(3 Minutes Read)
South Africa’s payments ecosystem is modernising at pace, yet cash continues to play a dominant role — accounting for more than half of all transactions and over R180 billion in circulation.
Kitso Lemo, associate director at Boston Consulting Group (BCG) describes South Africa’s system as operating at two distinct speeds. In the formal economy, digital payments have rapidly expanded, significantly reducing reliance on cash over the past decade. Cash once represented around 40% to 45% of transaction value in formal retail; today that figure sits closer to 12% or 13%. However, because many small-value purchases are still made in cash, roughly half of all transactions in this segment remain cash-based — highlighting the scale of the transition still required.
While contactless payments, QR codes and mobile wallets are increasingly common in malls and supermarkets, the informal economy tells a different story. An estimated 95% of retail storefronts — including spaza shops, township wholesalers and rural outlets — operate informally, with about 90% of consumer-to-business payments in this segment conducted in cash.
South Africa’s economic diversity underpins this divide. Higher-income consumers and formal businesses are embracing digitisation, but in the informal retail environments where many South Africans transact daily, cash remains king.
Several structural factors sustain this reliance on cash:
- Wage payments made in cash
- High-frequency, low-value transactions such as taxi fares
- The cost burden of digital acceptance for merchants
For small businesses operating on thin margins, transaction fees of 1.5% to 4%, combined with point-of-sale hardware costs, can significantly erode profitability — creating a meaningful barrier to adoption, particularly in township and CBD markets.
Despite these constraints, digital payments are gaining ground. Contactless transactions have surged, and real-time account-to-account systems such as PayShap are now processing approximately one million transactions daily. Lemo expects the broader trajectory to remain firmly toward digitisation. Technologies like QR codes and instant payments reduce costs and improve speed, but adoption will depend on addressing affordability, profitability and trust.
He notes that fintech growth today requires sustainable economics from the outset. Unlike the “scale first, profit later” approach of the 2010s, investors now demand clear unit economics and diversified revenue models — extending beyond payments into areas such as credit, accounting tools and embedded financial services.
Infrastructure gaps continue to slow progress. Although smartphone penetration is estimated at 80% to 90%, many users rely on prepaid data and face inconsistent connectivity and power disruptions. Trust is another critical hurdle. Cash offers tangible certainty, while digital transactions raise concerns around fraud and data security.
Artificial intelligence is increasingly central to addressing these risks. Machine learning models are deployed to detect fraud and assess risk in real time, while generative AI is transforming onboarding, marketing and customer service processes. When implemented effectively, these tools lower operational costs, enhance security and build trust in digital platforms.
Read Also;
https://trendsnafrica.com/afdb-backs-moroccos-digital-payments-drive-with-usd-510000-grant-to-boost-financial-inclusion/
Looking ahead to 2026 and beyond, heightened competition among banks, telecom operators, fintechs and retailers is reshaping the market. Merchant onboarding drives and acquisitions signal a race to capture underserved segments, particularly SMEs and informal traders. Lemo anticipates a combination of organic growth and targeted mergers and acquisitions, driven by capability gaps in infrastructure, customer access and digital engagement.
Ultimately, while innovation is accelerating and digital rails are expanding, BCG expects South Africa’s shift away from cash to be gradual rather than sudden — an evolutionary transformation shaped by economic realities and consumer trust.
