South African fintech borrowers are concentrated in below prime risk tiers.
South Africa’s fintech market is projected to reach $19.5 billion (R340 billion) by 2030, signalling a major shift in how consumers engage with credit.
This is according to TransUnion’s latest research into SA’s fintech lending market, which reveals insights into borrower behaviour, loyalty and risk, based on an analysis of 4.3 million South African consumers.
The study highlights patterns that present both opportunities and challenges when navigating a rapidly-digitising credit ecosystem.
It notes that fintech lending continues to grow in SA, reshaping the financial landscape and redefining how consumers access and use credit.
From mobile-first platforms to embedded finance, fintech firms are making financial services more accessible, personalised and efficient. As these innovations evolve, they are not only transforming operational models, but also influencing consumer credit behaviour in ways that are not yet fully understood, the study finds.
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It states that while fintech borrowers tend to be younger and riskier, they are not necessarily underserved. Many hold multiple products and demonstrate meaningful engagement with their service providers.
Emerging fintech firms are offering diverse solutions, such as buy-now-pay-later loans with interest-free payments, flexible financing for small and medium enterprises, point-of-sale credit and insurance coverage.
According to the study, financial services are now more accessible than ever before. However, it’s essential that the lenders behind these solutions understand who is using them, how their customers engage with credit, and whether borrowers’ loyalty can help drive sustainable growth.
“As competition intensifies and regulatory frameworks evolve, lenders must go beyond product innovation and develop a deeper understanding of consumer behaviour,” says Ayesha Hatea, director of research and consulting at TransUnion South Africa.
“If lenders are to benefit from the anticipated growth in the fintech lending market, it’s essential that they offer financial literacy and awareness education to help consumers understand how responsible credit use can support their financial goals. Once consumers have opened fintech-issued products, lenders can activate lifestyle triggers to anticipate consumer progression so that they can deliver timely, relevant engagement to drive loyalty and long-term value.”
This engagement can be further supported by deploying predelinquency models to identify early signs of consumer stress, and to initiate recovery efforts before risk escalates, Hatea asserts.
Themes shaping fintech lending in SA
Fintechs are not yet the main gateway to financial inclusion.
Despite SA’s high mobile penetration, 69% of new-to-credit consumers – those with no prior reported credit history – enter the market via retail accounts, with clothing accounts being the most common first product, notes the study.
Fintech firms have an opportunity to reposition themselves as enablers of financial inclusion by partnering with retailers and mobile ecosystems to reach underserved segments.
Fintech borrowers are concentrated in below prime risk tiers.
While many fintech borrowers have experience managing credit, 95% of fintech borrowers with zero to one-month loans are in below prime risk tiers, compared to 29% for bank borrowers and 69% for non-bank lender borrowers, the study finds.
For two- to 12-month loans, 94% of fintech borrowers are below prime, in contrast to 58% for banks and 50% for non-banks. This highlights greater risk exposure among the fintech borrower base and suggests fintech lenders could benefit from leveraging trended and alternative data to better predict repayment risk and reduce delinquency rates, particularly among below-prime borrowers.
Fintech borrowers underperform on repayments.
The study points out that while there are no material differences by lender type for longer-term loans, there are significant differences for zero to one-month loans. This is an important consideration as these shorter-term loans are more likely to be used by borrowers earlier in their credit journeys when they are potentially more financially vulnerable, it states.
After controlling for borrower risk score, delinquency rates were highest among fintech borrowers. This underscores the need for enhanced risk management strategies tailored to the fintech segment.