South Africa has a mature banking sector as well as innovative fintech solutions on offer to the public, but cash is still king in Mzansi.

South Africa’s banking sector is the most mature on the African continent and offers a wide variety of products and services. A growing fintech sector offers the unbanked, low-income earners and those seeking alternatives to the pricier banks an increasingly sophisticated set of mobile money solutions at lower cost.

Given such a fertile ecosystem, South Africa has the ingredients to create the first fully digitised financial system on the continent. So, why do South Africans still cling to cash?

“Cash is flexible, but we’re very passionate about moving people away from it considering how inefficient and unsafe it can be,” said iKhokha chief product officer Graeme Cumming.

Executives in financial services and fintech polled by TechCentral said cash is understood and accepted by everyone from top CEOs to beggars in the street. If you can hold out your hand, you can accept cash. However, the exchange of digital currency presupposes the ownership of a device as a starting point. In the informal economy, where more than six million of South Africa’s unbanked require solutions, device penetration is nowhere near 100%, they say.

Another factor that limits the fluid exchange of digital currency is the cost of transactions. Although charges have come down significantly in recent years, customer experience of high charges in the past has created a degree of mistrust in the financial system among some people.

“Many of our customers have previously been excluded from the financial services industry by design. Our challenge is in demonstrating to customers that we are on their side, and that we can be trusted,” Greg Illgner, chief strategy officer at TymeBank, told TechCentral.

Cash vs digital

Katlego Maphai, CEO of fintech Yoco, which makes smart payment terminals and solutions, urged merchants to weigh the upside of avoiding transaction fees against the potential loss in sales revenue of not having alternative payment methods.

“A switch from cash to any other payment method will incur fees, and many businesses will regard this as a major barrier to switching. But Yoco encourages business owners to accept as many payment methods as possible so that they never risk losing a sale,” he said.

Compounding South Africans’ reluctance to ditch cash for digital alternatives is the fragmentation of fintech networks in the country. Siloed solutions make it impossible for users, whether they are individuals or businesses, to handle all their money-related use cases with the same ease as cash.

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Cumming said the profile of “closed-loop systems” that “exacerbate fragmentation” is going to change as the industry matures. He added that while there is “less fragmentation in the banks, there has to be interoperability between digital wallets”.

Solving these problems, and others, will not necessarily lead to the end of cash. Some people cling to cash because they do not want to declare their income to the South African Revenue Service or are afraid of failing to meet the criteria for receiving a social grant from Sassa.

Bradwin Roper, chief financial services officer at MTN South Africa, said that if fintechs are to drive up adoption rates, they must offer more features and increased value to their customers.

“Many players offer only basic cash-in and cash-out services, which is limiting for customers. There needs to be a level of sophistication, and consumer trends indicate that the search for alternative services will only accelerate,” Roper said.

Challenges to financial digitisation are not unique to South Africa. Research by the GSMA, which represents most of the world’s mobile operators, shows that although sub-Saharan African mobile money subscriptions are on the rise – up by 17% to 163 million in 2022 — active 30-day usage remains relatively low at 29%.