How access to cash enables financial inclusion in Africa

Around the world in areas where cash is the preferred payment method for people, an integrated approach to banking is needed to enable financial inclusion.

For many across the African continent, using cash allows for greater control and a sense of security. In South Africa, an economy considered to be largely financially inclusive, 85% of adults are banked and cash remains the dominant payment method with 94% withdrawing cash for day to day use.

Therefore any financial inclusion strategy that emphasises a ‘cashless society’ creates barriers for many individuals, making it less inclusive.

There are many areas that government and financial services providers need to address including creating economic opportunities, reducing fraud and increasing access to cash.

The financial education myth

Financial literacy is highly valuable, but the prevailing idea that education is the only solution to financial exclusion often overlooks the complexities of the issue, particularly in Africa.

Millions of people already manage their finances with great care out of necessity, demonstrating a high level of financial awareness and knowledge. Putting too much emphasis on education can overshadow the deeper systemic issues that contribute to financial exclusion, such as limited access to financial services and economic opportunities.

Many people may not use formal financial products, but individuals with limited resources - where every cent counts - are extremely adept at managing cash, budgeting meticulously, and engaging in community-based financial systems like savings clubs to make the most of what they have.

Focusing primarily on education can perpetuate a stereotype that people are "financially excluded" because they lack understanding, rather than acknowledging the structural barriers they face. It also downplays the valid concerns many have about digital finance, such as issues of privacy, cybersecurity, and the high cost of maintaining a mobile device or reliable internet connection.

Low-income individuals are acutely aware of their financial limitations and often employ resourceful, strategic methods to stretch their limited resources to meet basic needs. Therefore, teaching them to manage money does not address the root issue: access.

Expanding access in Africa requires a shift in perspective. Instead of assuming that financial education will eliminate exclusion, we must recognise the systemic and structural barriers that render financial services inaccessible or impractical for a large portion of the population and reimagine financial services to be flexible, affordable, accessible and responsive to these conditions.

Cash is king - for a reason

The tangible nature of cash allows for physical tracking of expenses, fostering a greater sense of awareness and control over financial decisions. This is particularly crucial for low-income individuals, where small oversights can have significant consequences.

Techniques such as using cash envelopes for specific expenses can simplify budgeting, offering a straightforward approach that many find more intuitive than digital tools. Furthermore, cash introduces a level of friction that can help reduce impulsive spending. Unlike card transactions, handling physical currency encourages thoughtful consideration before making a purchase.

This not only aids financial management but also provides psychological benefits, creating a sense of security and stability. For the unbanked, or those hesitant about financial institutions, cash remains an accessible and private way to participate in the economy, highlighting its enduring importance in today's society.

And, digital transactions, while gaining traction, are often perceived as risky, with concerns about fraud, privacy, and data security acting as real deterrents.

According to the Banking Association of South Africa, digital banking fraud rose by 45% in 2023, with fraud on banking apps accounting for 60% of all digital banking crimes. As such, many individuals, particularly those from low-income backgrounds, fairly feel that digital platforms expose them to a higher risk of unauthorised access, scams, or unforeseen fees that could disrupt their carefully managed finances.

Cash, on the other hand, provides a reliable sense of control: it’s tangible, transparent, and can’t be hacked. It’s also a financial lifeline that helps them avoid the often prohibitive costs associated with digital transactions.

While digital payment platforms are designed to offer convenience, they frequently impose financial burdens on those who can least afford them. Fees for account maintenance, withdrawal, overdrafts, and minimum balances can quickly accumulate, chipping away at already limited resources.

Addressing inequality in banking

While digital payments are growing, cash clearly remains an essential part of many people's financial lives. Any financial inclusion strategy that emphasises a cashless society can inadvertently create barriers for many individuals, making it less inclusive. Cash remains a vital component of daily transactions for numerous populations, including low-income households, the elderly, and those without access to traditional banking services.

Transitioning to a purely digital payment system without considering these groups can deepen existing inequalities and leave vulnerable populations behind, as they may struggle to adapt to, or even access, new technologies.

Therefore, the most fit-for-purpose systems should integrate both digital and cash-based payment systems in order to allow underserved communities to manage their finances.

A recent report from the South African Reserve Bank showed that the majority of transactions were conducted in cash. However, the report also found that most people preferred digital channels for high value transactions. This indicates that offering both digital and cash-based solutions addresses diverse customer needs, particularly as they increase their use of digital services.

Ensuring safer, more secure digital platforms are available is also essential to building trust with low-income users. Robust fraud prevention, easy identity verification, and responsive support for issues can help reduce the perceived risks of digital payments.

By also lowering transaction fees and offering real-time settlement options for critical services, digital platforms can make real-time payments a practical, empowering alternative to cash, meeting the urgent needs of low-income households while addressing their financial management concerns.

Uplifting small businesses

The present reality requires financial service providers to urgently understand the nuanced financial needs of Africa’s population.

Systematic exclusion has been found to affect small businesses in sectors like manufacturing, which hold massive potential to uplift workers across countries, as well as impacting Africa’s cross-border trade.

Across borders, many vendors are women and children who run small trading businesses. For these traders, cash is a vital lifeline. At the same time, access to formal and safe financial services could also give these small businesses better security and access.

At the end of the day, true financial inclusion calls for income equality and a commitment to addressing systemic barriers. It must address access to affordable and flexible financial services that align with the realities of people’s lives.

By focusing solely on digital financial services, we risk missing the bigger picture - creating accessible, secure, and relevant financial solutions that meet people where they are and empower them to actively engage with the economy on their terms.

But, by reframing this discussion, investing in practical solutions, and collaborating meaningfully with stakeholders, we can transform the continent’s financial landscape, empowering people from all backgrounds to participate in and benefit from Africa’s economic future.