Cash Still Wins

The informal economy’s quiet resistance to fintech’s digital-first gospel

Walk through Gikomba market in Nairobi on a Tuesday morning. Transactions worth thousands of dollars — bales of second-hand clothing from North America and Europe, traded across an improvised supply chain that spans three continents — are settled in cash. Not because the traders don’t have mobile money accounts. Most do. Not because they lack smartphones. The penetration rate in this market is high enough to embarrass several European nations. They use cash because cash, in this context, performs better than the alternatives across the specific set of criteria that matter most: speed, privacy, trust, and zero counterparty risk.

This is the fact that fintech evangelism consistently elides: cash is not a primitive technology waiting to be disrupted. In the informal economies that constitute the economic backbone of most African nations, cash is a highly optimized solution to a specific set of transaction requirements. Understanding why cash persists — and under what conditions digital payments genuinely outperform it — is the analytical prerequisite for building fintech products that achieve real penetration rather than impressive-sounding registration numbers.

The Scale of the Informal Economy

The informal economy in sub-Saharan Africa represents between 30 and 60 percent of GDP across most countries in the region, and accounts for an estimated 80 percent of employment. These are not small numbers at the margins of the formal economy — they are the economy. The micro and small enterprises that populate this sector — roadside mechanics, market traders, matatu operators, smallholder farmers, domestic workers — process an enormous volume of daily transactions that are, by definition, outside the formal financial system.

The digital payments data is genuinely impressive at scale. As of 2024, GSMA’s figures show 2 billion registered mobile money accounts on the continent, 500 million active users, and $1.68 trillion in annual transaction value. The share of adults in sub-Saharan Africa with either a bank or mobile money account grew from 34 percent to 58 percent between 2014 and 2024. In Nigeria, more than 12 billion instant money transfers were completed in 2024 — up from 9.7 billion in 2023. These are genuine achievements, and they should not be minimized.

But the aggregates obscure the texture of what is actually happening. The 500 million active mobile money users represent a subset of the 2 billion registered accounts — meaning roughly 1.5 billion accounts registered by real people sit dormant or nearly dormant. Account ownership and active use are not the same metric. Digital payments have achieved extraordinary penetration in specific transaction types — P2P remittances, airtime purchases, utility payments, and increasingly merchant payments in formal settings — while making far more modest inroads into the high-frequency, small-value transactions that characterize informal commerce.

Why Cash Persists: The Operational Logic

The reasons are both structural and behavioral, and they are worth disaggregating.

First, there is the matter of liquidity. In economies with irregular income cycles — where a matatu operator earns daily and needs to pay his fuel cost daily, where a market trader’s working capital turns over multiple times in a single trading session — the ability to transact instantly and receive value that can be immediately redeployed is not merely convenient. It is operationally essential. Mobile money systems, despite their sophistication, introduce friction points that matter in this context: the need to find an agent to cash out, the transaction fees on withdrawals, the occasional network downtime. Cash fails none of these tests.

Second, there is the privacy dimension. The formal economy’s enthusiasm for digital transaction records is, from the perspective of an informal trader, a liability rather than an asset. A recorded transaction history is, functionally, an audit trail — a data set that can be accessed by tax authorities, used in legal proceedings, or exploited in disputes with landlords and suppliers. The preference for unrecorded transactions in informal markets is not evasion in the pejorative sense. It is a rational response to operating in an environment where formal institutions have historically been adversarial rather than protective.

Third, the merchant acceptance infrastructure remains thin. Digital payment acceptance requires either a smartphone with a mobile money application, a POS terminal, or a QR code — all of which require the merchant to have a registered account with an agent network or financial institution. For the deepest layers of the informal economy — the hawker, the boda boda rider, the smallholder selling produce at a roadside market — the friction of enrollment, even when it is technically simple, is a genuine barrier. Financial literacy, document requirements, and the time cost of registration interact in ways that aggregate statistics do not capture.

Where Digital Payments Are Actually Winning

The honest analysis of fintech in the African informal economy is not a story of failure. It is a story of partial and highly specific success that the sector has been slow to acknowledge as partial.

The transactions where digital payments have achieved genuine informal-sector penetration share common characteristics: they are regular, they involve parties with an ongoing relationship (reducing trust friction), they have a value floor that makes the transaction cost tolerable, and they involve a moment of friction in the cash equivalent — typically the need to physically travel to pay. Utility bills, school fees, government service fees, and cross-border remittances all fit this profile. M-Pesa’s original use case — sending money from urban earners to rural families — succeeded precisely because it replaced a journey, not a transaction.

The next frontier for informal-sector digital payments is business-to-business commerce within supply chains. A vegetable wholesaler who buys from fifty smallholder farmers and sells to two hundred informal retailers has a genuine payment problem: the cash management, physical transport, and security risks of handling high transaction volumes in cash are real costs. Platforms that can digitize the settlement layer within these supply chains — handling reconciliation, float management, and working capital across the chain — solve a problem that cash handles poorly at scale. The success of platforms like Twiga Foods in Kenya and TradeDepot in Nigeria is partially a story about supply chain digitization that cash could not efficiently support.

Instant payment systems with cross-domain interoperability are also changing the calculus in specific markets. In economies where a cross-domain IPS has been launched, account ownership grew at an average rate of 37 percent in the two years following launch, compared to 14 percent growth in control economies. Digital payment usage grew by 73 percent in IPS countries versus only 15 percent among non-IPS peers. These are infrastructure-level interventions that change the underlying transaction environment, not product-level features that persuade individual users.

The Design Failure of First-Generation Fintech

The critique of first-generation African fintech is not that it failed to serve the informal economy. It is that it largely did not try. The dominant product architecture of the 2010s — a digital wallet accessed through a smartphone app, backed by a licensed e-money institution — was designed primarily for the upwardly mobile urban consumer with a regular income, a smartphone, and an existing relationship with at least one formal institution. The product fit for this segment was real. The assumption that scaling this product downmarket would organically penetrate the informal economy was wrong.

The second generation of African fintech is operating with a different design philosophy, and the early results are instructive. Wave’s pricing model — zero transaction fees, revenue captured through merchant acceptance — inverted the first-generation logic that treated transaction fees as the primary monetization lever. The result was explosive adoption in Senegal and Côte d’Ivoire, reaching ten million users faster than M-Pesa had in comparable markets. Telda in Egypt targeted the unbanked with a card-first product that did not require an existing bank relationship. Moniepoint in Nigeria reached millions of small merchants through an offline-capable POS infrastructure that did not require reliable internet connectivity.

The pattern across these success cases is consistent: products that reduce friction for the specific transaction types that informal-economy participants actually need to execute, rather than products that assume informal participants should adopt formal transaction behaviors. The distinction sounds obvious. It has taken the sector a decade to internalize it.

What the Informal Economy Actually Needs

The most consequential intervention in informal-economy finance is not a payments product. It is working capital. The informal economy’s structural constraint is not the inability to transact digitally. It is the inability to access affordable, flexible short-duration credit against verifiable transaction history. A trader who can borrow at 5 percent monthly rather than 20 percent from a moneylender can carry more inventory, absorb more supply chain risk, and grow her business. The fintech sector’s most durable contribution to the informal economy will be building the data infrastructure — transaction histories, behavioral scores, supply chain relationships — that makes this credit accessible at scale.

This requires patience that the venture-funded product cycle does not naturally cultivate. Building a transaction data asset that eventually supports credit underwriting takes years. The median holding period of a VC-backed fintech is not calibrated to that timeline. But the companies that successfully build this infrastructure — that earn the trust of informal merchants, digitize their transaction flows, and use that data to extend working capital at rates that informal lenders cannot match — will be building businesses of extraordinary scale in the largest economic sector on the continent.

Cash will not disappear from Gikomba market this decade. It will coexist with digital payments in a pattern that reflects the actual transaction preferences of the market, not the preferences of investors and product managers who do not operate in it. The fintech companies that thrive in the next phase of this market will be those that began with genuine curiosity about why cash persists, and built products calibrated to the answer.