SA’s informal economy is showing signs of moving away from cash

By our News Team | 2023

There is high awareness of bank accounts and payment methods. But high costs, low trust and limited understanding are mitigating factors.

The informal sector in South Africa is showing signs of a movement away from cash, a new Mastercard study has found. 

In a white paper titled ‘Driving Financial Inclusion in South Africa’s Informal Economy: The Landscape at The Bottom Of The Pyramid’, Mastercard interviewed underserved consumers and Small, Medium and Micro Enterprises (SMMEs) in the informal sector to establish factors that would democratise and widen financial access and inclusion.

Financial Inclusion

Photo courtesy of Mastercard

The study looked at the bottom-of-the-pyramid segment, where consumers and SMMEs primarily use cash when making or receiving payments. These are also consumers who do not use bank accounts, have inactive bank accounts, or have access to facilities such as credit and digital banking but choose not to use them. 

As a result, many stay marginalised and financially excluded from the growth happening in the digital economy.

“As the digital economy becomes a more connected place where commerce thrives due to the safe, simple and secure exchange of value, it’s essential that everyone has access to it. …When consumers and micro enterprises can digitise their commercial exchanges – and eventually switch from cash – they can be included and empowered in a formal financial ecosystem,” said Gabriel Swanepoel, Country Manager for Mastercard in Southern Africa.

Overall, consumers in the informal sector showed high awareness of bank accounts. In 2022, half of households had a bank account and nearly a third used a digital wallet or electronic wallet. Those that did not use a bank account cited high costs (37%), low trust (21%), limited knowledge of financial products (19%), lack of understanding of how it works (18%), or inability to provide proof of address (16%).

Reasons for using cash now less pronounced

Although cash is still in mainstream use, the traditional reasons mentioned for using cash when shopping were less pronounced year on year. The perceived convenience of cash dropped from 51% to 34%, using cash out of habit experienced a 9% decline, and concerns related to hidden costs of bank cards reduced from 43% to 29%.

The study showed that there seemed to be a strong movement to switch from cash – 65% claimed they are likely to start paying with something other than cash in the year ahead. 

Many respondents said safety is what will push them to convert from cash, given cash may be stolen. But notably, the year-long study also highlights that the convenience of non-cash methods is growing in importance: originally 48% of informal sector consumer respondents cited convenience using credit cards, a figure that grew to 60% a year later.

SMME respondents also had a high awareness of banking, but the study showed a decline in respondents’ ownership of a traditional bank account. 

By the end of 2022, 45% had a personal bank account, while only 25% had a business bank account. All of them offered cash options to customers, with only 2% offering a card machine or tap on phone, and 1% offering contactless QR codes. In general, reasons for limited payment options included usage difficulty and high data costs.

“There is clearly a need to develop simple, affordable, easily understood fintech solutions that can displace cash and unlock wider inclusion for everyone involved in a transaction. Regardless of size, turnover, headcount, or customer segments, convenient digital solutions underpinned by secure technology level the playing field, ensuring that disadvantaged communities can participate meaningfully in the economy,” said Swanepoel.

You can download the full paper here.

Dr Kin Kariisa

Group CEO - Next Media

Dr. Kin Kariisa is an extraordinary force at the helm of Next Media Services, a conglomerate encompassing NBS TV, Nile Post, Sanyuka TV, Next Radio, Salam TV, Next Communication, Next Productions, and an array of other influential enterprises. His dynamic role as Chief Executive Officer exemplifies his unwavering commitment to shaping media, business, and community landscapes.
With an esteemed academic journey, Dr. Kariisa’s accolades include an Honorary PhD in exemplary community service from the United Graduate College inTexas, an MBA from United States International University in Nairobi, Kenya, a Master’s degree in Computer Engineering from Huazong University in China, and a Bachelor’s degree in Statistics from Makerere University.
Dr. Kariisa pursued PhD research in Computer Security and Identity Management at Security of Systems Group, Radboud University in Nijmegen, Netherlands. As a dynamic educator, he has shared his expertise as a lecturer of e-Government and Information Security at both Makerere University and Radboud University.

Dr Kin did his PhD research in Computer Security and Identity Management at Security of Systems Group, Radbond University in Nigmegen, Netherlands. He previously served as a lecturer of e-Government and Information Security at Makerere University in Kampala, Uganda and Radbond University in Netherlands.

Dr Kin did his postgraduate courses in Strategic Business Management, Strategic Leadership Communication and Strategies for Leading Successful Change Initiatives at Harvard University, Boston USA.

  • Other current and previous roles played by Dr Kin Kariisa:
  • Lecturer of e-Government and Information Security to graduate students at Makerere University, Kampala and Radbond University in the Netherlands
  • Director of Eco Bank Uganda Limited, one of the largest banks in Africa
  • Chairman of the National Association of Broadcasters, an umbrella industry association for all Television, Radio and online broadcasters in Uganda.
  • Chairman of Board of Directors of Nile Hotel International, that owns the leading hotel in Uganda, Kampala Serena Hotel.
  • Chairman of Board of Directors of Soliton Telmec Uganda, the leading telecom company in Optic fibre business managing over 80% of optic fibre in Uganda.