Card acceptance in South Africa has doubled over the last six years. That’s the good news. The bad news is that moving card acceptance from 5% to 10% of all merchants means that 5.5 million merchants still take only cash, despite a significantly high (about 80%) portion of the banked population who also have cards.
According to Carl Wazen, the co-founder and chief business officer of Cape Town-headquartered startup Yoco, that huge unmet need led him and two other friends — who together had “a really strong common interest in helping folks who are underserved, particularly small businesses” — to launch the firm in 2013.
Today, the small business and financial inclusion-focused firm is South Africa’s largest payment platform, processing over $1 billion in card payments annually as a preferred digital payments solution for over 150,000 small and micro merchants across the country.
In July of this year, the payments and software platform secured $83 million in Series C funding, bringing the total funds raised to date to $107 million.
SA’s Unique Business Landscape
In an interview with PYMNTS, Wazen said that the opportunities presented by the unique business landscape in South Africa has partly fueled Yoco’s growth to date.
“What distinguishes South Africa from other markets on the continent is that there’s a very high banking penetration [rate], roughly between 70-80%,” he explained, adding that even people who are unemployed, have a very low income or live in rural areas still have a bank account and a card.
The picture is very different on the merchant side, however. Back when Yoco launched in 2015, a mere 300,000 local merchants were accepting cards, out of an estimated six million small businesses in the country. That 5% acceptance penetration has gone up to about 10% today, an indication that more needs to be done to help businesses shift away from cash to card transactions, not to mention the huge opportunity it presents for Yoco’s business.
One of the factors contributing to this situation is that South Africa is a very concentrated market with only a handful of commercial banks, compared to 30+ and 50+ institutions in Kenya and Tanzania, respectively.
The country’s formal retail market is also “quite big and sophisticated” — and in many ways, those few large banks were already making enough money and profits from serving a high-level segment of businesses that they didn’t see the need to expand to entrepreneurs and SMBs, who have to adopt cards as consumers’ demand for card acceptance increases.
“The distribution challenges for those merchants, and perhaps the unit economics, made it a nice low-hanging fruit for us to come in and tackle,” Wazen said of Yoco’s opportunity to penetrate the market once it got over the two-year waiting period to obtain a license.
Today, the company is very clear on its place in the market, focusing on the neutral card space, where roughly 80% of its 170,000 merchants, who were previously cash-only, are situated.
“We’re not in the business of taking customers from the banks — we’re there to get to the guys who are either waiting to get their card machine from the bank or guys who have perhaps not even considered getting a card machine,” said Wazen.
About two years ago, the firm partnered with U.S. cloud-based software giant Salesforce, with a goal to create a single customer view for the business. Wazen said the U.S. company has been helpful in bringing together all of Yoco’s different interactions, while providing the automation it needs to run its operations more efficiently.
A Million Merchants
Moving forward, the FinTech is looking to expand its services into other aspects of digital payments, with mobile money, QR payments and electronic funds transfer (ETF) offerings in the pipeline.
“We’ve found that more than anything, small businesses are looking for a partner that can bring together almost all aspects of their business to save them the most time and give them the most insights to grow,” noted Wazen.
On cryptocurrency, he said that unlike in South Africa, there’s a high demand for virtual currencies in other countries with volatile currencies and high inflation, like Nigeria. But given that blockchain technology is rapidly expanding in the payments space continent-wide, the company will be “tracking it very closely,” he added.
In terms of using cryptocurrency as a payment method for B2C, Wazen said there aren’t that many use cases, but Yoco will happily support any merchants that need it. It’s still a new concept for small business owners in South Africa, he noted, “but we definitely think that one day, we will dabble there.”
The startup has plans to expand across South Africa, Africa and the Middle East region within the next year. And while it continues to invest in the firm’s three key pillars of business — platform, product capabilities and market presence — plans to hire another 200 people in the next 12 months are also underway.
According to Wazen, the company has set an ambitious goal of reaching a million merchants in the next four years, which is the North Star they will focus on for the time being. “That’s an exciting number, and I think we’ll get there.”