Moving South Africa’s informal economy away from cash

May 31, 2023 | By Gabriel Swanepoel

As the digital economy becomes a more connected place where commerce thrives, it’s essential that everyone has access to it. We at Mastercard are passionate about driving financial inclusion in locally relevant ways.

In South Africa, we continue to champion this mission within the informal sector too. South Africa, the continent’s second-biggest economy with a population of over 61 million, has a large informal sector with an estimated 3.3 million micro and informal businesses. This sector accommodates marginalized segments, such as women, youth and the previously disadvantaged. More than 60% of the people who start an informal business do so because they are unemployed and have no alternative source of income. The COVID-19 pandemic saw even more such forced entrepreneurs surfacing in the country’s townships and rural settings.

When consumers and small businesses can digitize their commercial exchanges – and eventually switch away from cash – they can be included in a formal financial ecosystem.

According to a new Mastercard white paper titled ‘Driving Financial Inclusion in South Africa’s Informal Economy: The Landscape at the Bottom of the Pyramid’, we have discovered that the nation’s informal economy is already displaying signs of movement in this direction. As part of the study, we interviewed underserved consumers and MSMEs in the country’s informal sector to identify factors that would enable financial inclusion.

The study further explores the ‘bottom of the pyramid’, where individuals and MSMEs primarily use cash when making or receiving payments. As a result, many stay excluded from the benefits the digital economy brings.

Although cash is still in mainstream use, 65% of the surveyed consumers are likely to start using other payment methods in the year ahead. Many participants cited safety as the reason, given that cash can get stolen. But the research also highlights the growing importance of the convenience of non-cash methods – from 48% in 2022 to 60% this year.

Among the MSME respondents, 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. Reasons for limited payment options included usage difficulty and high data costs.

There is a need to develop simple, affordable, easily understood fintech solutions that can displace cash and unlock wider financial inclusion. Convenient digital offerings underpinned by secure technology levels the playing field, ensuring that disadvantaged communities can actively participate in the economy.

Photo of Gabriel Swanepoel
Gabriel Swanepoel, Country Manager, Southern Africa