South Africa’s shift to a low-cash, highly-digitalized economy continues apace. But our analysis suggests significant opportunities still remain across payments, lending, credit, and remittances to capture value currently held in cash and translate that into digital services.

Launched in 2012, South Africa’s Vision 2030 has mandated digitalization of the country’s economy as a cornerstone of its National Development Plan (NDP), designed to deliver greater efficiency and broader-based economic growth. So far, this plan has seen some success: although just over half (56%) of payments by volume are still cash, this constitutes just 21% of all payments by value as most cash payments are for low sums.

KoreFusion has conducted an analysis of payment flows and savings habits – as well as borrowing and lending patterns – in South Africa. The results highlight significant opportunities for financial institutions to capture more value and drive greater digitalization over the next five years.

Payments in South Africa: Real Appetite For More Digitalization

Our consumer research identified four distinct categories in terms of banking experience: new adopters, those with some experience of banking (“experienced”), those used to using cash and mobile money accounts (“cash and mobile”), and the mass affluent segment (“mass affluent”), this latter being most habituated to a wider range of banking services.

“two-thirds of South Africans surveyed expect their use of digital payments to increase”

Across the board, two-thirds (63%) of participants said that they expect their use of digital payments to increase and agree that the convenience, lower cost, and security of digital payments make them more attractive than using cash. Overall, there’s a high degree of satisfaction with debit card payments, and to a somewhat lesser degree with cash: at present, mobile money and debit cards are the most valued forms of digital payment, and banks are seen as key providers. Digital payments are mostly used for online and merchant payments, phone top-ups, or bill payments.

Side Hustles, Safety & Remittances: Immediate Opportunities

Within this broadly positive news, however, lie significant opportunities for improvement. The first emerges from the surprisingly high minorities of those who continue to receive some or all of their monthly income in cash. For instance, 42% of the “mass affluent” segment – those most experienced in using banking services – still receive some income in cash via a “side hustle” or second income; lower down the income distribution scale, the proportion of cash in all income can reach 100%. Despite positive moves on digitalization across the economy, the opportunity exists to digitalize more of this value, especially in those segments with a significant banking history.

Significant Populations Still Receive Some Cash Income

                                                                  Source: KoreFusion Analysis

A second opportunity for further digitalization comes from some segments, especially mass affluent and those using mobile money, who see cash as risky from a personal security perspective and would like the opportunity to use non-cash payment methods more often. By introducing – for instance – mobile money options to the more sophisticated mass affluent segment, banks could drive further digitalization.

Remittances are another area in which there is scope to push digitalization further. 12% of those surveyed send remittances abroad, with an average value per transaction of ZAR1000- ZAR 5000 (approx. US$55 to US$275), and around 50% of these remittances going to Zimbabwe. At present, the remittance fee per transaction is a relatively high 5%, and consumers in our survey evinced concerns about the speed, cost, and security of remittance payments. Banks and other players that can reduce fees and speed up transaction times will find significant value creation opportunities in doing so.

Savings, Credit, and Stokvels: Further Opportunities for Digitalization

Overall, those we surveyed demonstrated healthy savings habits, with 42% saving at least once a month, rising to 68% of the mass affluent segment. On average, South Africans save 17.5% of income: however, 30% of the “Entry Level”, and, “Experienced” groups, typically on lower incomes, currently save cash and do not feel encouraged by what they perceived as high charges and fees from banks – as well as reported poor levels of customer service. By offering digital savings products via mobile device, banks could draw lower-income segments into the formal economy and capture significant amounts of value.

A similar opportunity exists in the credit market, where 44% of those surveyed used credit in the last year for an average credit facility or loan size of ZAR 3000 (US$165) which is most commonly used (53%) to cover emergencies. As is always the case, those further down the income distribution are more likely to borrow – however, more than half (53%) do so from friends and family, despite 91% of these groups having bank accounts and established credit histories. These findings suggest that there’s an opportunity to develop a digital lending product for lower income groups based on salary and/or payment history from bank account data.

The uniquely South African concept of a stokvel – a kind of credit union in which members regularly contribute an agreed amount and from which they can receive lump sum payments or loans – is also ripe for digitalization. At present, 75% of contributions to stokvels are made in cash, with just 43% of those in the wealthier mass affluent segment using digital channels to manage their funds. By encouraging fund transfers and online payments to and from stokvels via digital channels, banks could tap in to a market valued at ZAR 45 billion in 2024 (US$2.475 billion).[1]

As South Africa continues on the journey towards full digitalization, significant opportunities are emerging to create value and build customer loyalty by driving more activity through digital channels. In many cases, these opportunities are incremental, in that capturing more payments and salaries as recommended above will enable credit and lending at reduced risk based on richer transaction and income data, especially for those lower-income groups both the government and banks wish to attract into the digital economy.

KoreFusion optimizes SMB payments strategy across 80 countries. We help banks, brands, and fintechs develop embedded payment and financial services for SMBs. Contact us at hello@korefusion.com for more information!

[1] Wits University, 21 May 2024: “Stokvels Secure Income and Social Capital”: https://www.wits.ac.za/news/latest-news/research-news/2024/2024-05/stokvels-secure-income-and-social-capital.html