Fintech companies have taken a boots-on-the-ground approach to providing fit-for-purpose financial services in township and rural economies – and that’s helping them outpace the banks and drive digital adoption at higher rates.
This is according to Annelene Dippenaar, legal, risk and compliance officer at Shop2Shop, who told TechCentral in an interview that fintechs tend to co-create their services with merchants to ensure suitability, which drives higher adoption rates when the services scale.
“Whereas the township economy has been overlooked by financial service providers in South Africa, there has been a drive from the fintechs to offer solutions to township entrepreneurs, merchants and traders that meet their needs,” said Dippenaar. “The fintechs have become a partner alongside their customers in designing the products they (the customers) need.”
This workshop-style methodology of co-creation has led to innovations such as point-of-sale and card acceptance devices with added functionality, allowing merchants to sell value-added services including airtime and electricity on top of their core offerings.
Other examples include the ability to send vouchers across the country, which facilitates domestic remittances via spaza shops. In some instances, these vouchers are backed by a traditional banking partner.
The POS devices also track stock, sales and display reports that help merchants manage their businesses better.
“In the formal economy, there is capacity to run multiple systems, so there is separate software for accounting, stock management, etc; whereas in the informal economy, that merchant just wants simplicity,” said Dippenaar.
Driver of adoption
Functionality that enhances operational efficiencies has been a driver of adoption, allowing more business-related data to exist in digital form. A positive offshoot of this phenomenon is that it has created visibility to external parties who may need to make risk-based decisions about the business. This could be the fintech offering the POS device to the merchant or a third-party lender.
Consequently, a world of sophisticated lending solutions has opened up to informal merchants, helping them acquire and manage their stock more effectively. Accredited lenders can offer stock advances to help merchants prepare for expected spikes in trade due to long weekends, sporting events or public holidays. Suppliers, since they can see the merchants’ sales patterns, can also offer more lenient payment terms that ease cashflow management pressures.
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“Informal merchants typically do not operate a bank account, so the transactional data creates a digital footprint that allows them to access services they typically wouldn’t be able to access,” said Dippenaar.
Despite often not having a bank account, merchants still need to facilitate card payments from their customers and access that digitised form of cash as quickly as possible.
To facilitate this, fintechs like Shop2Shop offer merchants a trading account. By taking on some of the liquidity risk before a card payment is cleared by the issuing bank, Shop2Shop can immediately settle the payment on the merchant side, into their trading account, making the funds immediately available to them for stock purchases.
Suppliers also have trading accounts that they can be paid into when orders are placed with them. Cash-outs into bona fide bank accounts are usually done by the larger suppliers like as cash-and-carry stores.
The liquidity problem that merchant trading accounts were designed to solve is not limited to the informal market. In fact, the South African Reserve Bank is on a drive to modernise the national payments infrastructure to allow for instant clearance and settlement, allowing money to flow faster throughout the economy.
Part of this initiative involves allowing non-bank fintechs to plug directly into the payments and settlements system so they can settle payments quickly and without the need for an intervening bank. According to Dippenar, this will lower the cost of digital transactions across the board, leading to higher adoption rates, especially among price-sensitive consumers in the informal market.
“In the township economy, immediate transactions are already happening and the mainstream is yet to catch up. No, it’s not a PayShap transaction but it is a transaction where a payment can be made instantaneously for free. The service is being driven by the merchants and suppliers in the township economy where speed is key, because that same rand gets circulated multiple times before it is finally settled by the issuer,” said Dippenaar.
But the traditional banks are not resting on their laurels. Formal banking incumbents have adapted their approach to the informal market and are using their brand heritage to capture market share.
According to FNB corporate affairs executive Jacqui O’Sullivan, FNB works with 1.2 million active small and medium enterprises and some 250 000 businesses in the informal sector. One of FNB’s initiatives, named Agency Plus, uses township merchants to deliver banking services such as deposits and cardless cash withdrawals their communities.
‘Ideal partners’
“This ensures that banking is not limited to urban centres or formal branch networks but is seamlessly integrated into the daily lives of people across towns, villages and rural communities,” said O’Sullivan.
But all-out competition is not the only approach fintechs and banks can take towards the informal market. Kuben Naidoo, head of corporate payments at Investec, said partnerships between fintechs and the banks help drive innovation in markets that “banks do not have the ability to access directly”.
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“Fintechs bring many advantages to the payment ecosystem: they are agile, at the forefront of innovation, have lower cost structures and offer better reach than banks. In general, this makes fintech companies ideal partners as well as competitors,” said Naidoo. – © 2025 NewsCentral Media
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