South Africa's unsustainable consumer debts need attention, expert cautions

Vicious cycle of debt is a serious concern with far-reaching implications for the entire payments industry, says tech and financial gateway service provider PAYM8 CEO Andrew Springate.

South Africa's unsustainable consumer debts need attention, expert cautions
Andrew Springate

PAYM8 CEO Andrew Springate, has drawn attention to the disturbing consumer debt cycle which is plaguing South Africans. He stated that the vicious cycle of debt could have far-reaching implications for the entire payments industry.

Many South Africans are finding it increasingly difficult to keep up with debt payments. Recent news from FNB suggests it takes an average of five days for a middle-income consumer to spend up to 80 percent of their monthly salary.

In addition to the news by FNB, Statistics South Africa had earlier stated that the number of civil judgments recorded for debt increased by 7.4 per cent in the three months ended February 2022 compared with the three months ended February 2021.

A rise in civil judgement for debt is proof that credit providers are increasingly taking action against non-paying borrowers.

Statistics South Africa reported in October 2021 that about 13,000 civil judgments for a debt amounting to R338 million were recorded. The largest contributors to the total value of judgements were money lent, land services or other debts.

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Speaking on the rising consumer debt levels, Andrew Springate, the CEO of PAYM8 said "the rising cost of living and significant debt levels mean a worrying proportion of South Africans are battling to meet their financial obligations each month. Many people have resorted to opening a separate bank account to which they redirect their salary as the choice is between ensuring their debit orders are paid and providing enough groceries for their family."

While soaring food and fuel prices are certainly not within any individual’s control, Springate says enough is not being done to assist consumers with financial planning. Too many people fall into a debt trap from which it's extremely difficult to recover. Previous debt, a poor credit record, and the temptation to take on more debt to make ends meet becomes a vicious cycle which then pushes consumers to look to unsecured lending mechanisms and in dire circumstances to unscrupulous lenders for relief.

He adds that recent interest hikes and further increases of 100 to 250 basis points anticipated over the next year will only exacerbate the problem. "There is a perfect storm brewing consisting of high debt levels, rising fuel prices, and almost inevitable interest rate increases which will make the cost of debt even more expensive than it already is. So where do consumers turn? It’s an alarming situation that requires urgent attention."

South Africa’s leading and largest debt counsellor, DebtBusters in February had earlier reported in its debt index survey for the fourth quarter of 2021 that debtors were turning to unsecured debts. DebtBusters’ data shows that consumers are making up the shortfall in real income by borrowing.

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Data released by the agency revealed that Unsecured debt, or credit that is not backed by collateral, has reached "unsustainably high levels" in South Africa while consumers are facing rising interest rates and faster inflation that will impair their ability to service loans.

Springate says the potential consequences are everyone’s concern; from consumers themselves to consumer-facing businesses as well as credit and financial service providers.

"The consumer debt burden invariably shifts downstream to businesses who have to deal with failed debit orders, then legitimate debt collecting companies having to process failed transactions due to insufficient funds. It squeezes business margins to their breaking point and puts entire industries under severe strain. Proper financial planning and ensuring credit is extended responsibly are now vitally important and should be pursued wherever possible to avoid even more severe consequences than we are already likely to experience in the coming months," he said.

PAYM8 is a technology and financial gateway service provider. With its intelligent and integrated payments platform, PAYM8 provides a centralised system for the management of payments.

It enables merchants to accept payments via various payment options (e-commerce, mobile payments, card transactions etc.) without an individual merchant account with a bank, payment service provider or card company.