An overview of SA’s retail credit and loans market

07 JUNE 2024

By Regan Adams

In South Africa, the consumer credit market is worth over R2 trillion, fuelled predominantly by home loans and vehicle finance. However, credit facilities or unsecured credit transactions also make up a significant proportion of the mix, with credit and store cards being sub-components of the credit facilities segment.

Interestingly, South Africa’s demographic and economic profile lends itself more to the use of store cards, which outnumber credit cards by almost 3 to 1. For many, store cards provide an all-important entry point into the credit-active population.


Spotlight on the market for store cards

Traditionally, major clothing retailers have been the go-to for store cards, while banks dominated the credit card scene. One key difference? Credit cards generally offer higher limits, while store cards cater to those seeking smaller ones. Historically, this market has remained robust, with credit fulfilling a growing need, particularly in high-inflationary economic climates.

In recent years, the e-commerce boom has skyrocketed thanks to digitalisation. In its early stages, e-commerce relied heavily on credit and debit cards. But here’s the catch: debit cards require available cash, which many shoppers lack.

Enter store cards, filling the void by offering retail credit to a broader audience.


The power of data

A look at the demographic profile of the market for store cards will reveal that this kind of facility typically appeals to individuals within the 6 – 8 LSM income brackets or the country’s middle-income segment.

One of the reasons why South Africa’s credit market is relatively mature compared to its counterparts relates to the availability of both negative and positive data, gathered by its national credit bureaus. South Africa was in fact, one of the world’s first countries to collate and analyse data on credit users who do repay their debts (positive data) and credit users who do not (negative data).

Unlike other territories in Africa, every registered credit provider in South Africa is legally obligated to report this data to the credit bureaus. This data is an invaluable source of information and provides a highly accurate overview of the market. Lenders can in turn, use this data to make informed credit decisions across the entire scope of their businesses from product development to customer analysis and cost projections.


Regulatory hurdles to greater inclusivity

In South Africa, the National Credit Regulator efficiently oversees credit bureaus, backed by the comprehensive National Credit Act. This legislation, considered among the world’s most advanced, mandates affordability assessments before extending credit, benefiting both lenders and borrowers.

While this has obvious benefits for credit providers in terms of de-risking, its strict formula, requiring income verification and specific expense considerations, poses challenges, especially for those in the informal economy. While curbing reckless lending, it also limits access to credit for many. Bridging this gap is crucial, as credit plays a pivotal role in social upliftment, personal development and financial well-being. Democratising access to these opportunities is essential for broader societal progress.


Credit beyond the pandemic

The Covid-19 pandemic dealt a severe blow to the local credit market, forcing many lenders to halt credit extensions due to widespread job losses and financial strain.

Interestingly, pre-pandemic, online credit applications were associated with higher risk customers, but this trend has reversed post-pandemic due to increased digital adoption. The data gathered and analysed over the next decade will be key in understanding this new, emerging customer base and finding innovative ways to meet their unique needs and demands.


While the current credit market reflects significant strain due to high inflation and interest rates, signs of recovery are emerging with declining interest rates and a stabilising economy in the near future. The challenge lies in finding the perfect niche among the growing ecosystem of innovative credit solutions and fintech players, and to form the strategic partnerships that will build a more resilient market for the future.

* Adams is the CEO of RCS.