South Africa’s payments landscape is digitising rapidly, but cash remains deeply entrenched in the economy, accounting for over 50% of all transactions and more than R180 billion in circulation.
This is according to Kitso Lemo, associate director at Boston Consulting Group (BCG), speaking to ITWeb TV about SA’s evolving consumer behaviour, emerging digital payment technologies and the role of fintech innovation in driving financial inclusion.
According to Lemo, SA operates a “two-speed” payments system – with modern digital transactions expanding in the formal sector, while cash continues to dominate informal commerce.
“In the formal sector, we’ve seen a rapid reduction in cash usage over the last decade. Cash used to account for roughly 40% to 45% of transaction value; today it’s closer to 12% or 13%. But because smaller payments tend to be cash-based, around half of all transactions in that environment are still cash. That’s a significant proportion and shows there is still work to do.”
Cash is ‘informal’ king
While tap-to-pay, QR codes and mobile wallets are gaining traction in South African malls and supermarkets, the informal economy tells a different story.
According to Lemo, roughly 95% of retail storefronts operate in the informal sector – including spaza shops, township wholesalers and rural stores. Around 90% of consumer-to-business transactions in that segment are cash-based.
“South Africa is very diverse. We have people with very high incomes and others with limited access to financial services. In payments, that creates a two-speed dynamic. In the informal sector, where most South Africans transact daily, cash remains dominant. As you move higher up the value chain, digitisation increases, but at the consumer level in informal retail, cash still rules,” Lemo points out.
Drivers of cash usage include wage payments in cash, high-frequency low-ticket transactions such as taxi fares, and the cost burden digital payments place on merchants.
“Merchants often tell us they want to digitise, but they can’t afford it. When you add up the cost of point-of-sale devices and transaction fees – which can range between 1.5% and 4% – it meaningfully erodes already thin margins. In township and CBD environments, that becomes a real barrier to adoption.”
Digital money momentum
Despite these constraints, digital adoption is accelerating, particularly in formal retail and banking environments. Contactless payments have grown significantly, while real-time account-to-account systems, such as PayShap, are processing about one million transactions per day, he says.
“The overarching story is that we will continue to see movement away from cash to digital platforms,” Lemo adds. “Technologies such as QR codes and real-time payments lower transaction costs and improve speed. But adoption depends on solving real economic and trust constraints in the market.”
He notes that affordability, profitability and engagement are critical pillars for sustainable fintech growth in SA. In contrast to the “scale first, profit later” model of the 2010s, investors now demand viable unit economics from the outset.
“Investors want to see profitable growth. You [fintechs] must demonstrate sustainable economics while expanding access. That means building low-cost digital platforms, leveraging scale and ensuring your business model can monetise beyond payments – through credit, accounting tools or embedded financial services.”
Infrastructure gaps also constrain digital adoption in SA’s payments sector, according to Lemo. Although smartphone penetration is estimated at 80% to 90%, many users rely on prepaid data and struggle with intermittent connectivity and power disruptions.
Trust remains another decisive factor, often outweighing convenience or speed of digital payments.
“If I hand you cash, I can physically see the transaction. With digital payments, people worry about fraud and data security,” Lemo adds.
Artificial intelligence is increasingly playing an important role in preventing and combating financial fraud. Machine learning models are used to detect fraud and assess risk in real-time, while generative AI is reshaping on-boarding, marketing and customer service.
“AI and generative AI are fundamentally important across the payments value chain. From onboarding customers and identifying high-risk transactions, to reducing fraud and automating customer interactions, these tools lower costs and increase security. Used correctly, they improve access, enhance trust and strengthen the economics of digital platforms,” Lemo continues.
Looking at trends for 2026 and beyond, he points out that heightened competition between banks, telcos, fintech firms and retailers is reshaping the market. Recent acquisitions and merchant onboarding drives point to a land grab for underserved segments, particularly SMEs and informal traders.
In the near future, Lemo expects a mix of organic expansion and mergers and acquisitions in the fintech sector, depending on capability gaps.
“Where players lack specific capabilities – whether its low-cost transaction infrastructure, customer access or digital engagement layers – you’ll see targeted acquisitions. Ultimately, the strategy must be capability-driven and focused on solving real market pain points.”
While digital rails are expanding and innovation is accelerating, BCG’s view is that the transition will be evolutionary rather than abrupt.
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