With a market size of around R500 billion, the value-added services (VAS) market in South Africa is not to be underestimated and reflects the importance of VAS in everyday consumer behaviour.
In recent independent consumer research, Electrum has found that opportunities do still exist for both banks and retailers in the VAS space, if they focus their strategies and move quickly. This blog will discuss the key takeaways from the research findings.
Reassuringly, VAS usage on the whole is continuing to increase. Prepaid airtime and data remain the most popular VAS purchased, followed by prepaid electricity. In terms of growth, LOTTO and travel and event ticketing have shown the most significant change in usage.
With 95% usage, in a country where mobile access is often the only digital touchpoint, prepaid airtime and data is no longer a luxury - it is a lifeline that supports modern human needs.
In a similar way, the popularity of prepaid electricity indicates a significant shift in how consumers view different VAS types. This service has morphed beyond a way to keep the lights on to become an essential commodity for consumers.
Importantly, the services that exhibit the fastest growth (LOTTO, travel and event ticketing) show how consumers are now placing value on aspirational or emotional needs rather than only transacting out of necessity.
Any VAS business that does not offer these expanded services is undoubtedly on the back foot when it comes to owning a share of the market. Additionally, the growth in popularity of services that were traditionally considered a luxury shows that VAS marketplaces need to offer the full suite in order to compete.
Bank apps are rated as the top purchase channel by consumers. This is followed by retailer POS, with bank ATMs coming in third.
When examining mobile app adoption, bank app downloads significantly outperform both retailer and MNO apps. There is also a significant margin between app download rates in less populated areas compared to suburban South Africa.
The superiority of bank apps compared to all other purchase channels indicates that retailers are not keeping up with this rise in bank app popularity and usage. Consumers are reacting to the one-stop-shop nature of bank app VAS marketplaces and the ability to transact whenever they need to. Ultimately, banks need to leverage this head start and take advantage of it while they are still ahead by continuing to innovate, add value, and ensure seamless user experiences.
That being said, retailers have the opportunity to compete, especially when it comes to the more open rural markets, but they need to carefully consider the consumer journey and app experience. Offering exclusive app-only deals, loyalty perks, and gamified rewards are examples of strategies that retailers can implement to entice consumers. Physical store footprints can be leveraged by integrating app benefits into the in-store purchasing experience, such as offering app-exclusive discounts at checkout.
Every VAS category comes with its own unique set of purchasing behaviours determined by different income groups - providing valuable insights into consumer trends.
Prepaid airtime is used by the majority of the population, but convenience plays a key role in how this service is purchased. This is highlighted by the finding that while banks and retailers remain the top two preferred channels across most of VAS, spaza shops outperform retailers when it comes to prepaid airtime purchases due to the strong preference from the low-income groups.
Bill payments stand out in terms of purchase preference, as consumers earning below R8 000 per month still prefer retailers over other options, while consumers with higher earnings prefer to make their bill payments through their banks.
When it comes to ticketing, 63% of buyers earn below R22 000 per month, and 39% of buyers reside in a township. This suggests that this particular market is driven by the lower-income groups. Ticketing and LOTTO stand out as they are the only services where retailers are the preferred channel for making purchases.
Lower-income groups also dominate the betting voucher market with 37.5% of buyers earning below R8 000 per month. This group utilises banks as their primary channel for purchasing betting vouchers, followed by a preference for spaza shops over retailers. These findings tie in closely with general purchasing behaviour as consumers buying from spaza shops indicated they make purchases frequently, sometimes as often as daily.
One consideration for your VAS strategy is to optimise your digital offering to serve as the natural place for consumers to make repeat purchases. Habits can lead to consumer loyalty - especially when coupled with convenience.
Domestic money transfer makes up an impressive third of consumer VAS spend, with 63% of consumers making use of this VAS. Usage continues to be driven by lower-income groups, with over 67% of activity within domestic money transfer being accounted for by consumers who earn less than R22 000 per month. This meets a deeply rooted need to support family and community across distances. With many South Africans working in urban areas while their families remain in rural or township settings, fast and reliable money transfers are essential for sending remittances home, paying for education, or contributing to communal responsibilities. It's a service that blends convenience, affordability, and social obligation - making it a core part of everyday life.
Interestingly, 68% of redemptions are being done at ATMs. This could potentially present an untapped market of consumers who have not yet embraced digital transacting due to limited financial inclusion, especially in light of banks reducing their ATM footprint.
Even though the South African VAS market seems saturated, there is still the potential for expansion into new channels and services. WhatsApp provides an opportunity with 63% of consumers being willing to use WhatsApp for VAS in the future. This highlights the importance of continuous innovation to reach consumers conveniently and capture an emerging sector of the established market.
Consumers are also indicating an appetite for Prepaid Insurance as a VAS, with 6% having reported purchasing it at retailers or spaza shops. Businesses that can quickly expand their offerings to this service - and any other emerging services in the future - can set themselves apart from competitors.
Given the commoditised nature of VAS, ultimately, convenience will win the game.
Currently, we are seeing bank apps ticking this box. We're now seeing a disruption to the original retailer win-win business case for VAS, which centred around cross-selling services as a supplementary revenue stream while leveraging strong in-store foot traffic to strong foot-traffic.
It seems that now the key to VAS growth is to ensure that your digital platform acts as a marketplace that is a natural place for repeat purchases. Banks are leading the game because their apps are convenient places to return to day in and day out to consume information and buy services.
Retailer apps would need to transform to offer the all-in approach to providing as many VAS services on their app as expected by consumers and creating the repeat purchase behaviour expected of ‘Super App’ users.
Additionally, the functionality for storing multiple meter numbers, phone numbers, etc., typically found on some bank apps makes the end-to-end VAS purchasing process for friends and family a much easier experience.
All-in-all, the VAS purchase experience via bank app is superior compared to retail.