The rise of retail finance in South Africa and what it means for modern lenders

A store account is more common than a credit card in South Africa, and that’s not by accident. For millions, retail finance isn’t a backup plan. It’s the main route to credit. This quiet transformation of credit led by retailers, fintechs, and consumer habits is changing what it means to lend, borrow, and build financial resilience in South Africa. It’s a redefinition of who credit is for, how it’s delivered, and why the old systems are no longer enough.

This shift is being driven by more than just technological innovation. It’s a response to economic pressures and weak spots in the system. South Africa has one of the most advanced financial sectors in Africa, with a stock exchange valued at nearly $943 billion and financial markets bigger than its GDP. But for a lot of people, those numbers don’t mean much if they can’t get approved for a loan when they need one. With unemployment at 32.1% and income inequality still high, traditional banking hasn’t always met people where they are.

Credit products that are built into shopping experiences, offered by retailers or fintechs, are becoming the go-to for many South Africans. RCS alone serves over 2.2 million customers across 600 brands. PayJustNow is adding 100,000 new users a month. These are practical tools helping people manage costs, stay afloat, or build toward something bigger.

It’s also changing who gets to be a lender. Retailers are now offering credit directly to their customers. Fintechs are using real-time data to approve transactions in seconds. And banks? They’re being pushed to rethink their entire approach because offering credit from behind a desk is no longer enough. People want speed, ease, and credit that fits into their day-to-day lives.

All of this signals a deeper shift in how lending works. Retail finance isn’t just growing, it’s reshaping the rules. And for modern lenders, the message is clear: if you’re not meeting customers where they spend, you’re probably missing them altogether.

In this article, we’ll explore how retail finance in South Africa is evolving, what’s driving the growth, and what lenders, traditional or not, need to understand to stay relevant in this new credit landscape.

Driving forces behind the rise of retail finance

So what’s really fueling the growth of retail finance in South Africa? It’s not just one thing; it’s the intersection of technology, shifting consumer behaviour, evolving regulation, and economic need. These forces are pushing financial services to become more inclusive, responsive, and deeply woven into everyday life.

Technology

At the core of this shift is technology and, more specifically, fintech. Over the past decade, fintech startups and alternative lenders have stepped into the spaces where traditional banks either couldn’t reach or were too slow to adapt. Today, they’re doing more than just filling a gap; they’re setting new standards for how financial services should work.

South Africa’s fintech ecosystem is one of the most vibrant in Africa, with over 300 licensed payment service providers. These players are leveraging mobile technology, open banking APIs, embedded finance, and cloud infrastructure to build faster, more flexible financial tools. From instant credit checks to tap-and-go lending options, access to retail credit has become more intuitive than ever before.

One clear example is the rise of mobile money. In 2014, just 14% of adults in South Africa had a mobile money account. By 2021, that figure had climbed to 37%. And it’s not just about having an account, it’s how these platforms are being used. Mobile lending apps now allow consumers to apply for microloans in minutes, with approvals often based on alternative data like transaction history, phone usage, or airtime top-ups.

At the point of sale, innovation is just as visible. Companies like Payflex and MoreTyme have built BNPL (buy-now-pay-later) options that integrate directly with online and offline checkouts. These are embedded features that support purchasing decisions in real time. For consumers, especially those with limited traditional credit history, it feels more like empowerment than borrowing.

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Changing consumer needs

South African consumers have changed, and they’re no longer content with slow, rigid financial products that don’t reflect their everyday realities. They’re demanding convenience, transparency, and flexibility. And the market is responding.

According to the World Bank’s Global Findex Report, 85% of adults in South Africa now have access to either a bank or mobile money account up from 69% in 2014. This leap shows a much broader shift: people are not just getting connected to financial services; they’re using them more actively and digitally. 

This trend toward digital-first behaviour is about necessity. With the high cost of living, unpredictable incomes, and limited job security, many South Africans are looking for ways to stretch their money, avoid unnecessary bank fees, and access credit without getting caught up in the process.

Store accounts, lay‑bys, and short-term instalment loans have all evolved to meet this demand. What’s especially interesting is how these products are marketed and delivered: they don’t feel like traditional loans. They’re built into retail platforms, ride-hailing apps, e-commerce sites, and even utility portals. For the customer, this is about being able to complete a purchase, solve a problem, or get through the month.

At the same time, younger consumers are entering the credit market with different expectations. Gen Z and millennials expect everything, from banking to shopping to happen on their phones. And they expect fast service, clean interfaces, and payment flexibility. The rise of retail finance is closely aligned with these lifestyle shifts.

Regulatory reforms

While innovation is racing ahead, regulators are also working to keep pace. South Africa’s financial system is undergoing steady reform to ensure consumer protection, financial stability, and fair competition, especially as more credit providers operate outside traditional banking rules.

The implementation of the Twin Peaks model marked a big step in that direction. Under this system, the South African Reserve Bank (SARB) handles prudential regulation (ensuring the financial health of institutions), while the Financial Sector Conduct Authority (FSCA) focuses on market conduct, making sure consumers are treated fairly.

This separation allows the system to better support both innovation and accountability. For example, while fintechs and retailers can launch credit products more easily, they’re still expected to comply with clear consumer protection guidelines, including disclosure rules and affordability assessments.

However, there are ongoing gaps. BNPL platforms, for instance, currently operate in a grey area; they extend credit but are often not formally registered under the National Credit Act (NCA). That’s likely to change soon. As retail finance grows in reach and volume, regulators are expected to tighten oversight to prevent over-indebtedness and ensure that digital lenders follow the same rules as their counterparts.

South Africa’s inclusion on the Financial Action Task Force (FATF) grey list in 2023 has also turned up the pressure. To avoid long-term reputational and economic consequences, the country must address shortcomings in areas like anti-money laundering (AML), know-your-customer (KYC), and counter-terrorism financing. These regulatory shifts will affect everyone from traditional banks to mobile lenders and could redefine how onboarding, credit checks, and compliance are handled across the board.

Economic realities

For many South Africans, retail finance is a way to survive, hustle, or build. With the country facing 32.1% unemployment (Q1 2024) and a highly unequal income environment, access to credit can be the difference between making a plan or falling further behind.

Traditional banks have historically struggled to serve low-income earners, informal workers, and small business owners. These groups often lack formal credit histories, payslips, or collateral, all things banks typically require. As a result, they’ve been left to navigate the informal credit market or go without. Retail finance is stepping in to fill that void.

Small merchants and spaza shop owners, for example, are now using QR-based credit tools to restock inventory without waiting for lump sums. Stokvel-linked financing is starting to emerge as a way to underwrite group-based loans. Even salaried individuals are relying more on store accounts and instalment plans to afford essentials in months when paychecks fall short.

The growing informal sector, which includes everything from side hustles to gig work, is also playing a role. Many people in this space are creditworthy, but not credit-visible. Retail finance, especially fintech-backed credit scoring, is helping to close that gap by assessing behaviour over bureaucracy.

What we’re seeing is the rise of a credit market that reflects South Africa’s actual economy, not just the formal one. And that makes retail finance a structural response to longstanding exclusion.

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The impact on modern lenders

The rise of retail finance is a direct challenge to how lending works in South Africa. From big-name banks to fast-moving fintechs and public finance agencies, everyone is being forced to rethink their role. What used to be a fairly predictable space is now a fast-changing arena where access, speed, and adaptability matter more than tradition. Let’s break down what this shift means for the key players in the lending ecosystem.

Traditional banks

South Africa’s banking industry has long been dominated by a handful of major players: Standard Bank, ABSA, FirstRand, Capitec, Investec, and Nedbank. Together, these six hold over 85% of the country’s banking assets, totaling a massive $470 billion as of 2022. For decades, they’ve been the face of formal finance: stable, established, and deeply woven into the economy. But that dominance is being tested.

Consumers today want speed, flexibility, and convenience. And they’re getting it from newer, more agile players. Meanwhile, banks are often held back by ageing legacy systems, long internal processes, and a business model that wasn’t built for instant approvals or real-time credit scoring.

Take their cost-to-income ratio of 58.07%; that figure says a lot. It means banks are still spending heavily just to run their operations, which limits their ability to experiment or launch leaner, more customer-first products. And while most have invested in mobile apps and digital platforms, many of those offerings are still playing catch-up when compared to the simplicity and speed of a PayJustNow or Rich Communication Services (RCS) account approval.

That said, banks aren’t standing still. Many are pumping serious investment into digital transformation, building better user interfaces, expanding into embedded finance, and partnering with fintechs to stay relevant. Capitec, for example, has been one of the more proactive banks in this space, targeting lower-income and underserved segments with simplified, technology-forward offerings. Standard Bank has expanded its retail offerings beyond just traditional loans and accounts. It’s building an entire digital ecosystem from app-based money management to partnerships with fintechs that allow it to serve more flexible customer needs.

FNB has also earned awards for its user-friendly mobile banking app, which blends traditional banking with lifestyle services. Their digital platform allows users to access accounts and loans, tools for budgeting, insurance, investing, and even loyalty rewards, all in one place. But for others, the challenge remains: how do you compete when your size becomes a disadvantage?

Fintechs

Fintechs are, without a doubt, the most disruptive force in retail finance right now. They’re smarter, leaner, and more willing to take risks on segments that banks typically avoid.

What makes fintechs powerful is their ability to combine technology with targeted insight. They use data in ways banks often don’t; assessing creditworthiness through mobile behaviour, shopping history, or even utility payments. And because they’re not weighed down by legacy infrastructure, they can move quickly, rolling out updates, responding to user feedback, and adapting to new trends in weeks instead of years.

It’s working. Fintechs have driven the shift toward digital payments and lending in a big way. 70–80% of remittance transactions in South Africa are now digital, and many of those are powered by fintech platforms. Credit providers like Retail Capital, which focuses on SME financing, can approve and disburse funds in as little as 48 hours, something traditional lenders still struggle to match.

Their impact is practical. Take Africanize, a South African venture bringing home-cooked, culturally rich African meals to the urban market. Through Retail Capital’s funding, the business was able to scale up operations quickly, meeting customer demand and expanding its footprint. It’s a textbook example of how fintechs are empowering the real economy and fueling job creation and cultural entrepreneurship.

Beyond just speed, fintechs have also managed to build trust, especially in markets where banks feel distant or bureaucratic. A platform like Yoco, which started with POS devices for informal traders, now offers working capital loans based on sales history. Mama Money focuses on affordable cross-border remittances, offering a cheaper and faster way for families to send and receive money from abroad. And let’s not forget Jumo, which provides banking infrastructure and credit scoring for underserved consumers across mobile platforms, extending access to people completely outside the traditional banking net. This kind of relevance is hard to beat.

But fintechs aren’t without challenges. Regulatory uncertainty is a big one. As they operate on the edge of traditional finance laws, many still face a lack of clarity on licensing, compliance, and reporting requirements. There’s also increasing competition from other fintechs fighting for the same segments and engineering talent. Staying ahead will require continuous innovation and, increasingly, partnerships with regulators and bigger players.

Development finance institutions (DFIs)

While banks and fintechs compete in the commercial space, Development Finance Institutions (DFIs) are quietly holding up another corner of the market, one that often gets overlooked. DFIs like the Small Enterprise Finance Agency (SEFA) play an important role in supporting small businesses, cooperatives, and informal entrepreneurs, which are the very backbone of South Africa’s job creation and local economies.

These are the segments that commercial lenders usually label as too risky or unscalable. But DFIs approach lending differently. Their mandate isn’t just profitability but also inclusion. They offer patient capital, smaller loan sizes, and more hands-on support. In many cases, their financing is the first formal funding a business owner ever receives.

In a country where SMEs contribute more than 60% of employment, that matters. SEFA, for example, has supported thousands of entrepreneurs across agriculture, retail, manufacturing, and services, many of whom would otherwise be excluded from the credit system altogether. They also work closely with township businesses, youth-owned ventures, and women-led enterprises, helping plug gaps left by the private sector.

That said, DFIs also face structural limitations. Their resources are often stretched, application processes can still be slow, and political oversight sometimes affects strategic direction. But in a market where economic inclusion is a national priority, their role is only becoming more critical.

Financial inclusion and SME support

At its core, the rise of retail finance in South Africa is about more than just technology or market shifts, but about inclusion. It’s about creating systems that allow everyday people, no matter their income level or background, to access and use financial tools that actually help them move forward. South Africa has made significant progress in this regard, and while the picture isn’t perfect, it’s more dynamic and hopeful than ever.

Small and medium-sized enterprises (SME)

If financial inclusion is the goal, then supporting SMEs is one of the best ways to get there. Small and medium-sized enterprises are the engine of South Africa’s economy, responsible for over 60% of employment and a large part of GDP. They power everything from informal spaza shops to high-growth startups. But for all their potential, many SMEs still hit the same wall: access to finance.

Traditional banks have long been hesitant to lend to small businesses, especially those without extensive collateral, long credit histories, or formal registration. This results in a credit gap that hinders growth, innovation, and job creation. Retail finance is helping to close that gap.

A practical example is GreenSun, a Cape Town–based renewable energy company, which used bridging finance from Retail Capital to meet growing demand for its solar solutions. Instead of waiting weeks for traditional financing, they got quick access to the funds needed to scale, proving how retail finance can act as a catalyst for growing businesses.

Development finance institutions like the Small Enterprise Finance Agency (SEFA) are also playing an important role by targeting smaller and riskier segments. They fund startups, cooperatives, and rural businesses that most private lenders avoid, proving that support for SMEs doesn’t have to come at the cost of social impact.

Empowering women-owned businesses

While SME support is important across the board, there’s a particularly urgent case for expanding access to women entrepreneurs. Women-led SMEs make up 21.1% of all small businesses in South Africa, yet fewer than 20% of women access formal finance for their ventures. That is a missed opportunity.

Research from the Global Entrepreneurship Monitor (2020) shows that women entrepreneurs tend to be less risky borrowers and create more jobs compared to their male counterparts. They’re also more likely to reinvest in their families and communities, which means the ripple effects of financing a woman’s business often go far beyond her bottom line.

The problem isn’t ability but access. Women often face additional barriers such as gender bias in lending decisions, limited property ownership (which affects collateral), and less access to financial education or networks.

Lenders like Retail Capital have made commitments to fund more women-owned businesses, while networks like 100 Women in Finance and Women in Finance Network (WiFN) are creating platforms for mentorship, visibility, and policy change. For example, a woman running a small fashion boutique in Pretoria might now be able to access a short-term loan to restock her inventory ahead of a busy season, something that wouldn’t have been possible through a traditional bank without a lengthy approval process and collateral she likely doesn’t have.

Still, more targeted financial products, education, and funding pipelines are needed if we’re serious about building an inclusive ecosystem where women can thrive.

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Challenges to inclusion

Despite the progress, there are still some major hurdles preventing financial inclusion from reaching its full potential. One of the biggest is cost. South Africa has some of the highest banking fees in the world. For low-income earners, these costs can be a problem. Even with a bank account, many people choose not to use it actively because fees eat into already tight budgets. As a result, cash remains dominant in day-to-day transactions; 9 out of 10 payments in South Africa are still made in cash, with the average cash transaction just R150.

This cash dependency keeps people locked out of credit scoring, savings products, and safer transaction records. And ironically, it makes them even more vulnerable to predatory lenders.

Another challenge is financial literacy. While digital tools are becoming more user-friendly, understanding how credit works: interest rates, repayment terms, and hidden fees is still a barrier for many. Without the knowledge to make informed decisions, even well-intentioned financial inclusion can backfire, leading to over-indebtedness and cycles of dependency.

Retail finance has an opportunity (and arguably, a responsibility) to solve this. Whether through plain-language product design, in-app financial tips, or community workshops, there’s space for lenders to build not just access, but confidence.

Challenges and opportunities

Retail finance in South Africa has opened doors for millions, but those doors don’t swing open for everyone just yet. Despite the progress, some structural and systemic barriers still limit the full impact of these services. Yet within those barriers lie the seeds of opportunity. For forward-thinking lenders, regulators, and innovators, these are chances to build better.

The challenges

• High fees still remain a major problem: Access is one thing. Affordability is another. While more South Africans are being brought into the formal financial system, many of them are still priced out of using it consistently. Banking fees for basic transactions, account maintenance, or card use can quietly eat into low or irregular incomes. For example, a daily wage earner might lose R60–R100 per month just keeping an account active, money that could otherwise go toward essentials like food, transport, or data. This makes digital finance feel more like a tax than a tool, and it’s why many people opt out, withdraw their salaries immediately in cash, and avoid repeat interactions with the system. Fintechs are starting to challenge this, but until banks and non-banks alike aggressively drive down cost-to-serve, affordability will remain a friction point.
• Cash still dominates: South Africa’s economy is still heavily reliant on cash, especially in informal markets. This preference is partly cultural, partly logistical. In rural areas or townships, limited access to ATMs, network issues, and merchant readiness all reinforce cash usage. This matters because cash transactions leave no data trail, which means no credit history, no proof of income, and no pathway into formal finance products like loans or insurance. Digital inclusion is all about making those apps usable and trusted in the context of how people actually live.
• Financial literacy: The fintech boom is introducing new products at breakneck speed; BNPL, wallet apps, micro-loans, embedded credit. But many consumers don’t fully understand how these tools work or what their long-term implications are. If someone signs up for a loan without understanding how compound interest works or what a balloon payment is, they’re walking into a trap without realising it. This can lead to a rise in over-indebtedness, misuse of credit, and damaged trust in the system. Lenders must recognize that financial education is a core part of sustainable product design.
• Regulatory uncertainty for fintechs: Innovation is happening faster than regulation can track. Many fintechs in South Africa operate in grey zones, especially those offering new products like digital credit lines, peer-to-peer lending, or embedded finance within e-commerce platforms. This uncertainty poses a dual threat. On one hand, a lack of clarity slows investment and product development. On the other hand, insufficient oversight can expose consumers to unregulated or predatory practices. Startups often don’t have the legal teams or buffers that banks do, which makes regulatory ambiguity costly. A licensing delay or unclear compliance directive can stall progress for months. The need of the hour is a regulatory approach that moves as fast as the market it’s trying to govern.
• Legacy infrastructure weighs banks down: Traditional banks are not only competing with fintechs, they’re dragging around outdated systems that weren’t built for today’s digital-first environment. Many of their platforms are still layered on top of legacy cores, making new product rollouts slow, costly, and prone to glitches. According to Statista (2024), banks in South Africa report a return on assets of just 1.13%, reflecting the burden of operational costs and low flexibility. While fintechs launch new tools in weeks, banks can take months just to complete internal testing and compliance checks. This limits their ability to serve underserved segments quickly and opens the door for fintechs to win customer loyalty by simply being faster and easier to deal with.

The opportunities

• Retail finance can power SME growth: South Africa’s SMEs are the country’s single largest engine of employment and innovation, but many remain locked out of formal credit. Traditional banks often require years of trading history, collateral, or a perfect credit score, criteria that many small business owners can’t meet. Fintech lenders like Retail Capital or government-backed agencies like SEFA are helping close this gap. They assess risk using alternative data like sales history or mobile wallet activity, making it possible to support a wider base of entrepreneurs. Across Africa, women-owned businesses face a $42 billion funding gap. Targeted lending to this segment is good business. Women entrepreneurs tend to reinvest more in their communities, create stable jobs, and exhibit lower default rates.
• The infrastructure is there: South Africa has one of the most advanced financial ecosystems in Africa: robust regulation, world-class banks, a sophisticated stock exchange, and deep mobile penetration. The tools exist. What’s missing is the intentional shift to use those tools for inclusion, not just profit. Real-time payments through the Rapid Payments Programme (RPP), digital KYC processes, and national ID-linked credit scoring are all enabling factors that lenders can tap into to lower barriers and scale access. In other words, we don’t need to build from scratch. We just need to deploy existing infrastructure in ways that meet underserved consumers where they are.
• Education as a growth strategy: Imagine if every financial product launched came with bite-sized explainers, video tutorials in multiple languages, or USSD-based walkthroughs. That alone could radically change how first-time users interact with the system. Financial education programs, especially those embedded into apps, marketplaces, and schools, can help people move from cautious users to confident decision-makers. And the payoff? Smarter customers, lower default rates, better product usage, and long-term brand loyalty. This is one of the most achievable goals for lenders who want to differentiate themselves on trust, not just tech.
• Policy can be a catalyst: Frameworks like the Broad-Based Black Economic Empowerment (B-BBEE) Act offer a clear path for aligning business goals with national development. Lenders that prioritize funding black-owned businesses, women entrepreneurs, or rural communities can benefit from incentives while also contributing to broader economic transformation. This is about creating shared value. When finance flows to those who’ve historically been excluded, entire markets open up. The government can do more, too, by offering guarantees for risky segments, setting up credit bureaus for informal borrowers, or partnering with fintechs on digital ID verification.
• Digital growth and ESG: Mobile banking, QR payments, and AI-driven credit scoring are the new standard. Lenders who don’t adapt will find themselves playing catch-up to faster, lighter, more responsive competitors. At the same time, the global push for ESG (Environmental, Social, Governance) principles is filtering into retail finance. The Johannesburg Stock Exchange (JSE) is already encouraging companies to report on their climate and social impacts. Lenders that fund solar SMEs, support sustainable agriculture, or create inclusive loan portfolios could find themselves ahead of the curve. Digital growth plus ethical finance is a competitive edge and the future.

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What comes next is execution

South Africa’s retail finance space isn’t short on innovation, infrastructure, or ambition. What it needs now is better execution solutions that work at the margins, not just the middle. Access alone doesn’t mean progress, and inclusion isn’t real if the tools offered are too expensive, too complex, or too misaligned with how people actually live and work. Lenders, whether traditional, digital, or hybrid, will need to rethink their assumptions. Not just about risk, but about relevance.

The same goes for policymakers, whose choices in the next few years will either expand the space for responsible growth or restrict it through inaction. Retail finance can do more than serve the economy; it can shape it. But only if the people building it stay close to the problems that matter: cost, trust, usability, reach. These aren’t abstract goals. They’re very practical ones. And the sooner they’re treated that way, the sooner progress becomes something people can actually feel.