Financial technology has emerged as a driving force in the modern economy, revolutionising not only the banking sector but also infiltrating into non-financial institutions. Romānova and Kudinska (2016) assert that FinTech has become an intrinsic part of the economic landscape, contributing significantly to a country’s gross domestic product (GDP). Beyond banking, FinTech’s influence has sparked innovation and accessibility, encouraging non-financial institutions to offer diverse products and services.

The transformative impact of FinTech extends beyond national borders, facilitating the globalisation of financial markets (Au 2022). Its inception has stimulated the development and innovation of domestic enterprises, fostering competition and making capital more accessible. This evolution serves as a foundation for a dynamic and competitive financial landscape in both developed and emerging economies.

Literature suggests that financial market flaws, such as transaction costs and limited access to information (Chen & Rensleigh 2009), historically hindered marginalised groups from escaping poverty (Demir et al. 2020). However, FinTech, especially through mobile financial services, possesses the potential to reverse this trend by enhancing financial inclusion for underserved communities. The demand for FinTech is driven by technological advancements and increased consumer accessibility in sustainable, more inclusive markets (Mazambani & Mutambara 2020).

Nicoletti (2017) identifies FinTech’s disruptive impact, highlighting its ability to unbundle services from traditional financial institutions, offering more innovative products, enhancing customer experience, providing competitive pricing, and catering to marginalised groups. South Africa, despite its challenges, boasts a well-regulated banking sector, fostering a conducive environment for the emergence of FinTech start-ups (EMCompass 2017; National Treasury 2019). The integration of technology and finance is expected to gain further momentum with ongoing support from innovation hubs.

Financial inclusion, a multifaceted concept, undergoes a paradigm shift in its definition and measurement. Simatele and Maciko (2022) observe a historical focus on accessibility, measured by factors such as credit access and ATM distribution. However, this study adopts a contemporary perspective, aligning with Sarma’s (2008) definition that considers not only ease of access but also the availability and usage of financial technologies.

Shipalana (2019) provides insights into South Africa’s informal economy, revealing large, underserved communities where a substantial portion of the working-age population is seeking economic opportunities. These communities, accounting for a significant percentage of South Africa’s unemployed citizens, form the focal point for financial inclusion initiatives. Technology, facilitating transactions without the constraints of distance, becomes a viable tool for achieving financial inclusion (Simatele & Maciko 2022). What is imperative is ensuring access to financial services, making them cost-effective, and preventing these communities from being bypassed by the digital evolution.

The landscape expands further with the exploration of small and micro enterprises (SMEs) as catalysts for sustainable development. Small and micro enterprises are regarded as the future of developing economies globally, bearing unique challenges that demand dedicated research attention (Masocha 2019). Resource constraints pose a significant challenge for SMEs, requiring government intervention to strike a balance between support and preserving their independence (Bhorat et al. 2018).

The interplay between FinTech, financial inclusion, and SME development in South Africa reveals a complex yet transformative journey. Recognising the unique challenges within underserved communities, this article aims to explore the current landscape of FinTech adoption, barriers to financial inclusion, and the potential of SMEs to drive sustainable development. The subsequent sections delve into these dimensions, providing a comprehensive understanding of the intricate dynamics at play in South Africa’s evolving economic landscape.

While FinTech online products and services have garnered considerable attention and optimism regarding their transformative potential in the financial information services sector (Arner, Barberis & Buckley 2016), a substantial portion of the community, still reliant on cash transactions, may exhibit reluctance to integrate these technologies because of perceived constraints (National Treasury 2019).

Small and micro enterprises are a crucial contributor to the South African economy; however, they are faced with several challenges, with limited access to finances and FinTech services being the primary concern (Bvuma & Marnewick 2020). This research aims to contribute insights that can facilitate the achievement of critical mass for FinTech products in South African townships, particularly in areas such as Soweto, fostering financial emancipation in underserved communities.

The following objectives were identified as a roadmap to achieve the aim of this study:

In this study, a deductive approach was adopted, rooted in the analysis of specific observations and data to develop theories. The focus is on understanding challenges faced by SMEs in FinTech adoption, making deductive reasoning appropriate for capturing nuanced insights.

A survey design, employed in this study, emerged as the preferred strategy to gather extensive data on FinTech adoption by SMEs in underserved communities. A survey (questionnaires), administered online, facilitated straightforward data collection and subsequent analysis and interpretation (Creswell 2018; Saunders, Lewis & Thornhill 2019).

Ethical clearance to conduct this study was obtained from the University of Johannesburg College of Business and Economics Research Ethics Committee (No. 2022SCiiS037). This was coupled with participant anonymity, informed consent, and citation integrity to uphold the ethical fabric of the study. The meticulous consideration of ethics underscores the commitment to research integrity (Evans et al. 2021).

Before delving into FinTech adoption, a snapshot of the SMEs in Soweto offers valuable context. The study focused on 265 SME owners with a diverse representation, from within the community, consisting of 44% male owners, 51% female owners, and 5% owners indicating ‘other’. While generalisability is limited to Soweto, the findings can resonate with similar underserved communities.

Figure 1 shows that owners aged 18–44 years represented 70% of the respondents, followed by those aged 45–64 years at 27%. It is interesting to note that both the owners younger than 18 years and those aged 65 years and older constituted 2% each.

The languages spoken in Soweto are quite diverse, with isiZulu spoken by 24% of the respondents, followed by Sesotho (16%), Setswana (13%) and isiXhosa and Tshivenda at 11%, interesting to note that English represented only 7% with no Afrikaans-speaking respondents. The 3% other language speakers spoke Shona, Yoruba, Portuguese, Amharic, Urdu and Swahili. In terms of completed education, 40% of the respondents had completed matric, 31% had completed undergraduate studies and 7% had completed postgraduate studies.

The following is an overview of the diverse business activities of the respondents, showcasing a wide array of products and services across various sectors:

In terms of ownership of and accessibility to digital devices, 97% of the respondents indicated having access to a cell phone, while 14% possessed a tablet, and 25% laptops or computers. Regarding banking institutions, the respondents indicated 49% using Capitec, 16% ABSA, 16% FNB, 12% Standard Bank, and 5% Nedbank and TymeBank, respectively.

Figure 2 shows the respondents’ preferred method of conducting banking activities. Thirty-nine per cent indicated a preference for using cash, followed by 34% mobile banking (cellphone app). Seventeen per cent showed a preference for branch-based banking (during banking office hours), and 10% made use of online banking (computer-based).

From Table 1, showing the respondents’ knowledge about FinTech products and services, 97% and 91% were ‘Extremely well’ or ‘Very well’ informed about cash transactions and ATM, respectively, while only 5% and 6% considered themselves similarly informed about Blockchain and Robotic trade. The heart of the results lies in the quantifiable insights garnered from the SMEs’ responses. This table succinctly captures the prevalence and challenges of FinTech adoption.

Small and micro enterprises in underserved communities face diverse challenges, with limited financial access standing out prominently. A staggering 84% preference for cash transactions among respondents emphasises the deeply ingrained reliance on traditional payment methods (Figure 3). This poses a formidable barrier to the integration of FinTech solutions. Beyond financial access, several obstacles, from infrastructure deficits to market penetration difficulties, weave a narrative of challenges hindering SME growth. Effective public policies and regulations aimed at enhancing financial access and dismantling these obstacles emerge as pivotal catalysts for SME adoption success.

The survey revealed a critical need for targeted financial education and awareness campaigns. To unlock the true potential of FinTech in bridging the financial inclusion gap, concerted efforts are imperative to enhance financial literacy across diverse demographics. These efforts should span from elucidating the benefits of digital financial services to demystifying the functionalities of FinTech solutions.

The potential of FinTech lies in its ability to address financial inclusion challenges, especially for the smaller businesses in underserved communities. However, the journey towards widespread adoption necessitates overcoming barriers rooted in financial illiteracy. The study’s revelation that 84% of respondents initially favoured cash transactions signals a reluctance to embrace digital financial solutions. Bridging this gap requires a comprehensive approach, encompassing awareness campaigns, targeted education and a gradual transition towards digital financial practices.

The extensive representation of businesses and services cited by respondents underlines the transformative role FinTech can play in stimulating growth within underdeveloped and township economies. From digital payment alternatives to online marketing facilitation, FinTech emerges as a catalyst for empowering local, smaller businesses. Recognising this potential underscores the pivotal role FinTech plays and can play in revitalising township areas, fostering economic development, and contributing to a more inclusive financial ecosystem.

The demographic landscape of SME owners, with a significant representation of women and younger individuals, carries profound implications. To enhance financial access and inclusion, tailored FinTech solutions aligning with the preferences and needs of these groups become imperative. User-friendly mobile applications and digital banking services emerge as potential tools in the entrepreneurial landscape to empower women and young entrepreneurs, fostering diversity, innovation, and dynamism.