A Cashback Craze and a Lesson for the West
WHY YOU SHOULD CARE
Because great ideas can be engineered out of limiting circumstances.
As the hot day blazes by, one afternoon in May, fiftysomething Irene Nehumbe joins a queue of 100+ people anxiously waiting outside the People’s Own Savings Bank in Harare, Zimbabwe. She’s ready to withdraw some much needed cash, like many of her countryfolk, in the midst of an ongoing cash shortage taking place throughout the nation. An hour passes, with no movement, before Irene remembers another option. She leaves the queue in search of the nearest retail store to use a “cashback” facility.
Cashback allows people holding a local bank card, Visa or MasterCard to withdraw money from their bank accounts at a cash register equipped with a point of sale (POS) machine — at any retail store. Themba Ndebele, president of the Retailers Association of Zimbabwe, representing 90 percent of Zimbabwean retailers, says cashback isn’t new but, with the cash shortages, is booming. Terence Yeatman, managing director of SPAR, a major retail franchise in the country, agrees, noting a spike in use. It’s simple enough: A customer can receive 5 to 200 dollars. After making a required purchase in a retail store, you state the amount you want to the checkout operator, who swipes your card. Next, you are given the POS machine to input your card’s pin and return it to the checkout operator.
Many are calling the long bank lines a sign of “panic withdrawals” as people deplete their accounts rapidly in fear of losing their money. And any such fast change can shift the balance of a fragile economy. It all started in May, when new monetary measures attempting to confront the crisis instead introduced controversial bond notes worth $200 million, backed by the Afreximbank, a continental lending bank. These bond notes were seen as a return to the Zimbabwean currency, which, before 2009, led to an unsustainable hyperinflationary economy, characterized by growing valueless money. The monetary measures also included limited withdrawals to $1,000 a day; banks went further, cutting it to about $100 and making the cashback facilities an all-too-important alternative. These measures were introduced with no prior consultations with economic stakeholders’, causing Zimbabweans to lose confidence in the banking sector as a whole.
Why, some may ask, are Zimbabwe’s cash shortages relevant beyond the country’s borders? For one, it affects the American dollar, already strained.
The cash available at registers remains limited. But what might persist is the legacy of this model, which some argue is worth copying in the west, where one is limited to how much money he or she can withdraw from an ATM and has to ask a week in advance if more cash is needed, leading to time delays and bank bureaucracy. If you need cash badly, you’re often stuck dealing with loan sharks or sketchy lending situations. But a cashback facility offers a consumer a chance to get money, even after banking hours, with cash mostly guaranteed anytime. It beats bank bureaucracy, but, some say, allows banks another revenue source, through bank charges. It’s not, of course, the first financial innovation to come out of the African continent; there’s the region’s use of cryptocurrency Bitcoin and, of course, the mobile money system M-Pesa. What’s clear is that the limitations of some African nations have confirmed the cliché Necessity is the mother of invention. Call it the latest case study in reverse innovation.
“The Reserve Bank of Zimbabwe is caught in a very tough situation,” says Kipson Gundani, a leading economist in the country. “Its measures are really plausible but not appreciated or trusted in the eyes of the general public … meaning there is a trust gap.” Gundani maintains such a gap will self-correct, but the timeline is questionable.
It doesn’t help that cashbacks threaten the retail sector as transactions can take anywhere from two to 14 days to process — meaning the retailers may not have enough money to restock. That’s not the only way the trend is bloodying retail: Store owners say that people enter their shops, buying the bare minimum, only to use the cashback facility.
Why, some may ask, are Zimbabwe’s cash shortages relevant beyond the country’s borders? For one, it affects the American dollar, which has already been strained since it became part of the multicurrency basket adopted in 2009. Its strength grew until November 2015, when it became the main currency in the Zimbabwean market. This meant money the country was hemorrhaging since the rapid downturn of the economy would now be fully flushed. To put it in perspective, the Zimbabwe Revenue Authority forecasted the gross domestic product to be $13.9 billion for 2015. Of that figure, that year saw $6.3 billion lost to imports, $2.9 billion to the trade deficit, $1.8 billion to externalization, $1.8 to external debt arrears and an estimated $1 billion to smuggling, leaving the economy at a staggering loss of nearly $13 billion. A loss of this magnitude comes on top of the country having no reserve currency, relying on low exports and foreign remittances to sustain itself.
For now, the shortages rage on and the economy’s ailments persist, with no real relief in sight, according to experts. Consumers find solace, at the moment, in this solution. One wonders if the cashback craze will receive more attention — and success — in another nation, one neither ailing nor flailing.