The shift to digital payments has become a game-changer for many townships and local communities, yet cash remains the dominant payment method for everyday goods and services. Beyond digital payments, South Africa’s digital transformation is a catalyst for eradicating socio-economic challenges such as youth unemployment.
Digital payments can transform South African townships by replacing high-risk cash systems with secure, accessible financial ecosystems. By eliminating the need for expensive physical banking infrastructure, this shift creates direct entrepreneurial and employment pathways, keeping money circulating within local communities.
In this article, we look at what digital payments are in the township context, how they can be a catalyst for economic growth and which fundamentals are required to ensure South Africans can take advantage of this solution.
What are Digital Payments?
A digital payment, sometimes called an electronic payment, is the transfer of value from one payment account to another using a digital device or channel.
In the context of townships, digital payments represent the shift from cash to cashless transactions (like mobile wallets, card machines, QR codes, and instant bank transfers) within peri-urban and historically underserved communities. This transition helps drive local economic activity and addresses the high security risks associated with handling cash.
The State of Digitalisation in South African Townships
Although access to digital devices is better in South Africa, with over 92% of the population owning a mobile phone, and smartphone adoption exceeding 70%. Despite this high penetration, some residents still lack digital and financial skills to make digital payments or use other digital financial services.
Township merchants have historically been overlooked by bank-led point of sale (POS) solutions, and as a result, digital payment acceptance has been limited. With the introduction of new, lower-cost alternatives to the market, digital payment acceptance is improving. Innovative POS solutions such as Yoco and iKhokha offer solutions tailored for micro and small merchants; however, there is still significant room for improvement in access to and adoption of these solutions in townships.
Factors Preventing High Adoption of Digital Payments in Townships
Various factors drive the low adoption of digital payments in townships, especially in micro and small businesses. These include:
The Present Cash Economy
Despite the potential advantages of digital payments, cash remains the preferred form of payment in township economies. According to the 2020 FinScope survey, of the 1,1 million township MSMEs operating in SA townships, 66% operate informally and on a cash basis.
The inability to make or receive payments through digital channels creates a range of issues. These include higher transaction costs, security concerns, corruption and wealth inequality.
Because many township inhabitants and businesses don’t trust digital systems and financial services, digital payment adoption is significantly impacted; the lower users’ eagerness to adopt, the slower digital payment transformation occurs.
Informal, Unbanked and Cash-based Businesses
South Africa’s complex business regulatory landscape, coupled with the unwillingness to pay the tax associated with business formalisation, often prevents new businesses from operating formally. These informalised businesses typically don’t reach larger markets, create quality jobs and remain unbanked.
Without having these businesses as part of the country’s database, adoption of digital payments will remain a challenge in townships, thus limiting the growth of township economies.
Lower-Income Market Relies on Cash
The cost of carrying physical cash is less visible to those who prefer it. Most township-based businesses and consumers perceive that storing their money in a bank incurs too many charges and thus do not see the full value of their money.
Forced Withdrawals for Community Enrichment
Cash usage is entrenched in the township economy, meaning that it is nearly impossible to get by with just a card, as the township retail economy consists of vendors and spaza shops, the majority of whom do not accept digital payments. To fully access the goods and services within the community, most consumers must always have cash in hand.
Digital Literacy as a Driver for Digital Payment Adoption in Townships
South Africa’s township economy is estimated to be worth between R900 billion and R1,13 trillion annually. By driving digital literacy and digital payment adoption, it can build consumer trust, enable informal merchants to track their income and unlock more income opportunities.
Although South Africans can easily navigate digital platforms, the lack of comprehensive digital literacy makes most of them targets for cyber criminals. Additionally, introducing digital payments into an economy that does not have comprehensive knowledge of platforms and solutions can introduce new risks that merchants may not be prepared to detect and mitigate.
Digital literacy is the backbone of modern township economies. It empowers micro, small, and medium enterprises (MSMEs) to overcome historical barriers, access wider markets, and integrate into the digital financial ecosystem. Without these skills, local businesses risk exclusion from the growing digital marketplace.
How Digital Payments Can Further Unlock the Township Economy
Transitioning from a cash-centric to a digital payment ecosystem can drastically reduce crime risks, lower cash-handling costs, and create new micro-entrepreneurial income opportunities. By replacing cash with mobile wallets, QR codes, and card machines, local micro-enterprises can tap into new revenue streams which can directly unlock localised income and entrepreneurial opportunities for youth and unemployed residents.
Key Income Opportunities
Digital Facilities and Onboarding
Unemployed youth and community members can earn an income by acting as local facilitators. Through free training programmes, individuals can learn to assist local shops, churches and informal traders with the setup and ongoing management of digital payment systems.
Value-Added Services
Shifting to a digital footprint enables merchants to use mobile points-of-sale (mPOS) to do more than accept payments. Shop owners and street vendors can generate extra income by vending prepaid electricity, airtime, and gaming vouchers directly through their digital terminals.
Business Growth via E-commerce
Digital payments remove the need for customers to carry cash. Township entrepreneurs should leverage these solutions to reach a broader audience and enable remote ordering. This will not only increase sales and profits but will enable businesses to hire those within their communities.
Access to Micro-Credit
Operating strictly in cash can hinder a business from accessing digital financial services. By digitising transactions, merchants can establish a digital track record that provides funders with the data required to offer alternative financial vehicles such as merchant cash advances and purchase order funding.
