africa, up to 45% of income earned in South Africa is still received in cash. Munsamy said this has given rise to a growing proportion of the income and expenditure within these segments happening outside of traditional payment and transaction channels and timelines.
“Income volatility makes collection on a specific day of the month difficult for our market. In addition, our clients prefer being in control of how and when they spend their money. Clients will have increased payment flexibility, allowing them to manage their cash flow more easily and maintain their cover while Metropolitan GetUp is better assured of premium collection. It’s a win-win,” said Munsamy.
The sector now finds itself having to come up with creative solutions to help manage client preferences.
“We believe that empowering our clients to manage the funding of their policies via an agile, dynamic and innovative solution will improve our client value proposition, preventing them from losing their cover as a result of product rigidity. As the landscape continues to evolve, we expect that increased product flexibility will become the norm and innovation the order of the day, as insurers creatively respond to consumers’ shifting needs,” Munsamy concluded.
Professor Dieter von Fintel from the Department of Economics at Stellenbosch University said he doesn’t see consumers having many options.
“It is not a purposeful mistake by their own choosing. While there are additional bank charges associated with bounced debit orders and mounting debt, many consumers simply don’t have the money in the bank to honour these payments. Their best way out is a hard route. Their limited options are to consolidate debts and reduce current expenditures, especially if wage increases in this depressed economic environment won’t keep up with rising inflation and interest rates,” he said.
Head of Corporate Communications at Santam, Thabo Mabaso said they have not experienced a significant increase in their unpaid ratio during this year.