South Africa’s financial sector is described as large and sophisticated, consisting of banking and non-banking financial institutions, as it contributed 22.39% of GDP in 2018 and had total assets of R5.14-trillion. The sector, however, remains highly concentrated with the five largest banks holding the largest total assets, whilst NBFIs comprise about two-thirds of financial assets, which is large for emerging markets.

The landscape is changing rapidly though, as banks face increasing competition from technology-based financial services, newly established banks, and growing credit granting from other credit providers. This has forced the major banks to place increasing emphasis on growing customer numbers with innovative product offerings to attract lower-income earners. Competition from newly established banks – i.e., Discovery Bank, Bank Zero, and TymeDigital – aims to disrupt the sector and it is forcing big banks to intensify their efforts to modernise technology platforms to satisfy customers’ demand.

Financial inclusion has seen considerable improvement over the years, with around 89% of adult South Africans using some form of formal financial service or product in 2017, versus the 64% adults in 2007.

Access indicators reflect the depth of reach and variety of financial services and the cost of financial services and products to the users. Thus, improving access requires continual removal where possible the potential barriers to bringing services to the low-income market.

The purchasing of banking products and services in South Africa is predominately done through traditional bank branches, most transactions are executed through direct electronic transfers, ATMs, POS, cell phones, and online services. To further extend financial inclusion, however, greater use of other distribution models is required to provide support for the low-income segment. A Financial Inclusion Policy paper by South Africa’s National Treasury has highlighted that affordability of financial services, especially the ongoing costs of using such services, is amongst the key indicators of financial service accessibility. A World Bank diagnostic into the market conduct of South Africa’s retail banks found that accounts became quite expensive for low-income earners the more they used the physical rather than digital infrastructure, as institutions try to promote increased usage of digital transaction streams.

The South African banking services infrastructure has a well-developed services network and makes extensive use of technology to enable and extend the service reach. According to the Banking Association of South Africa, since 2010 more than 90% of households had access to physical points of presence within a 10km radius. The focus on access in the financial sector has led to both an increase in the number of points of service as well as in the geographic distribution of services, with each of the 278 municipalities in South Africa having some transactional points of service from a regulated service provider. The increase in the transactional capabilities of POS payment devices in stores, enabled by both banks and retailers, is particularly relevant for low-income earners as these devices enable consumers to make payments for goods and some third-party services as well as cash withdrawals.

Although the use of technology and physical access has improved financial access in South Africa, there is still much scope for improvement as indicated by the lack of financial education – a key factor in ensuring sustainable and effective financial inclusion. Increased financial literacy levels are necessary to improve the usage of existing users and of extending financial inclusion to currently un- or under-served people.