South Africa as a whole offers a wide range of opportunities across the fintech and wider tech ecosystem yet present current challenges with potential opportunities. Entrepreneurs gain access to card payment services to help grow their businesses is one of them. The FinTech Times sit down with Katlego Maphai, Chief Executive Officer of Yoco, whose payments hardware and software powers over 100,000 small businesses in South Africa.
Katlego is the co-founder and CEO of Yoco. Yoco is an African financial platform that builds tools and services to help small businesses get paid, run their business better, and grow. Yoco offers card payment acceptance, software-driven business tools and working capital. Katlego’s previous work involved venture development at Rocket Internet, helping to set up Jumia in Nigeria in 2012. Katlego’s earlier career was in telecoms, media and technology management consulting at Accenture and Delta Partners. Katlego studied Business Science Information Systems at the University of Cape Town (2005).
Katlego, for our global audience, can you explain what the digital and fintech landscape across the globe currently looks like?
Emerging companies are entering existing financial service product categories using technology and data. They provide an alternative to consumers and businesses alike to participate in the financial system in a new way. In some instances, this is a substitution. In other cases, market creation and financial inclusion.
You are starting to see Fintech companies enter the mainstream and become household brands in the mass market. These outfits are synonymous with creating access to payments, money transfer, alternative credit, asset management, crypto and digital wallets across developed and emerging markets.
Some of the trends observed in the global landscape include:
- COVID-19 is a massive accelerant of digitisation. As consumers, and the businesses that serve them can no longer rely on contact to exchange value. Being part of the digital economy has evolved from being an option to being a need to trade.
- Regulators are responding, looking to open up national financial infrastructure to fintech’s to help them formalise faster and safer. The role played by these organisations in digitisation, and financial inclusion is an incentive.
- Companies with traditionally non-financial services or products with large install bases with financial needs are beginning to embed finance into their solutions either by themselves or through a platform-as-a-service partnerships.
- Small Business has never been more in focus. The crisis exposed their vulnerability, and the market responded fast, building and rolling out tools/services at a fast clip to help business owners evolve into the future of shopping.
- eCommerce and mobile commerce, even rudimentary such as selling through WhatsApp, are becoming part of everyday trade.
- Consumer perception of electronic payments, commerce and banking shifting out of need.
How does this alter in Africa and in South Africa in particular?
Consumers are generally underserved across the African continent when it comes to financial services. Some countries have bank penetration rates below 10%. At the same time, the proliferation of mobile money has helped to close the gap. Despite the encouraging penetration of mobile phones and the availability of mobile financial services, the majority of these services are running on old 2G technology such as USSD and text messaging. These applications are not on smart devices and consuming enriched data. This dynamic holds back innovation and the proliferation of developed digital ecosystems with third parties to help drive access.
South Africa’s case looks a bit different. The country has very high banking penetration for an emerging market, over 80%. And extensive card penetration, over 75% of adult consumers, as a result. These consumers are still underbanked and deal in cash, with only 30% stating they do more than three transactions per month. They are typically accessing essential services like ATM cash withdrawal, and questionable unsecured microcredit only. Banking is expensive in South Africa, with fees on everything being the name of the game. A host of new challenger banks and mobile digital wallets have entered or plan to enter the South African market to tackle the underbanked opportunity with enhanced digital value propositions at a better price. The pandemic is also shifting the behaviour of consumers. With a recent study by Mastercard revealing that 68% of South African consumers are shopping more online since the start of the pandemic.
Despite the penetration of banking and cards in South Africa, still, the majority of consumers transactions take place in cash. Pre-COVID, cash made up close to 60% of GDP in the country. The driver behind this is that the market has failed to close the electronic loop between consumer and business. Incumbents have focused traditionally on large and medium business owners in urban hubs. Small and micro-business owners face exclusion due to their size, location, unpredictability and general economics. It has left a massive blue ocean of untapped small and micro businesses disconnected from the formal economy. Payment Service aggregators like Yoco entered the fray a few years ago to solve this problem. Today’s need ever more critical due to COVID-19 and the rapid movement away from cash driven by consumers.
How have you developed your subject matter expertise Katlego and helped to share it across where Yoco operates in Africa?
“Go deep to get to the essence” is a mantra at Yoco. It is a combination of being in the field, secondary research, prototyping and general observation of trends. During our exploration of opportunities in the rest of the African continent, we found the best way to learn was to get on the ground. So our team spent between 1-2 weeks in sixteen markets to meet with local stakeholders and gain an understanding of the landscape. We believe this was key to get an in-depth knowledge of the markets we wanted to serve.
It’s easy to conflate the problem and the solution when it comes to payments. One of the primary follies organisations, established and new find themselves falling into as they look to tackle payment electronification opportunity. The proverbial solution looking for a problem emerges.
Understanding the core-problem at depth, alongside accepting it for what it is and not what you wish is a crucial way to get started. The Yoco founders had no background in payments. As such, circumstances pushed them to understand the problem from the outside in and on a fundamental level. All this to have the best possible chance of unlocking the right solution needed by the market.
What are future trends and predictions you see happening in the region? And specifically with your company?
The cash to digital payments migration will continue to accelerate through COVID-19 and beyond. Consumers lacked the traditional incentives (credit, loyalty points, rewards etc.) in Africa into use electronic payments at the point-of-purchase. It will catalyse an ecosystem of new products and services. As such, new ventures will emerge, existing ones will adapt, and in general, a new generation of companies will tackle financial inclusion as the incentives come into full alignment as consumers and businesses adopt digitisation.
Across the continent, there is still an opportunity to build out the entire financial services stack. Many markets are currently tackling giving people bank accounts through alternative channels, such as mobile money and digital banks, and many markets are still developing. Other players are building the next level in the stack: transfers, savings and ultimately investment.
In South Africa, where the fabric of the financial services is well developed, we will see new players trying to innovate in particular niches of financial services. Such as more affordable banking, new ways to do insurance, investments etc.
We also see tailwinds in economic democratisation as consumers continue to trends from the covid restrictions by buying local. We also expect to see more local solutions and a new generation of micro and small entrepreneurs emerge who need tools to accept payments, formalise and grow.
Consumers will want to use various electronic payment methods to shop – in person, remote/online, QR, bank to bank transfer etc. Merchants will require unified payments and commerce solutions to help them evolve into the future of shopping.
In all this, data and emerging technologies alongside smart distribution will be the golden threads which unlock growth in these new untapped segments hungry to be served.
Any advice or recommendations you would give to other future fintech companies and entrepreneurs based in the Middle East & Africa (MEA) region? Particularly with respect to fintech and the wider digital sector?
Focus on market creation and pulling excluded segments into the market as such, avoid building for substitution and what is already there. The former is less predictable, often necessitating new methods, innovation and thinking. It tends to unlock compounding opportunities over the long term and broader economic growth. The later is more predictable, not shifting much fundamental in the market dynamics, offering those who have more.