Two-Pot Savings System Addresses Short-Term Financial Pressures
Growing adoption of loyalty programs as South Africans combat economic challenges and inflation.
Image source: National Debt Advisors
Many consumers in South Africa are increasingly engaging with loyalty programs and store credit cards as a method to cope with the escalating cost of living. Recent data from Discovery Bank and Visa underscores this trend. The SpendTrend25 report, released on Thursday, analyzes credit card spending tendencies from 2019 to 2024, based on a survey involving 1,000 credit card users across several local banks.
Lineshree Moodley, the Country Manager at Visa South Africa, highlights that consumers are using credit cards not only for the credit they provide but also for the multitude of rewards and loyalty benefits they offer, particularly in difficult economic times. A recent study by Euromonitor focused on consumer lifestyles revealed that an impressive 86% of South Africans believe that the prices of everyday goods have risen. Among those who agree, 41% indicated they are shopping more often or purchasing extra items at stores where they have loyalty memberships or cards, an increase from 37% the previous year.
Looking forward, Hylton Kallner, CEO of Discovery Bank and Discovery South Africa, predicts that the widespread embrace of loyalty programs and rewards will significantly shape consumer behavior in 2025, aiding in alleviating the effects of inflation on spending. As per the Truth and BrandMapp South African Loyalty Whitepaper 2024/25, strikingly, 82% of South Africans are active in loyalty programs, with the Clicks Club Card leading in popularity, followed closely by the Checkers Xtra Savings card.
The SpendTrend25 report indicates a notable transformation in how consumers engage with rewards programs; 82% of participants reported more frequent use of their credit card benefits compared to the previous year. Over 80% of those surveyed now consider reward options a priority when choosing a credit card. This transformation is largely due to increasing interest rates, causing consumers to emphasize value-oriented spending. Kallner notes that brand loyalty may diminish as consumers increasingly seek the best available deals.
In 2024, these categories represented more than 70% of overall consumer expenditure. Groceries were identified as the top spending category, while high-net-worth individuals devoted a greater portion of their budgets to retail and travel experiences. The report shows that inhabitants of Johannesburg allocate a smaller share of their budgets to groceries but typically spend more on shopping and dining out compared to residents of Durban and Cape Town. Conversely, individuals in Bloemfontein, East London, and Gqeberha invest a considerable part of their budgets in food and fuel while spending less on travel and dining experiences.
Moodley observes a rise in discretionary spending in Johannesburg, Durban, and Cape Town. Significantly, after the easing of COVID-19 restrictions, spending on fuel has increased, indicating a return to usual commuting habits. Following a 4% decline in 2023, average fuel spending per active card increased by 5% in 2024, signaling a substantial recovery of nine percentage points.
Due to financial strain, South Africans are progressively exploring alternatives to conventional short-term credit solutions. A significant development is the two-pot retirement saving system, launched in late 2024, which permits individuals to withdraw a portion of their retirement savings early. The South African Revenue Service (SARS) has confirmed the completion of over 2.5 million tax directives, resulting in a total distribution of R47.7 billion.
Kallner highlights that research among Discovery Corporate and employee fund members shows that retirement fund holders are tapping into their savings for various immediate needs, like mortgage or car payments, reducing short-term debts, educational costs, and daily living expenses. Among those who utilized funds from the two-pot system, 24% allocated money for housing or vehicle-related costs, 21% used the funds to decrease short-term debts, 20% reserved funds for educational needs, and 11% was set aside for everyday expenses.
The report also points out a notable rise in consumer expenditure on online entertainment, encompassing streaming services, sports betting, and event reservations, which have surged by 110% since 2023. Clients of Discovery Bank are reported to spend more frequently and at higher transaction values on event bookings compared to the wider market, with an impressive 20% increase in average transaction values attributed to their exclusive early access to concert and event ticket sales.
Moreover, the trend in sports booking transactions, especially for activities like padel, has shown significant growth.
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