South Africa’s secret WhatsApp economy

There is a growing peer-to-peer referral-based online economy in South Africa fuelled by platforms like WhatsApp that host user-created groups.

South African e-commerce veteran Justin Drennan says a huge number of online transactions are happening under the radar, creating a flourishing social commerce ecosystem.

Drennan co-founded online import service Wantitall in 2007, invested in Superbalist before Takealot bought it, co-founded Parcelninja in 2014, and invested in what would become Ozow in 2016.

He explained that in addition to informal sellers offering goods and services through private social channels, there are resellers and dealmakers cross-posting listings between groups and taking a commission.

In just one group he’s seen 40 transactions for a product, and agents are posting listings to hundreds of groups, said Drennan.

“It’s an entire unsung economy in South Africa,” he said.

While South Africa’s informal e-commerce sector is still unquantified, it is reminiscent of the “hidden economy” that Kasinomics author GG Alcock frequently highlights.

Alcock, in collaboration with Lesaka Technologies, released an Informal Economy Index towards the end of 2023.

They estimated that South Africa’s informal economy was worth at least R600 billion, with the exact value being closer to R750 billion.

However, it is important to note that e-commerce is still much smaller than physical retail in South Africa.

World Wide Worx and Ask Afrika released a report in May showing that in the formal sector, e-commerce transactions only made up 6.15% of all retail in South Africa.

This is expected to grow to 10% by the end of 2025 and be valued at R100 billion by 2026.

Interestingly, even in the formal market, the use of online retail is relatively evenly spread throughout socioeconomic levels.

The fact that this data does not directly reflect disposable income can be because more than half of the devices used for online shopping are smartphones, lowering the barrier to access.

In the formal e-commerce sector, the most commonly accessed category of online retail is clothing at 30%.

Second is groceries, which make up 22.3% of the market.

A major barrier to e-commerce adoption in South Africa was the very last step in an online shopping visit — payment.

According to World Wide Worx and Ask Afrika’s report, over a quarter of users abandoned a shopping site at checkout because they did not trust the site with their banking information.

This was second only to the user’s card being declined.

In the informal sector, cash is king.

According to research from the University of Stellenbosch Business School, lower-income earners, who comprise the majority of the population, use cash the most.

This has been attributed to various factors.

Research from the FinMark Trust, in partnership with the World Bank, the Bill & Melinda Gates Foundation, and G2Px, showed that most township businesses operate without formal registration or bank accounts and deal exclusively in cash.

This choice is often driven by concerns about the costs and bureaucratic hurdles of formalising a business.

Its studies have also found that lower-income consumers prefer cash transactions due to their immediacy and ease of use.

Cash is widely accepted, transparent in terms of fees, and facilitates meticulous budget management, allowing households to track every expended cent.

Despite the increased risks of theft or loss associated with carrying cash or using ATMs, it remains a more trusted payment method for many.

The advent of social commerce has also given rise to third-party payment providers who hope to convince businesses and customers to go cashless.

WhatsApp, which already lets business users list their products on a virtual storefront, has also started offering payments in some countries.

WhatsApp Pay is currently available in India, Brazil, and Singapore.

In unsupported countries like South Africa, third-party providers like Ozow, Stitch, Peach Payments, and others offer merchants a way to generate payment links from orders.

“The challenge with the uptake of cashless payment methods will be addressing perceptions, especially around cost,” University of Stellenbosch Business School researcher Diana Bresendale stated.

Once the perceptions and real cost concerns around using digital payments are addressed, Bresendale said people will naturally gravitate towards cashless payments.