Online shopping boom in South Africa

South Africa’s e-commerce sector has seen significant growth this year, with 50% of merchants noticing an increase in sales as opposed to 38% in 2023.

This is according to Payfast’s State of Pay report for 2024, which used payment data from the Payfast by Network engine, online surveys, and interviews with industry experts.

It said the industry has grown significantly since the arrival of new online marketplaces in South Africa, such as Temu and Amazon. According to the report, it is expected to reach a value of R400 billion by 2025.

Just under half of respondents said the increase in local marketplaces drove them to become more innovative, while only 11% said their sales were negatively affected.

On the other hand, South African merchants seemed to be more affected by the entry of international marketplaces, as 44% said they were finding it difficult to compete with the low prices.

However, local marketplaces were the most popular among consumers, with 41% saying they shopped at a local marketplace at least once a month, as opposed to 27% shopping at international marketplaces.

Clothing and accessories comprised 54% of all items purchased from these marketplaces.

Groceries were the second most purchased category among respondents, at 26%, followed by health and beauty products at 14%.

In terms of payments, cards continue to be the dominant means of payment used on online marketplaces, with 57% of respondents using their debit or credit card.

Instant EFTs were the second most popular payment method, at 20%, and open banking, such as Capitec Pay and PayShap, was used by only 12% of the report’s sample.

Even though e-commerce still only makes up a fragment of total retail sales, the most common consumer journey has been browsing online and then purchasing online, with 41% of South African consumers doing this.

The second-most common consumer journey was for customers to browse online and then purchase in-store at 18%, whereas only 10% of respondents browse in-store and purchase there.

Cash usage hindering e-commerce adoption

A major limiting factor in South Africa’s e-commerce expansion is the dominance of cash as a payment method.

South Africa’s major banks have noted that transactions made with digital wallets have been skyrocketing, with Capitec reporting a 238% increase in digital payment volumes between June 2023 and June 2024.

However, this is primarily attributed to upper-income segments, with high transaction fees and a lack of Internet access hindering greater adoption.

Efficient Group director and chief economist Dawie Roodt said several barriers must be overcome within the South African economy before lower-income groups join this trend.

One of these barriers is trust in financial institutions.

Roodt argued that this lack of trust stems from the country’s lowered confidence in governmental institutions and, thus, South Africa’s economic future.

He said that even PayShap, a universal payment system meant to lower the barriers for South Africans sending money to one another, has been surrounded by rumours of government surveillance and spending controls.

Roodt also pointed to the convenience of cash for certain transactions as a major contributor to its ongoing usage.

A study by the University of Pretoria and SVB Services found that 55% of South African earners use cash as a dominant payment method.

The study points out that one way to increase the adoption of digital payments is to cater to the needs of all income segments.

When considering day-to-day payments, the appeal of using a tap-to-pay-enabled device or a bank card is convenience rather than necessity.

Therefore, digital payments must meet more South Africans’ needs to outweigh their lack of trust in such systems.

Lowering the costs of digital payments is another need for the lower-income population.

These costs include the transaction fees and data costs incurred by merchants and consumers.

If data is needed to facilitate payments, the relatively high cost will slow merchants’ adoption of digital payment methods.